Shrinking streets of Metro Manila

Lately, many streets of Metro Manila have been "shrinking" and I guess, is true elsewhere in the country. In our street alone in Makati, outside the CBD, until 2 years ago, street parking was allowed for only one side. I notice that since late last year and this year, both sides of the road are now filled with cars everyday.

Average speed of cars and vehicles naturally falls as the streets become virtually narrower. So when these vehicles get out of crowded streets, they speed up to compensate for lost time in narrow streets. And it's here where plenty of accidents happen.

The government is very bright in creating various taxes for vehicles and motorists. Every year, its revenues keep rising from (a) vehicle registration tax, (b) road users tax, (c) import tax + VAT + excise tax for petroleum products, (d) drivers' license fee, (e) franchise tax for public vehicles, etc. How come the government does not expand or lengthen some roads, or build more bridges across Pasig river, or build more fly-overs and/or skyways? Where does the money go?

In addition, government transportation officials make plenty of rackets, mainly from (a) smoke emission test fee before a vehicle's registration is renewed, (b) drug test fee and medical test fee for driver's license application and renewal. These 2 type of mandatory fees are not tax, the revenue does not go to the government because the testing centers undertaking the exercise are "private".

One way to solve the ever-expanding street parking, is to allow more multi-level private parking areas. Which means bureaucracies and multiple taxes and mandatory fees for builders of such structures should be reduced and minimized.

When I was in Germany late last year, I noticed there very few instances of cars parked on the streets. In many areas, you don't see any vehicle parked on the street, there are always open spaces, public free parking or private pay-parking, to accommodate motorists.

Labor insurance and bureaucrat insecurity

Labor insurance, along with other social security insurance, is among the "bywords" these days as the global economic turmoil claims more victims everyday. Labor insurance is a laudable concept and public policy because it is meant to give some peace of mind to people who produce the various goods and services that are needed by other people. What is not laudable though, is how certain quarters and institutions propose to attain that social goal.

Recently, the International Labor Organization (ILO) produced a new report, the Global Employment Trends (GET) Report 2009. ILO regional officials held a press briefing in Manila last week and discussed the impact of the ongoing global financial turmoil on workers. Among the policy proposals that the Report and the ILO regional officials made include the "extension of unemployment insurance" and a "wider coverage of unemployment benefits and insurance schemes" by governments.

It is important to remind ourselves, that governments have no money on their own for their various programs and subsidies, except what they take from the people in the form of various taxes and fees, and when they print money.

Here in the Philippines, there are a number of government regulations, government corporations and agencies, that are meant to provide mandatory labor insurance. Among these are the following:

(1) Social security insurance through the Social Security System (SSS) for those working in the private sector, and the Government Service Insurance System (GSIS) for those working in the government.

(2) Health insurance through the Philippine Health Corporation (PhilHealth).

(3) Housing insurance through Pag-IBIG contributions.

(4) Education insurance, credit insurance, peace and order insurance, and many others, through various local and national government agencies --financed by multiple taxes and fees, collected by both local and national government units.

There is no need, therefore, of another government-administered program for unemployment benefits and other insurance schemes. Any additional regulation and mandatory contributions for another labor insurance scheme would mean additional confiscation of a portion of what's left of corporate and personal income and savings.

On the contrary, existing and surviving companies and other business entities need drastic income tax cut. A cut in personal income tax, say from 32% to only 10% flat rate, is equivalent to a 22% "pay hike" on the part of the salaried personnel, even if there is no actual pay hike given by their employers. While people have jobs, their disposable income, their after-tax and take-home pay, should approximate their actual monthly or annual salary -- which means that personal income tax should be as low as possible.

Corporations do not pay taxes. People do. Corporations are just legal entities and such entities are distinct and different from the individual entities of people who work for those corporations – as owners, managers and average employees. Since it's the people themselves who pay for the tax of corporate earnings, high corporate income tax means lower income for the shareholders, lower salaries for the employees and higher prices for the consumers.

Governments around the world collect many consumption-based taxes, like sales tax or value-added tax, travel tax, excise tax, vehicle registration tax, property tax, amusement or entertainment tax, and so on. Thus, a reduction in income tax rate (both personal and corporate) will not mean the end of the world for those governments.

It is therefore unwise for the ILO or other UN bodies, multilateral and foreign aid institutions, national and local government agencies, to propose that governments should create new or expand existing labor insurance and related social security programs.

What people would probably need more, is a free economic environment where the productive, the efficient and ambitious people can engage in more entrepreneurial activities. This will significantly expand the production of more goods and services needed by society and create more jobs to hire the unemployed but trainable people who have the ambition to improve their lives.

In short, the best form of labor insurance is more entrepreneurship and less intervention, less taxation and less mandatory contributions – policies that are proposed by some bureaucrats who may be insecure of the relevance and usefulness of their work to society.

Welfarism 7: Squatters in the Univ. of the Philippines (UP)

Last week, I wrote this:

Squatters in UP

Recently, there were a few undesirable events happening at my alma mater, the University of the Philippines (UP) in Diliman campus. Last year, a male student was killed by some outsiders or non-students/personnel, said to be from the squatters area. Last week, a rumble occured between outsiders who forced their way inside during the UP Fair, and a member of the UP Police force was badly wounded.

These and related incidents are rooted to one issue in the university: the presence of too many non-UP related residents, aka "squatters". They occupy a big portion of the land area of UP Diliman. So many UP Diliman personnel -- faculty members, administrative staff, etc. have to live in sometimes far away cities and villages because the area occupied by the squatters is big. The same problem is experienced in UP at Los Banos (UPLB). Lots of squatters at Mt. Makiling, UPLB side.

UP is supposed to have property rights on its area. UP's property is UP's property, and it's not a property of the city government or the squatters' association or Congress or the Office of the President.

But everytime the UP adminstration will move to clear those areas of squatters, Mr. Mayor, or Mr. Congressman, some city councilors, etc., will call the UP President or campus Chancellor, asking that certain due processes should be observed, sthat the squatters be spared. They are voters and political supporters (or would-be supporters) of incumbent politicians.

So, how to solve the squatters problem? Along with UP's annual fiscal problem -- every year, UP administrators will beg the support of Malacanang, DBM, Congress and Senate -- UP should become a private university someday.

UP has been a fiscal beggar the past 100 years, even the squatters it can't force out because UP has some political favors to return to Congressmen, Senators, the President, and perhaps even the city Mayor and provincial Governor.

UP's (other state U's) privatization should be coupled by major tax cuts. Cut expenditures, cut taxes, cut bureaucracies.

After all, education is parental responsibility, not government responsibility.

1 comments:

Chiwee said...

Interesting. As per my tabulation on these IS inside UPD, they now occupy more than 79 hectares of campus land and still growing. Now that's 80% more space than the land built with legit structures inside (UP-Ayala technohub, student/faculty/staff housing, academic structures and numerous government offices scattered inside.

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The concept of “property rights", especially private property, becomes diluted, if not becomes a farce, when public authorities come in. Those officials are used to assuming and working with public land, public park, public rivers and oceans, public air space, etc. When a resource is owned by everyone and no one in particular, expect some abuse of that resource. That partly happens in UP.

A related issue among squatters, are former and retired faculty members. They have left many years ago, took consulting work outsize, zero official work with UP, and still occupy those houses in UP meant for faculty members.

Wishing a safer UP campus, an academic-oriented and not a social welfare and public housing campus, is not elitist. It's those people who insist that UP should be a public housing compound who are elitist because they don't understand what an academic environment should be, and yet they impose their concept of social welfare, to the rest of the academic community.

What can solve any conflict of land use in UP is a well-defined property rights. Clearly defining, this part is UP property. Over there is not. Then those squatters, including retired faculty who are no longer connected with UP, should get out, they give UP housing to new and current UP faculty members.

The main decision makers in the university are the UP administrators, not the Office of the President or Congress or the Senate or the City Mayor's Office.

Among the most urgent issues for UP now is how to house its faculty, students, non-acad personnel, so that they won’t have to live far away, where transportation cost and/or rental cost are much higher, which cuts deep into their take-home pay and/or monthly allowances as students.

The space, the housing units are already there, in the case of retired faculty members for instance. Why can’t UP use it for its current faculty members? No need to build new units, it will take years and xx million pesos and new round of political begging with Malacanang, Congress and Senate to approve a new housing program for UP. That is why I suggested that UP should assert its property rights over its properties inside the campus. Those land and housing units occupied by the squatters are owned by UP as an institution – not by the UP administrators, not by Malacanang and Congress, not by the QC Mayor, not by the squatters, not by any bleeding heart lefties or burning heart righties.

If UP becomes a private university – after 1 century of being a fiscal beggar, of being a political eunuch de baog that cannot enforce its property rights – many of those housing and crime problems will be solved, or at least significantly reduced. Even the most interventionist politicians would be ashamed to transgress into private property by private universities. Hence, you don’t hear huge squatter problem, if any, in Ateneo or UE or La Salle or AMA or UE, etc.

A friend suggested to “guarantee long term tenure for the squatters.” This is dangerous. Why would we reward theft of other people’s or institutions’ property with long-term tenure? Are we now rewarding robbery and theft?

If the Philippine State wants, they can cut UP Diliman’s land area from say, 4,000 hectares to only 500 hectares, even 100 hectares, fine. Give all the “freed” land to the squatters, both poor and multi-millionaire squatters alike. Then set UP free as a private university. It will be one huge welfare program by the State where it will distribute lands for free or very cheaply to squatters. Some current universities were just computer and training schools about 2 or 3 decades ago, now they are huge universities putting up campuses left and right. UP with a 10 decades history and has produced some of the brightest minds of this country, should be able to survive and thrive as an autonomous institution.

I will concur that primary education can be State responsibility. Perhaps until high school on some cases. But tertiary education should be private. What I know is that all responsible parents in this country work hard just to bring their kids to a private school somewhere, from pre-nursery to kinder to high school. Not that public elementary education now is complete junk, a few are still good. But the level of inefficiency and waste in public school system is simply high. I talked to a teacher once, who teaches at a private elementary school, and was moving the earth and the moon so she can transfer to a public school. Why? Parents in private schools are very demanding, teachers need to work hard to ensure that their students would learn something useful, and yet the pay is lower. Whereas in public schools, teachers don’t care sometimes if their students won’t learn a thing (average ratio is usually 60 students/teacher) and yet the pay, bonuses and pension are high.

Some parents are just simple and cool. They work hard, they also party hard. They work 6 days a week and also drink 6 nights a week. Well, ok, they don’t drink 6 nights a week, they only gamble 6 nights a week. After all, their children’s education is social and government responsibility, why worry?

* See also:  Welfarism 6: Obama and US Entitlement, November 11, 2008

GSK's drugs price cut plan

There is an interesting news story today, "Glaxo to cut prices in poor countries", posted in The Guardian (UK), Wall Street Journal, and possibly other papers. See for instance,
http://online.wsj.com/article/SB123454760558884345.html?mod=rss_whats_ne.

According to the report, the following have been announced by GSK CEO, Andrew Witty:

* cut prices in the world's poorest countries and invest 20% of its profit from those markets into building health clinics and other infrastructure.

* cut prices on its patented medicines in the poorest 50 countries in the world so that they are no higher than 25% of the price in developed countries.

* Witty also proposed that drug companies, nonprofit groups and others donate their patents related to neglected tropical diseases to a common pool, with the hope that such a pool would speed development of new drugs.

These corporate moves by GSK are laudable enough, but I think this is mainly driven by competition. For instance, the Pfizer-Wyeth merger can result in corporate and research synergy, they will be able to produce more new innovator drugs at a lower price, so if I were #2 or #3, etc. in global sales, I'd find other ways to withstand the competition since acquiring another big pharma company will be a difficult financial option at this time.

Meanwhile, finding the figures on net increase in revenues, etc. because of price differentiation or segmentation across countries and across product lines, can be very difficult. It may be possible to find price differential say, for the same patented drug between a European country and India or Brazil, etc. for a particular period of time, but finding the exact sales volume in each country or market being compared in a given year or months can be very tricky.

Price segmentation for similar or different product lines is a perfectly rational behavior by any firm in order to maximize revenue and profit.

Use value and sunk costs

Material wealth -- houses, buildings, roads and skyways, bridges, dams, etc. -- don't lose their use-value even during recession and depression. Only their exchange value or monetary value that suffers decline in prices. In the absence of full factor mobility across countries, or full commodity mobility (ie, free trade), valuation of material wealth across countries suffers from heavy distortion, of bubble or depressed prices. So with the absence of sufficient factor and commodity mobility, bubble burst and financial turmoil are 100 percent sure to occur, in order to correct the price and value distortion of said material wealth. It's just a matter of when and where the bubble burst and financial turmoil will happen. The old and painful reality: capitalism without failure is like religion without sin.

Economic crisis under capitalism or market economy is expected, the same way that economic expansion after a crisis is also expected, because people learn their lessons and resume the old way of doing business -- pure hard work, search for endless innovation and competition.

The foreclosed houses and other material assets cannot be considered as "sunk costs". After the price bubble in those foreclosed properties have been corrected, those assets can still be sold or re-acquired by the original owners, at a much lower value, and the use-value of those assets will be realized once more. Foreclosed assets can be considered as "sunk costs" only if they will not be used anymore even after the downward price adjustment and instead, be demolished and/or the land area where they were built will be used to other land-uses, say to be converted into a golf course or industrial plantation or sprawling commercial area.

Wikipedia defines "sunk costs" as:

"In economics and business decision-making, sunk costs are costs that cannot be recovered once they have been incurred. Sunk costs are sometimes contrasted with variable costs, which are the costs that will change due to the proposed course of action, and prospective costs which are costs that will be incurred if an action is taken....

For example, when one pre-orders a non-refundable and non-transferable movie ticket, the price of the ticket becomes a sunk cost. Even if the ticket-buyer decides that he would rather not go to the movie, there is no way to get back the money he originally paid."

Hence, foreclosed cars, houses and other properties cannot be considered as "sunk costs" because these assets still have recoverable value, both to the original and new owners. Because those assets are still re-sellable and transferable, even at a much lower price than their original price during a bubble economy.

Rationalization, in Business Mirror

My letter was picked up by a reporter-friend from Business Mirror.
The news item appeared in today's issue of the newspaper.

http://businessmirror.com.ph/index.php?option=com_content&view=article&id=6131:think-tank-government-job-cuts-will-help-more-people&catid=23:topnews&Itemid=58

Think tank: Government job cuts will help more people

Written by Cai U. Ordinario / Reporter
Sunday, 15 February 2009 22:07

DESPITE the current economic crisis, a local think tank has urged the government to implement its rationalization plan, or Executive Order 366, which directs a strategic review of the operations and organizations of the Executive branch.

In a letter to National Economic and Development Authority (Neda) Director General Ralph Recto, Minimal Government Thinkers Inc. president Bienvenido Oplas Jr. said that in light of the crisis, implementing EO 366, approved in October 2004, can give the government savings. Such savings, in turn, can give the state fiscal space for tax cuts to allow Filipinos to stimulate the economy through consumption.

Oplas said that when the economy is in bad shape, the people's tendency is to reduce spending to save more. However, this also reduces the sales of businesses selling various goods and services, causing more job cuts and higher unemployment....

Rationalization and stimulation

Rationalization is the process of correcting the irrational. The irrational can easily be spotted because they normally contradict or attempt to contradict, certain laws of nature. Like disobeying the law of gravity and trying to stay on high places when the structures or tools that support them up there are not stable and easily collapsible. In economics and politics, irrational policies or personnel remain where they are because of the various coercion and coercive mechanisms employed to continue propping them up.

Stimulation is the process of using various stimuli to an object, to living things like animals, plants and people, to make them perked up, alive and active. And in the current global economic condition, the stimuli being used by many governments to perk up their respective economies, are the various taxes and fees, to finance ever larger “fiscal stimulus”.

One of the irrational things happening in many governments around the world, is the explosion of their bureaucracies. Here, governments collect so many taxes and fees from the people, and governments hire so many personnel to supposedly serve the people. In many rich countries like France for instance, about one out of four or five employed people is working for the government. Whether the public, the net taxpayers in the private sector in particular, feel that the government personnel are really helpful in their lives or not, is not certain. What is certain is that the public will pay for the salaries, bonuses, training, travels and pension of those government personnel, whether they are useful or burdensome.

So, if the big number of government personnel is burdensome and irrational, why are they not reduced to a certain level that is deemed to be less burdensome? Because the money used to create those government offices and pay for those personnel, come not from sources via voluntary exchange, but from forcibly and coercively collected revenues – taxes and various regulatory fees.

Here in the Philippines, the issue of “bloated bureaucracies” has been with us for many decades now. Each incoming administration, both at the national and local government levels, being its own army of new personnel, usually from among its pool of ardent and loyal political supporters in the last elections. And once inside the government, many “temporary” and “contractual” employees manage to make their position “permanent”, so that when a new administration comes in, they are already protected by civil service laws and tenure. The result is an ever-growing number of government personnel, both at the national and local levels.

Moves to “rationalize” government bureaucracy has also been with us for many decades now, but their chance of success was often low. One such attempt, the most recent one, was Executive Order (EO) 366, signed in October 2004. Recently, the Rationalization Plan has identified about 10,000 “redundant and outdated” positions in various national government agencies, and the Plan has suggested the abolition of these positions.

The affected personnel naturally objected. Among those who are complaining for instance, are “telex operators” in the age of nobody using telex machines. Or porters in the age of forklift and mechanized cargo materials.
But there is a “global economic crisis”, there are lay-offs by tens of thousands in many companies, both here and abroad. Some governments even invented multi-billion dollars “fiscal stimulus”, partly to hire those laid off and the previously unemployed. Such fiscal stimulus will later on result in ever-bigger government bureaucracies.

Thus, there are suggestions and moves from the Executive branch, from some labor groups and other quarters of society, to “postpone” the Rationalization Plan because it will send a “wrong signal”, that while government is embarking in some fiscal stimulus of its own and hiring more people, it is at the same time laying off people.
This writer is with the opinion that government should proceed with the plan, abolish certain positions hat have been identified as redundant and outdated, government can keep the savings and “give it back” to the people in the form of tax cut, to allow the people in the private sector to employ themselves or expand modest expansion through micro- and small-scale entrepreneurship, because this will help perk up the economy and expand job creation.

A reduction in some government bureaucracies coupled with some tax cuts, is a practical move to help the economy get out of the current situation.

Rationalization plan, letter to Sec. Recto

February 3, 2009

Sec. Ralph G. Recto
Director-General
National Economic Development Authority
Pasig City, Philippines

Dear Sec. Recto,

Late last month, NEDA issued a Press Release, “In light of the global economic crisis, Recto urges government to reconsider rationalization plan.” May we urge you to proceed with the rationalization plan for the following reasons.

One, proceed with the plan, abolish certain positions in government that have been identified as redundant and outdated, keep the savings, “give back” to the people in the form of tax cut, allow the people in the private sector to employ themselves or expand modest expansion through micro- and small-scale entrepreneurship, because this will help perk up the economy.

Two, related to the above, when the economy is bad, people cut their spending, they save more, but this also reduces the sales of other people and enterprises selling various goods and services, and this causes more job cuts and higher unemployment. Government can help the people by cutting taxes as taxes make prices of various commodities and prices higher, and taxes reduce the retained earnings of companies and take-home pay of salaried employees. Any reduction in tax revenues can be compensated by reduction in government expenditures.

Three, the plan contained in Executive Order (EO) 366, has been approved and signed 4 ½ years ago, in October 2004. The other implementing agencies and Departments have taken several years to do their work as mandated. It will be unfair to tell them that their work will be set aside. Besides, there seems to be nothing in that Order that said that when macroeconomic conditions would deteriorate, the plan to rationalize and abolish redundant and duplicating positions will be shelved.

Fourth, among the main problems of the Philippine economy is the lack of production of useful commodities and services, resulting in high prices of those commodities and services. Keeping government positions and personnel that are deemed irrelevant, if not obstructive, in the production of essential commodities, plus the fact that these positions have been identified by other government agencies as redundant and outdated, is insulting for us taxpayers, especially those in the private sector.

Finally, since there are more than 3 million government personnel, from local to national government agencies, removing less than 10,000 jobs will not affect government regular operations. On the other hand, government will gain some taxpayers’ sympathy because it is sharing with them its own sacrifice. At this time of economic downturn, taxpayers drastically need some relief from too many taxes and fees being imposed by both local and national government agencies. The World Bank – Price Waterhouse Coopers’ “Paying Taxes” 2009 Report show for instance that there are a lot more taxes in capitalist Philippines than socialist China and Vietnam.

Since NEDA itself is another agency that lives off on taxpayers’ money, may we urge you to proceed with implementing the recommendations of the rationalization plan, and abolish those positions and personnel that are rendered to be irrelevant.

Thank you very much.

Sincerely yours,


Bienvenido Oplas, Jr.
President