Huge drug firms laying off research staff

There was this news report last Thursday from Nature magazine.

http://www.nature.com/naturejobs/2009/091119/full/nj7271-375e.html

Published in Nature 462, 375 (18 November 2009) | 10.1038/nj7271-375e

Huge cuts by drug firms

R&D closure is the latest in a series of hits to drug companies.
Pfizer is closing 35% of its global research and development space, according to a 9 November announcement. The New York-based drug company, which employs 14,500 people in research and development worldwide, has said that R&D personnel cuts associated with the closures will make up a significant percentage of the 15% company-wide job cuts planned. Pfizer, which last month acquired US drugmaker Wyeth, has disclosed no further information and did not return phone calls by press time. In early November, US drugmaker Johnson & Johnson announced plans to lay off about 8,000, but did not reveal how the cuts would affect its R&D personnel.
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I asked guys in our local health coalition here in Manila, including those who favor bigger government intervention in healthcare, "Is this a good or bad development?"

No comment so far from any of them. For some people who dislike global capitalism in general, and big multinational pharmaceutical companies in particular, this should be seen as a positive development. New tools or policy schemes like compulsory licensing (CL) and drug price control are meant mainly to hurt the big multinational pharmas, not the local pharma. For instance, in the current drug price control policy, not a single product by United Laboratories (Unilab) was included, although Unilab is the biggest pharma company in the country, with sales equivalent perhaps to the combined sales of 2nd-3rd and 4th biggest pharma firms (GSK, Pfizer, Wyeth).

So if the big pharma multinationals are hurting, like even their patented drugs in the country are covered by price control, and the laying off of more than 1/3 of their R&D staff, in the case of Pfizer, then those who oppose big multi pharma should rejoice. Their goal is to publicly hurt, if not obliterate from the global economy -- using various government restrictions and regulations -- the big pharmas that they accuse of making huge profit at the expense of poor patients.

But those people do not realize, or at least they do not recognize, that those big pharma are the ones that invest huge money in high risk medicine innovation. The often glorified local, generic pharma companies do not risk their money and resources on medicine innovation, despite the fact that people around the world are demanding more innovative, more revolutionary medicines and vaccines.


Meanwhile, the US Healthcare Bill is 2,074 Pages Long...

I was surprised to read this update from Grover Norquist's facebook status, regarding the US healthcare bill. He noted,

"A word search of Sen. Harry Reid’s 2,074-page Senate healthcare bill (H.R. 3590) reveals that the term “tax” is used 183 times, “taxable” is used 164 times."

2,074 pages for a single bill? I doubt if even 10 percent of all US legislators will have the patience to read all pages of that bill.

Well, I'm not American, and I don't know most of the nuances of that bill. It's just the 2,000+ pages length of that bill that confounds me.

Space, speed and the States

I wrote this while I was still in Indiana, early morning of November 17, 2009:

TERRE HAUTE, INDIANA – Space gives freedom. Speed allows one to do more per unit of time, or do something in a short period and have more free time later. One needs speed to cover a wide space or area in a short period of time. Space and speed, they have it in the United States and other developed countries.

Packing my bags for my trip back to Manila a few hours from now, and writing this article to reflect on the recent trips I made in the US. Filipino friends in the US who hosted me after my conference in Washington DC early last week drove me to a number of places here: north Virginia-DC, Indiana, and Missouri. I also came to the US early this year, in NJ-NY last March, and California last April, all to attend sponsored conferences. Those road trips plus the view from the plane across the US mainland, here are some of my observations.

One, expansive space of America, connected by thousands of kilometers of road network, farm lands so wide although cities and suburbs are expanding and taking away some of those farmlands. Except for a few big cities, spaces are just too wide: interstate roads, city roads, housing lots, school and university lots, malls and groceries with wide parking lots, etc. People from the Philippines, Hong Kong, Singapore, Korea, Japan and other Asian countries who are used to living and working in high- and medium-rise buildings will envy America’s huge residential, commercial and open spaces.

Two, very few buses that travel across America. The buses and trains – mostly owned and operated by the city governments – are concentrated in big cities. People own one or more cars to ensure their mobility anytime anywhere. If one goal of the American government is to reduce oil consumption (and carbon emission) and oil dependence from other countries, one solution is to encourage car pooling and public transportation. But this is not happening.

Three, too many cars and trucks traveling at high speed so they can cover long distances in a short period of time. And most cars have only one passenger, the driver. The presence of a big number of big cars and pick-ups that consume low mileage per gallon on the roads is also one indicator of how rich, or how profligate, the American economy is.

So, efforts by environmentalist groups or the carbon-reduction lobby groups to call for 50 percent, even up to 80 percent, reduction in carbon emission by the US economy by 2050 looks almost impossible. There is a big contradiction in the current policies of (a) train monopoly (Amtrak), interstate buses duopoly (Greyhound and another bus company), and city buses monopoly (by city governments), and encouraging car pooling and reduced usage of cars for long-distance travels. While there is a vibrant competition among domestic airlines that attract plenty of air passengers, most travels within states and inter-states are still done by private cars and trucks.

The American governments, recent ones and the current administration, in my assessment, are undertaking very unsustainable fiscal policies. With expenditures always outpacing revenues every year for two or three decades or more, non-stop, and the budget deficit of the federal government alone is on the trillion dollars per year since last year, there is only one inescapable implication: more taxes today and tomorrow, to pay those mountains of public debts that have been contracted by the US government. Note that most governments at the state, county, and city levels also have their own set of huge public debts too.

Then there is the expensive health care reform underway where the total fiscal cost range from US$850 billion to US$3 trillion over the next 10 years, based on both government and independent estimates. Not yet enacted too, but already passed in the lower House, is the energy and environment bill, a.k.a “carbon cap and trade” or “carbon tax and trade” bill that is projected to cost around US$300 billion per year, and this is on top of existing environmental taxes and regulations.

I reckon that with such huge fiscal obligations, from normal federal government deficit spending to upcoming health care reforms and carbon cap and trade bills, taxes and fees can only rise even higher. Woe unto the average American taxpayers!

But America has a wide land area, a resource that can attract and accommodate more investors and capitalists, more hard-working and entrepreneurial people. And these are the future generations of people who will pay off those huge public debts that have piled up for several decades and generations.

Since we live in a highly globalized and economically-interconnected world, there is no sense in “celebrating” the slow or stunted growth of some big economies because of the profligacies of their past political administrations. A big and dynamic economy somewhere is always good news for all other smaller economies elsewhere. The people of those big and dynamic economies are their (a) export markets, (b) employers of their underpaid workers, skilled or unskilled, at home, and (c) source of in-bound tourists and foreign investors. So a rich and dynamic America, a rich and dynamic China, Japan and India, a rich and dynamic Europe, are always good news for the poorer economies of Asia and other continents. The theory of “imperialism” by the rich countries that exploit poorer countries does not hold water anymore.

Economic growth and capitalist development can always create new spaces, new areas, for human development. Ever higher residential and office skyscrapers for instance, free up space for public parks and sports stadium. Development in land reclamation technology makes use of otherwise pesky soil erosion problem to further expand urban land area by thousands or millions of hectares.

Where there is capitalist dynamism and individual liberty, there is always room for individual, family and corporate freedom – in space, in speed and inter-state, inter-country economic connection.

Oil Politics 6: Price Control, Political Opportunism and the Oil Speculators

An article by Romy Bernardo on "Oil Price Controls" was uploaded at the "UP School of Economics Alumni Association" section of the UPSE website,
http://www.econ.upd.edu.ph/alumni/?p=488

If only the UPSE can take back the PhD degree it gave to President Gloria, the shameless economist. Nowhere in Econ 11 or Econ 102 and higher econ subjects was it ever justified that price control as an economic policy is good. It's bad and stupid, period. The short-term gains are very small compared to the long-term losses of low and uncertain investor confidence in the country. Investors would think twice or thrice, at putting up more gasoline stations in the country knowing that the government can declare oil price control anytime for whatever reason/s and for unspecified period of time, forcing the players to sell at a loss.

The President’s populist decision is of course echoed and supported by her other officials. In particular, the Secretaries of the Department of Energy, Department of Justice, Press Secretary and the Executive Secretary.

The State should be spending its time running after criminals, killers, rapists, kidnappers, carnappers, corrupt officials, etc. There are too many of them on the loose yet. Running after private enterprises which are in the business of selling various goods and services -- from medicines to hamburger to gasoline to hair cut, etc. -- is none of its business. Unless they are selling counterfeit or substandard medicines, hamburger with poison, gasoline with water, haircut with head injury, etc. If people think gasoline is expensive, then they should car pool and ride bicycles or walk. If the government thinks this is unfair, then government should also put a price control on fuel products (from Saudi, China, etc.) or refined products from Singapore, etc. Since it cannot do this, then it should to abolish taxes on petroleum.

But government is often a bunch of hypocrisy. Price control on the final products but no control on taxes, regulations and bureaucracies, not to mention corruption and robbery.

There is price for stupidity. Especially when the stupid one is the government. But at the end of the day, it is us consumers and taxpayers who get screwed. We are the ones who will suffer from oil rationing and shorter operating hours of gas stations. Government does not suffer, it always gets the first priority in any oil rationing.
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But government stupidity should not go unpunished. The President’s opportunism should be punished. It is up to us how we should punish the administration, not only in the coming elections, but more so in writing the future history literatures of Philippine economic policies.

Of course there are plenty of jeepney drivers and operators, Mr. Jose Concepcion of Consumer and Oil Price Watch (COPW) and the hordes of other fuel consumers who favor oil price controls, even calling for government oil subsidy – from other taxpayers who economize on oil consumption. That's one danger of democracy. The demagogues and the mobs use coercion, State coercion, to enforce their will upon the less-noisy minority. If the majority think that oil prices are expensive, then they should economize on their trips, or they should ride bicycles and walk. But they should not coerce you and me to pay extra taxes so their oil consumption will be subsidized, if not provided free.

Socialists and populists like everything to be provided cheap, if not free. At the expense of everyone else, of course, especially the rich and middle class. For socialists and populists, to become rich and well off is a crime. Hence, they should be punished with high and multiple taxes.

Such thinking that persists up to this day, encouraged by coercion inherent in supposedly a democracy, is among the main reasons why economies stunt or do not grow to their potentials. And why policies driven by envy persist.

Meanwhile, I posted this last July 11, 2008.

Are Oil Speculators to Blame?

As world oil prices remain high, many people and analysts are blaming the "oil speculators" for the current "artificially high" oil prices.

I don't go along with these analysts. It's true that many oil speculators made lots of money here, along with rice speculators, gold speculators, real estate speculators, currency speculators, and several dozen other types of speculators, on the products or services that they are dealing with.

Speculation is like gambling, like stock trading, like observing and guessing whether your current girlfriend or boyfriend will be a good spouse someday or not. Hence, speculation is a perfectly rationale human behavior.

When some people think that there will be a war between Israel and Iran exactly 30 days from now, then they will sell their houses, their cars, their other properties and stocks, and buy as much oil futures they can at $140 or $145 a barrel, and hope to sell at $160 or $180 in 40 to 50 days.

But more people will speculate that such war possibility will happen in 9 years, 11 months and 29 days from now, there's no need to panic now, and will spend their money buying the houses, cars, stocks and other properties of those guys in the above group, at a bargain of course.

So who's the "better" speculator, the former or the later?
Any bet one picks, does not matter. And it's not only traders who speculate. Consumers also speculate. A person who thinks that oil will reach $200 within 10-12 months from now will sell all his current big cars at a bargain, and buy those small, fuel-efficient, or "green" cars even if they are expensive now. While a person who thinks the $200 oil will happen 3 or 4 years from now, will buy the big cars sold by that person at a bargain.

Speculation will happen, it is a perfectly rationale human behavior, so long as there is instability and unpredictability. And unpredictability will be with us for as long as we live, for as long as the sun will shine tomorrow and 4 or 5 billion years from now. Because change will always be with us. If we don't initiate change, our neighbors or other people will. And we will be forced to adjust or adapt to the changes initiated by other people.

So, are oil speculators to blame? NO.
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See also:
Oil Politics 1: Bush vs. Chavez? March 12, 2007

Oil Politics 2: Oil prices and climate change, October 30, 2007

Oil Politics 3: $100/barrel Oil Price and Petroleum Taxes, November 13, 2007

Oil Politics 4: Is Expensive Oil Good for the World Economy?, March 18, 2008

Oil Politics 5: $150 a barrel and Government Public Transpo Monopoly, May 22, 2008

Economic freedom means taller people

WASHINGTON DC – Economic freedom means the ability of the people to pursue social and entrepreneurial activities that respond to the various needs of their own and that of other people. Thus, when the demand for food and clothing increases, then the supply of food and clothing also increases as producers anticipate upward changes in demand for such important commodities.

Compare that situation in an un-free economy. The demand for food and clothing increases and the supply of more guns and ammunitions increase as people are coerced to produce more guns and battle tanks instead of more food, more tractors, and more clothing. The public can cry and complain, but there are more soldiers and government officials per million people to harass and intimidate them; there are more walls and fences to cage them.

The 20th anniversary of the fall of the Berlin Wall was the main theme of the 2009 Templeton Freedom Awards Conference sponsored by the Atlas Economic Research Foundation. It was held this week, November 9-10, at the Renaissance Mayflower Hotel in this city. There were plenty of good speakers from several free market-oriented think tanks and private institutes from many countries in the 1 1/2 day conference.

Among such speakers are those from the former Eastern European countries like Martin Chren of the F.A. Hayek Foundation in Slovakia. People in these countries have first-hand experience what it is to live under communism and economic central planning. Martin and his institute conduct various educational programs for thousands of young Slovaks every year to teach the value of economic freedom and individual liberty. Martin also discussed the economic miracles that happened to his country after they adopted the low, simple and flat income tax rate of 19 percent in 2004, plus other economic liberalization measures.

Another great speaker was Ms. Natasha Srdoc of the Adriatic Institute in Croatia. Natasha discussed how she and her team members in their institute engage not only Croatian but also other EU government officials in various public policy discussions. They also conduct various public education programs and engage local media for their several free market advocacies.

From Asia, one good speaker was the President and CEO of the Center for Free Enterprise (CFE) in Seoul, South Korea, Dr. Chung-ho Kim. Chung-ho is a friend since several years ago. Unlike the East Europeans who have succeeded in tearing down the Berlin Wall, the South Koreans still live with a hostile neighbor just several kilometers north of Seoul. And the North Koreans are caged not by a wall, but by a fence.

In his presentation, Chung-ho showed one satellite picture of the Korean Peninsula at night time. While there were lots of lights in the south, indicating lots of lighted houses, shops, buildings and streets, there were very little areas in the north that were lighted, the north is mostly dark in the evening. Chung-ho also asked, “How short is the North?” and showed several pictures -- of a captured North Korean soldier beside his South Korean counterpart, of leader of the north Kim Jong Il and the founder of Samsung. In both pictures, the soldier and leader from the north were shorter than their counterparts from the south. Chung-ho then said that on average, North Koreans are 6 inches (around 15 cms.) shorter than South Koreans, although they have the same genes, have the same climate and same landmass.

What is the explanation for this? Those from the north are malnourished, they do not eat enough. Former North Korean President Kim Il Sung and his son, current President Kim Jong Il, have succeeded in producing more soldiers and warriors than farmers and food producers from the millions of young North Korean children. North Korean communism has discouraged or killed agribusiness and farming for profit while South Korean capitalism has encouraged farming for profit.

So while former US President Ronald Reagan stood at the Brandenburg gate in the late 80s and called on Russian President Gorbachev and the East German President to “tear down this wall”, Chung-ho’s call to Mr. Kim Jong Il of North Korea was to “tear down this fence!” Later in the evening during the “Freedom Dinner,” Chung-ho toasted the 300+ guests to a wish of “Let our North Korean brothers and sisters experience freedom soon.”

I spoke on Day 2 of the conference. My presentation was entitled “Advancing liberty: shrug the walls harder” and it should be available in our website soon. The other Asian speaker in the conference was another friend, Ms. Arpita Nepal of the Prosperity Foundation, Nepal. Arpita explained that Nepal is currently headed by the Maoists and those in the “opposition” are mainly the social democrats and the Marxist-Leninist socialists. What a way to develop the economy of Nepal.

Going to the US East Coast is always a tiring activity for someone coming from south-east Asia like the Philippines. From the time I entered Manila airport (NAIA) to the time I got out of the Reagan DC airport, was exactly 24 hours. So I arrived at the hotel tired and sleepy. Only to be rejuvenated the following day with a cast of inspiring and articulate speakers, leaders of free market institutes that dream and work for a world of free and responsible individuals, people who aspire to help tear down the various walls – or fences – of modern restrictions by big governments like huge and multiple confiscatory taxes, trade protectionism and dictatorship.

The way has been shown to us 20 years ago by those living in Eastern Europe. They have tasted and experienced the value of economic freedom, after living under political and economic central planning for more than four decades since the end of World War II.

Let us not be swayed by renewed calls to try economic and ecological central planning, in the Philippines and elsewhere. Let us tear down or hurdle our personal and political walls and fences, one at a time.

Rising walls of forced collectivism

Walls can protect, but they can also restrict. When people voluntarily put up a wall to protect themselves from unfriendly forces – like the Great Wall of China -- then it is to preserve their freedom. But when people are caged by a wall to prevent them from freely moving to another place, then that is coercion and dictatorship. Think of the Berlin Wall then.

Three days from now, the collapse of the Berlin Wall will be commemorated in an international conference to be sponsored by the Atlas Economic Research Foundation, the “2009 Freedom Dinner and Conference” on November 9-10, 2009, to be held at the Mayflower Hotel, Washington DC. The conference’s theme is on “Tearing down the wall” with the Berlin Wall’s collapse as starting point.

Many governments around the world have erected various walls and restrictions that limit individual freedom. Unlike the Berlin Wall, such new walls are mostly non-physical, less -tangible. They are the multitudes of regulations and prohibitions that declare for instance, that entrepreneurship and job creation is a crime, unless the would-be entrepreneurs will secure first dozens of signatures, permits, accreditations and authorizations, and pay various taxes, fees and fines, from various government agencies, both local and national.

I will be one of the foreign speakers on the 2nd day of the conference. As I was preparing my powerpoint presentation, I was pondering the various walls that the Philippine governments – Executive branch, Legislative branch, autonomous units like the central bank, and local governments – have erected and expanded so far. There are just too many. For instance, just to put up a medium-size company, entrepreneurs have to secure 15 different procedures and wait for 2 months (at least) and spend a handsome amount of money in various regulatory fees and taxes, excluding getting the services of other companies or individuals who will facilitate those procedures. That is, they wait only 2 months, instead of 3 months or longer for people will little or no experience in opening a business.

And once the company or enterprise is set up, entrepreneurs will have to grapple with 47 different taxes and fees every single year, spend about 4 weeks total just to comply with those different payment, and surrender up to almost 50 percent of a corporation’s profit in different taxes and mandatory contributions. Those regulations are definitely confiscatory and are driven by envy, nothing else. Those business regulations and tax laws are effectively saying, “It is wrong, it is bad, to be earning big when so many people are poor and jobless. So the State will confiscate as much as possible from those earnings to be distributed to the poor.”

And furthermore, even if one has complied with each and every regulation in starting a business and in operating a business, there are policy reversals which again, are driven by envy. These regulations include price control and mandatory subsidies by private enterprises of the public.

There are two recent and graphic examples for this: the pharmaceutical and petroleum industries. July this year, many foreign pharmaceutical companies were ordered by the President, through the Department of Health (DOH), to slash the prices of their most saleable products by 50 percent. There are a number of heavy penalties if they will disobey the State. Some or many of those companies were therefore, coerced by the State to sell at a loss.

Recently, price control was imposed on the petroleum industry. All oil companies, from the “Big 3” to the “medium/small many”, were ordered by the President, through the Department of Energy (DOE) and the Department of Justice (DOJ), to sell at their prevailing price as of October 15 in Luzon. While world oil prices were creeping upwards, local prices are stuck. Oil companies that do not want to sell at a loss will be declared “economic criminals” and be imposed heavy penalties by the DOE and DOJ.

And even worse, there are now moves to re-regulate the industry. Meaning the politicians and energy bureaucrats will set the price of oil products. Pricing of oil products will be a function of pleasing the politicians and bowing to the demands of the militant transport groups and activist media. It will no longer be a function of world oil prices – not of the Peso-Dollar exchange rate; not of the level of competition among many oil companies; not the costs of energy, labor, and taxes – but by politics. I wrote a position on this entitled, “Consumers’ welfare through deregulation, not politicized pricing” (A position paper on new moves to re-regulate the oil industry).

As of today, there is no timetable of when the government will lift the price control order for both industries. Almost all of the business groups in the country – joint foreign chamber of commerce, Philippine chamber of commerce, and other local business associations, have spoken and issued that price control is wrong. The short-term gain is very small compared to the long-term loss of business confidence in the country.

There are many other walls applied in the business and personal lives of the people living in the Philippines and living abroad. Those walls and prohibitions would have been more tolerable and acceptable to the public if those administering the walls and prohibitions are themselves subjected to their own prohibitions. But in many developing countries, there is lack of promulgation of the rule of law. There are always two sets of rules – one for the public, one for the State administrators and politicians, and their friends and family members. A simple traffic law of “No left turn”, for instance, always has double meaning. It’s No-no for ordinary motorists, but allowed for government and police vehicles or private vehicles whose drivers can name-drop some high-ranking government officials.

The “good of the collective” has always been a convenient excuse to rein in individual freedom. The supremacy of the forced collective over individuals or voluntary collectives has always been the dominant justification for erecting new walls, and expanding or raising existing walls. And because they are mere alibi, the reality sets in: society is falling into dictatorship, little by little, sector by sector.

Let us rise to tear down our respective walls. One at a time.

Abolish Income Tax 4: Ayn Rand and income tax

A friend reacted to my posting, "Service charges and capitalism", via a quote from Ayn Rand, below:

When you see that trading is done, not by consent, but by compulsion — when you see that in order to produce, you need to obtain permission from men who produce nothing - when you see money flowing to those who deal, not in goods, but in favors - when you see that men get richer by graft and pull than by work, and your laws don't protect you against them, but protect them against you - when you see corruption being rewarded and honesty becoming a self-sacrifice - you may know that your society is doomed.

—Ayn Rand, Atlas Shrugged (1957)

I thanked him for such appropriate quote. Ayn Rand was very emphatic of the virtue of free market capitalism. In a free society, individuals are free to do ALL things they want, except for a few explicitly-stated prohibitions (eg, no killing, no stealing, no physical injuries, no rape, etc.). In an unfree society, it's the reverse: unless there are no laws about them, things and actions are PROHIBITED.

For instance, entrepreneurship and job creation is now prohibited -- unless one gets lots of permits and accreditations, and pay dozens of taxes and fees every year, from people who produce nothing but paper work and legal prohibitions.

There is also a noticeable presence of a big number of central planners in modern society -- at local governments, national governments, and foreign aid/multilateral bodies. People who justify existing high and multiple taxes, propose new taxes, to support new bureaucracies and programs that will redistribute wealth and entitlements.

Another friend made this comment:

I think the essence of taxation is that citizens bear the burden of government and its bureaucracies. The question is the proportion that the taxpayers bear from what they earn from the societies they live in and how this tax is determined. In my view, while we cannot get away from income tax, this should be as little as possible because income arises from personal or corporate productivity in general.

Consumption taxation - the other end of the spectrum - taxes the taxpayers' propensity to spend what he or she created from productivity, not productivity instead. I, therefore, think that it is in within governments legal right to tax income or consumption. I just think that government should reward the productive by taxing their consumption and letting them keep most of their income.

I thanked him for his consistency in advocating a zero or very small income tax. Free market capitalism and dynamic entrepreneurshihp cannot thrive in a fiscal environment characterized by envy. So-called "progressive taxation" of higher tax rate for higher income is driven by envy, pure and simple. The lazy and less hard-working won't be taxed while the industrious, efficient, ambitious and hard-working will be taxed to the top margin stated in tax laws.

A zero income tax policy will encourage hard work and entrepreneurship. Retaining various consumption taxes (VAT, excise tax, real property tax, travel tax, motor vehicle tax, amusement tax, etc.) will ensure that the tax-hungry government and its various bureaucracies will be assured of continued supply of sure money. So it is still a positive-sum policy: you encourage private sector entrepreneurship, while retaining the bureaucracies and pork barrel of people running the government.
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See also Abolish Income Tax 3: Taxes and Congress, October 08, 2009

Swine flu, leptospirosis and new medicines

New and evolving diseases require new and evolving drugs and other medical treatment to prevent such diseases from spreading. The emergence of new environmental problems like prolonged flooding of low-lying areas exacerbates some diseases that were just minor problems in the past, but have become major diseases recently.

In the US, swine flu has killed more than 1,000 people this year, and up to 5.7 million may have been infected in its first few months of outbreak, according to the US Center for Disease Control (CDC). And the current strain may not be the same that was discovered in late April this. US President Obama has already declared swine flu a national emergency, noting that "the pandemic keeps evolving". With such a big number of deaths, this is indeed a troubling disease. The US government has ordered some 150 million vaccines, mainly Tamiflu made by Roche, by December.

Here in the Philippines, there is a leptospirosis outbreak in some areas of Metro Manila and a few other provinces that remain flooded until now, more than a month after severe flooding that occurred last September 26. As of today, nearly 2,200 people have been infected while 167 have already died from the disease. The spread of the disease has been faster over the past few days.

The Department of Health (DOH) is prescribing only one medicine so far, the anti-biotic doxycycline. The agency notes that this medicine is not 100 percent effective, it can only give some protection to infected persons. Besides, in the guidelines it has issued in using this prophylaxis, it notes several precautions. The medicine for instance, can NOT be given to the following people: pregnant women, women breastfeeding their babies, children below 8 years old. Physician’s caution should also be taken if one has liver or kidney disease, and the drug can cause allergy, diarrhea and/or other side effects like esophageal damage. See the list of precautions about doxycycline at http://www.doh.gov.ph/files/dm2009-0250.pdf.

With a rather long list of precautions and prohibitions in the use of the only medicine being prescribed by the DOH to fight leptospirosis, infected patients and their loved ones will only wish that there are other alternative medicines. But what and where are they?

I have noted in my earlier articles before in this column: people's lifestyle evolve, communities evolve, diseases evolve, and so medicines and other medical treatment must also evolve. This requires endless research and innovation, endless invention of new and more powerful medicines not only for old and known diseases, but also for unseen and unknown diseases. Medicine and pharmaceutical research, therefore, should be encouraged, not discouraged.

If more profit for the successful research companies is the main incentive to encourage more companies and scientists to go into this kind of work, then society should give it to them. After all, not all pharmaceutical researches are successful and useful. Majority of such researches are unsuccessful and punched big losses for the companies that undertook those research.

What is important is that more effective medicines for more killer diseases should be invented and be made available to the public. There should be several medicines from more competing companies for each killer disease, so that patients and their physicians can have more choices for the specific needs and health/economic conditions of patients. Cost or the price of medicine, though an important consideration, therefore, becomes a secondary issue. The primary issue is the availability of more medicines for more various diseases.

Some rich people are willing to become poor just to save or prolong the life of a loved one. And in many cases, money is not the issue or the solution. It is the non-availability of more powerful drugs and vaccines that can save people from killer and ever-evolving diseases. So for some people, they may have all the money in the world but if the drugs that can cure their loved ones are not there, then early death will be certain.

Unfortunately, for many countries in the world including the Philippines, pricing and intellectual property rights (IPR) of medicines have been heavily politicized. Many politicians and the activist public do not ask about more competition in medicines and medicine producers. They ask for quick political fixes to non-political problems like evolving diseases. And this is where long-term problems will crop up someday. The short-term gains of cheaper medicines -- via price control, via patent confiscation like compulsory licensing and “early working” on still patented drugs -- will be defeated by the long-term loss or non-availability of new medicines that will be brought into the market.

It is indeed ironic that the public, the politicians and would-be politicians did not listen to the majority of the sectors – multinational and local pharma companies, hospitals, drugstores, physicians, pharmacists, and a few NGOs – that opposed drug price control policy. And this points to one ugly reality of politics: problems or issues that could be addressed with zero politics have become heavily politicized. For health issues for instance, politicians and the activist media or NGOs who do not produce even a single medicine dictate the policies for medicine innovation and pricing.

The Senator who has pushed hard the issuance of drug price control policy is no longer running for President. It is notable to mention perhaps, that while there were Committee meetings and public hearing on drug price control every 3 weeks on average while he was still a declared Presidential candidate, there have been zero Committee meeting since the time he abandoned the plan two months ago.

With the spread of both old and new diseases, or new strains of old diseases, the importance of encouraging endless research and production of more innovative and more powerful drugs is highlighted. Let us hope that harsh political interventions like price control and patent confiscation that discourage such innovation, will not be imposed easily and frequently.

Global Capital 3: Service Charges and Capitalism

Consumers are king. This is the most important motto for most or all enterprises operating in a competitive business environment. Consumers therefore, have the vested interest to keep the economy as competitive as possible. Once the economy falls into an oligopolistic, if not monopolistic structure, consumers fall from grace. They no longer are the king. They become slaves.

A friend asked, if the service charge of 10 percent of the bill in restaurants is legal. Since there is a mandatory 12 percent value added tax (VAT) imposed by the government, having a 10 percent additional service charge makes the cost of meals in good restaurants become 22 percent more expensive.

I think the 10 percent service charge is legal. It is the restaurant's way of saying, "We are keeping the cost of our meals cheaper by cutting some salaries of our staff. But our staff are efficient, hardworking, polite and friendly, they need to be rewarded with some tip to augment their income. So we are passing the cost of such additional cost to you. Thank you."

Now this might seem an imposition without consultation, on the consumers and restaurant clients. Not exactly. If customers do not like this policy , then they can opt not to go to those restaurants, and look for other good food outlets which do not have mandatory service charge, a customer may or may not give a tip. And there are plenty of restaurants that practice this policy too. So it is additional competition among food outlets to attract more customers.

This makes competitive and free market capitalism beautiful, no matter what the anti-capitalists and the statists would say. Competitive capitalism allows one important factor that socialism or heavy regulation economies don't have: choice. Consumer choices. Lots of it.

The 10-percent higher cost of one’s food bill in a restaurant due to the service charge, the customers get value for that -- good service right there and then by efficient, smiling, and friendly waiters/waitresses. The latter perfectly know that if they do not smile and be polite to their customers, they may not see said customers again next time, they may even tell their friends not to patronize their restaurant because waiters and waitresses just collect service charges and they do not even know how to smile, how to be polite to their customers. So the restaurant will lose money, and later, waiters/waitresses will lose their job. So the mandatory or voluntary tip of 10 percent you give, you get clear, explicit additional service.

It's the 12 percent VAT that has no clear, explicit service to you. Some of the taxes you pay on VAT may go back to you in the form of street lighting or road maintenance, and some of it will simply be stolen, or be used for wasteful spending by the politicians and government officials.

For competitive capitalism to flourish, there should be few and low taxes. Not zero taxes. But few and low taxes. Not having 47 different taxes (and fees) that medium size companies are required, obliged, coerced, to pay to the government (local, national) every single year (WB-IFC "Doing Business" and WB-PWC "Paying Taxes" annual reports).

The hotel industry is another example of an industry under intense capitalist competition. Travelers and tourists can choose a variety of hotels and inns, depending on their budget and other personal or professional considerations. From backpacker type of small rooms, no frills but very cheap, to the most gallant, most elaborate architectural design, and very expensive rooms and other service charges.

I stay in hotels only when I attend international conferences and/or meetings abroad. So far this year, I have traveled four times, twice to Singapore and twice to the US (NY and LA), and consequently, stayed in 4 different hotels. My sponsors, all fellow free market think tanks and institutes that receive zero government funding (local or national government or foreign aid), pay for my plane fare and hotel accommodations.

What amaze me in those hotels is their uniqueness, the variety of their exterior and interior designs, their lobbies and swimming pools, and so on. But despite such variety of physical designs and amenities, there is one single common trait among them: the politeness of their staff, the quick and efficient services. These are hotels under certain global chains and hence, they compete for global visitors in a stiff global competition. Any dissatisfied hotel guest can always move to another hotel the next time they visit the same city. Or write something negative about their hotel which will then be posted in the internet and be made available to anyone who happens to stumble on such posting.

It is this fear of any negative publicity (and the desire for optimum customer satisfaction), whether in traditional media or in the blogosphere, that keeps those hotels – and restaurants, airlines, banks, spas, etc. – on their toes always. There is very little room for complacency and lousiness.

And we go back to the earlier observation on restaurant service charges. It is the rawness of capitalist competition that results in better services to the consumers, and competitive and rational prices. Price differentiation for different services for different people with different needs is one characteristic of competitive capitalism.

Next month, I will go back to the US for the third time this year, to participate in an international conference by a free market institute, to celebrate the fall of the Berlin Wall 20 years ago, one of the symbols of the failed socialist economic central planning and political prosecution, and to discuss the new walls erected by big governments around the world, including the Philippine government, in perpetuating old coercive regulations and taxations and in creating new ones.

The not-yet-over-the-brink economic difficulties due to the recent global financial turmoil, is often used by the anti-capitalist groups and people, to criticize the “evils and irrationality” of free market capitalism. But they do not realize that it is precisely free market capitalism that penalized personal and corporate irresponsibility. Capitalism without failure is like religion without sin. Corporate expansion and corporate bankruptcy are 100 percent part of capitalism and the competition that is inherent in it.

It is those attempts and various government regulations that claim to “prevent” future crisis that distort the natural system of reward and punishment in capitalist competition. The forthcoming elections in the country just 6 ½ months from now is a good opportunity for the various political parties competing for voters’ support, to distinguish themselves from others. Political competition based on clear ideology of supporting or discouraging personal responsibility, of abetting or dampening more government intrusion and taxation.

Voters need not listen to political pundits and other self-styling political analysts and commentators. Voters only need to look at their community if there is enough freedom and choices for them as consumers. Absence or insufficient level of choices and competition for their basic needs should be an indicator for them to support one or two particular political parties or candidates that advance a more competitive economy.
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Last October 06, 2009, I wrote this.

Miscellaneous Economic Views

A friend in our economics alumni ygroups asked about our "economic crystal ball". I offered the following quickie comments.

On the Philippine peso appreciation, the US$ is suffering an endless beating, thanks to trillion dollars annual budget deficit of the federal government alone, and nearly 14 trillion public debt. The trend is there: the US government is spending like any irresponsible guy who spends more than what he earns, every single year for many years and decades, and just relies on endless borrowings to finance its irresponsible spending and lifestyle. So the days of huge debt payment are always with it.

Last year, migration of $ investments, many went to buy petroleum and related commodities. This year, the net "attractive" commodity is gold, reaching almost $1,100 a pound (or has it breached this level already?).

More people will be dumping the US$ in the coming days and years, causing it to depreciate and other currencies traded or exchanged with it (like the PhP) to appreciate, even if the economic fundamentals of the countries of those other currencies are not exactly good and improving. That is, even if the Gloria Arroyo government is corrupt and wallowing in various robbery scandals, and the next administration that will succeed her government will also corrupt and a theft, the peso can still appreciate.

The budget deficit will always remain high, with or without "Ondoy", "Pepeng" and other succeeding typhoons. The current administration will only worry about its spending and patronage, this year until early next year. Then it will leave the problem to the next administration. And the next admin will likely think too, "Heck, my government is paying for the debt, profligacy and robbery of the past administration. I might as well over-borrow also and let the next admin worry about my newly contracted debt and borrowings."

About effect on food production of the recent big typhoons, no doubt the effect is negative.
a) those to-be-harvested rice, many of those are gone and felled by heavy flooding, can no longer be harvested.
b) those already-harvested rice (before typhoons Ondoy and Pepeng came), the persistent cloudy skies disable rice farmers to sun-dry their harvest. A few days delay in removing the moisture content on newly harvested palay will result in blackening of the palay, affecting negatively it's color, taste and price

One quick solution is to abolish import tariff (currently around 50% I think, beyond quota level) and bring in cheaper rice from Thailand and Vietnam to come in quick. Government always asks the public to sacrifice, but government is always an arrogant and hypocrite institution that does not want to sacrifice by waiving any tax on essential commodities (rice, medicines, etc.), that contributes to their more expensive price. Time for the government to reduce its arrogance and hypocrisy.

So, will the economy "recover"? In the first place, the economy is never down. Some sectors are sputtering, but others are humming with activities and increased production.

But one shackle that will hound the country is the persistent call to "prepare for global warming and climate change". Global cooling is staring us in our faces and yet we prepare personal and government resources waiting for drought and warmer days and years. The government is evern creating new climate bureaucracies -- funded by tax money, where else -- like the Presidential adviser/consultant on climate change, and soon, a climate change commission to be created by Congress.

One result of this voodoo science thinking, is that energy policies are biased against cheap energy sources (like coal) in favor of "renewables" which may even get subsidies from our tax money even if they produce very little power. Also, it is possible that in the future, the government will increase the tax on oil -- like a WB Manila proposal to hike the current P4.50/liter excise tax on gasoline, to help plug the deficit and help "fight global warming".

One consequence will be another spate of brownouts. What production increase and economic growth can we expect if we depend on candles and expensive generator sets for our electricity?

* See also 

Global Capital 1: Why Market Turbulence are Necessary, November 19, 2007

Global Capital 2: ICT, Capitalism and Government, December 18, 2008