Australia, one of the most dynamic economies in the world, announced some tax cuts. The rates are still high compared to say, many Asian developed and emerging markets like HK, Singapore and Taiwan. Nonetheless, the cuts can further spur private and household consumption or go into private investments, either way will further enhance the economy.
Australia is attracting a lot of talented middle class Filipino households and professionals as migrants. If those talented and self-driven migrants (Filipinos, Vietnamese, Malaysians, other nationalities) will find the opportunities they need there, it won't be long that Australia will overtake many European countries in both economic dynamism and GDP size.
If this happens, many of its neighbors in Asia like the Philippines will benefit, as more trade, more tourism, more migration and people mobility will happen.
---------
http://news.ft.com/cms/s/1eef20da-df86-11da-afe4-0000779e2340.html
Sydney announces tax-cutting budget
By Sundeep Tucker in Sydney
May 9, 2006
In a 30-minute address to Australia’s parliament in Canberra, Mr Costello, Australia's Treasurer, announced that the country’s highest marginal rate of personal income tax would fall from 47 per cent to 45 per cent while the next highest rate would also fall by two percentage points to 40 per cent.
Tax thresholds will also rise, with only those earning above A$150,000 a year paying the highest marginal rate. Mr Costello said the changes would make Australia’s tax regime more internationally competitive, as it struggled to attract and retain key workers.
The government will also cut business tax by A$3.7bn over the next four years with reforms to the small business taxation system and higher depreciation allowances. Mr Costello further announced that super-annuation, or pension, benefits paid to over-60s from July 2007 would be tax-free, and he extended family tax benefits to more people....
Mr Costello denied the tax cuts would precipitate an increase in interest rates, as the budget would remain in surplus....
Wednesday, May 10, 2006
Tuesday, May 09, 2006
Free Trade 1: Estonia's Free Market, Globalization
While Hong Kong and Singapore remain the world's good examples of a generally free economy, there are other new-comers who trail these 2 small-population but dynamic Asian economies. Among those new-comers are Estonia. In a span of just 10 years (1995-2004), per capita GDP (adjusted for cost of living through PPP) has almost doubled!
An article from Cato website written by Marian Tupy featured Mart Laar and what he did to Estonia as that country's former PM. Again, for brevity purposes, I cut several paragraphs of Ms. Tupy's article. To see the whole paper, visit
http://www.cato.org/pub_display.php?pub_id=6368
Among the achievements of Mart Laar for Estonia, according to Ms. Tupy, are the following:
* According to the Economic Freedom of the World: 2005 Annual Report, which is published by the Fraser Institute in Canada, Estonia is the ninth economically freest country in the world. Today, many people find it difficult to remember the days of the Soviet Union, when the Estonian economy was completely dominated by the state and marked by endless lines and shortages. Mart Laar replaced the "dead hand" of the government with Adam Smith's "invisible hand."
* His government eliminated import tariffs (a decision that was partly reversed by Estonia's membership of the European Union) and established a flat income tax. Corporate taxes on reinvested profits fell to zero and a currency board was established to combat inflation. The government also undertook extensive privatization of state companies.
* Though Estonia experienced a sharp but short recession that was shared by all transitional economies, by 1995 the economy was roaring again. According to the World Bank, between 1995 and 2004, Estonia's per capita gross domestic product (GDP) grew at a compounded average annual rate of 6.6 percent. During that decade, Estonia's GDP per capita adjusted for purchasing power parity rose from $6,847 to $12,773 in constant 2000 dollars, an increase of 86.5 percent. Estonia's sustained, high growth rate was among the region's highest and set the country on course to join the rest of the developed world....
* Mart Laar's impact was felt beyond the influence he had on the lives of his fellow countrymen. Other post-communist countries learned from Estonia's reforms and imitated them. Estonia's successful adoption of the flat tax led the way for Russia, Slovakia, Ukraine, and others. Estonia's unilateral trade liberalization is a continued inspiration for other countries; including, most recently, Georgia. There are also those who feel that the presence of a market-liberal Estonia in the European Union will lead the EU away from her socialist policies....
---------
A related note I wrote last April 19, 2006:
Globalization = Lower Inflation
The IMF has recently released its World Economic Outlook (WEO) 2006 (www.imf.org). Chapter 3 is entitled, "How has globalization affected inflation?" and among the major findings and analysis of the chapter are:
* Over the past decade, globalization has pared or reduced inflation rate; by 1/4 of a percentage point in developed economies, by 1/2 of a percentage point in the US in particular.
* Globalization is no guarantee of low inflation in the next year or two, due to forecast robust global growth and diminishing economic slack.
* For globalization to have substantial lasting impact on inflation, it must change the overarching objectives of monetary policy (like inflation-targeting near zero).
* Globalization has restrained price and wage growth in sectors more exposed to international competition like textiles and electronics.
In economic theory, globalization and free trade results in "factor price equalization"; or if certain factors of production are less or non-mobile, free trade results in "commodity price equalization". This means that countries that have surplus output (say, surplus rice in Thailand and Vietnam) will experience declining rice prices domestically, while rice prices in countries that have low rice output relative to their population's needs (like the Philippines) will be high -- if international trade in rice is restricted. Globalization and free trade reallocates resources and production from countries and places where they are abundant, to places and countries where they are scarce and needed. Such resource reallocation is reflected in commodity price (in this example, rice price) that is generally the same across many countries, adjusted for cost of living in those countries.
Graphically, the global supply curve tends to move more flat in a regime of free trade and unhampered globalization. A flatter supply curve means a flatter price range (ie, small difference from the most expensive to the cheapest price of a commodity) across a wider and bigger supply of that commodity around the world.
Thus, even in years and periods of robust global economic growth, globalization and free trade should result in modest price rise and stable single-digit inflation rate on average across the world. This is because for countries and places to further expand output, they will have to hire more workers and technology from other countries, import more production inputs (from agricultural raw materials to high-tech farm machineries) from other countries. The fast movement of inputs, intermediate goods and services, and final products around the globe will provide the momentum for such robust global growth to be sustained for several years. This is on the assumption of course that there are no adverse external interruptions like wars, large-scale terrorist attacks, and natural catastrophies.
I do not know how far the IMF will recommend in further pushing for more free trade, in further removing and ultimately abolishing various forms of export subsidies, production subsdies, and by extension, slashing taxes that help finance those trade-distorting subsidies.
An article from Cato website written by Marian Tupy featured Mart Laar and what he did to Estonia as that country's former PM. Again, for brevity purposes, I cut several paragraphs of Ms. Tupy's article. To see the whole paper, visit
http://www.cato.org/pub_display.php?pub_id=6368
Among the achievements of Mart Laar for Estonia, according to Ms. Tupy, are the following:
* According to the Economic Freedom of the World: 2005 Annual Report, which is published by the Fraser Institute in Canada, Estonia is the ninth economically freest country in the world. Today, many people find it difficult to remember the days of the Soviet Union, when the Estonian economy was completely dominated by the state and marked by endless lines and shortages. Mart Laar replaced the "dead hand" of the government with Adam Smith's "invisible hand."
* His government eliminated import tariffs (a decision that was partly reversed by Estonia's membership of the European Union) and established a flat income tax. Corporate taxes on reinvested profits fell to zero and a currency board was established to combat inflation. The government also undertook extensive privatization of state companies.
* Though Estonia experienced a sharp but short recession that was shared by all transitional economies, by 1995 the economy was roaring again. According to the World Bank, between 1995 and 2004, Estonia's per capita gross domestic product (GDP) grew at a compounded average annual rate of 6.6 percent. During that decade, Estonia's GDP per capita adjusted for purchasing power parity rose from $6,847 to $12,773 in constant 2000 dollars, an increase of 86.5 percent. Estonia's sustained, high growth rate was among the region's highest and set the country on course to join the rest of the developed world....
* Mart Laar's impact was felt beyond the influence he had on the lives of his fellow countrymen. Other post-communist countries learned from Estonia's reforms and imitated them. Estonia's successful adoption of the flat tax led the way for Russia, Slovakia, Ukraine, and others. Estonia's unilateral trade liberalization is a continued inspiration for other countries; including, most recently, Georgia. There are also those who feel that the presence of a market-liberal Estonia in the European Union will lead the EU away from her socialist policies....
---------
A related note I wrote last April 19, 2006:
Globalization = Lower Inflation
The IMF has recently released its World Economic Outlook (WEO) 2006 (www.imf.org). Chapter 3 is entitled, "How has globalization affected inflation?" and among the major findings and analysis of the chapter are:
* Over the past decade, globalization has pared or reduced inflation rate; by 1/4 of a percentage point in developed economies, by 1/2 of a percentage point in the US in particular.
* Globalization is no guarantee of low inflation in the next year or two, due to forecast robust global growth and diminishing economic slack.
* For globalization to have substantial lasting impact on inflation, it must change the overarching objectives of monetary policy (like inflation-targeting near zero).
* Globalization has restrained price and wage growth in sectors more exposed to international competition like textiles and electronics.
In economic theory, globalization and free trade results in "factor price equalization"; or if certain factors of production are less or non-mobile, free trade results in "commodity price equalization". This means that countries that have surplus output (say, surplus rice in Thailand and Vietnam) will experience declining rice prices domestically, while rice prices in countries that have low rice output relative to their population's needs (like the Philippines) will be high -- if international trade in rice is restricted. Globalization and free trade reallocates resources and production from countries and places where they are abundant, to places and countries where they are scarce and needed. Such resource reallocation is reflected in commodity price (in this example, rice price) that is generally the same across many countries, adjusted for cost of living in those countries.
Graphically, the global supply curve tends to move more flat in a regime of free trade and unhampered globalization. A flatter supply curve means a flatter price range (ie, small difference from the most expensive to the cheapest price of a commodity) across a wider and bigger supply of that commodity around the world.
Thus, even in years and periods of robust global economic growth, globalization and free trade should result in modest price rise and stable single-digit inflation rate on average across the world. This is because for countries and places to further expand output, they will have to hire more workers and technology from other countries, import more production inputs (from agricultural raw materials to high-tech farm machineries) from other countries. The fast movement of inputs, intermediate goods and services, and final products around the globe will provide the momentum for such robust global growth to be sustained for several years. This is on the assumption of course that there are no adverse external interruptions like wars, large-scale terrorist attacks, and natural catastrophies.
I do not know how far the IMF will recommend in further pushing for more free trade, in further removing and ultimately abolishing various forms of export subsidies, production subsdies, and by extension, slashing taxes that help finance those trade-distorting subsidies.
Monday, May 08, 2006
US Debt 1: How Bloated is the US Govt?
The US has the largest economy in the world.
But it also is the most indebted country in the world.
And it has the biggest government spending, the biggest bureaucracy, in the world.
Just how big are the spending, and the taxes and borrowings to keep those huge expenditures?
Lucky that I checked the Mackinac website, and I saw Mr. Mark Brandly's article, "How big is Bush' big government?". For brevity purposes, I removed certain paragraphs; if interested to see the whole paper, please see
http://www.mackinac.org/article.aspx?ID=7689
Below are the relevant numbers from Mr. Brandly's paper:
* Federal spending alone in fiscal year 2006 is expected to be over $2.7 trillion, which means the federal government spends $7.4 billion a day or $5.1 million in every minute of the year. This is 815 times the level of federal spending in 1930.
* This $2.7 trillion in federal spending breaks down to $9,000 per capita or more than $36,000 for the average family of four. If we add in all state and local spending, then total government depredations (a term Murray Rothbard used to describe the greater of government spending and government receipts) are currently over $4.4 trillion or about $14,700 per person annually.
* A significant portion of this spending is being financed with government borrowing. In 1930, the per capita debt load was $140 per person. The current federal total debt level is $8.4 trillion, which works out to around $28,000 per person. In short, the per capita debt load is 200 times larger than it was in 1930. Adjusting for inflation, the real debt per capita is still over 16 times more than it was in 1930.
* Federal government debt increased $553 billion in fiscal year 2005 alone. That's more than $1.5 billion of additional debt per day and over $1 million of borrowing per minute for every minute of the year. The interest on the debt in 2005 was $352 billion or more than $1,100 for every man, woman and child in the country. These interest payments are roughly equal to 37 percent of federal income tax revenues.
* Much of this debt is owed to the Federal Reserve. U.S. taxpayers are on the hook for $758 billion of government securities that are held by the Fed. So, on average, every person in the country owes the Fed about $2,500.
* One way to see the harm of government intervention is to realize its effects on our standard of living. The depredations of the state reduce the incentives to be productive, destroy our capital base and have a negative effect on economic growth. From 1959 to 2005, adjusting the numbers using the implicit price deflator, real Gross Domestic Product increased an average of 3.37 percent annually.
* Consider the possibility that government interventions reduced real economic growth 1 percent annually during this time. If there had been an additional 1 percent per year economic growth since 1959, then real GDP would currently be 55 percent higher than it is. The 2005 GDP of $12.5 billion would have been $19.3 billion. The median family income is estimated to be $44,389. A proportionate increase in this statistic results in a median income of $68,800.
* In this scenario, a worker with a salary of $44,389 who is losing 35 percent of his salary to taxes has a tax liability of $15,536. After paying the various types of taxes he gets to keep only $28,853 of his salary. With the extra 1 percent growth per year since 1959, if that worker represented the average, his gross salary would be $68,800 and he would get to keep all of it.
* It is conceivable that the $4.4 trillion of annual depredations could have caused more than 1 percent annual damage to our economic growth since 1959. What are the implications of a 2 percent negative impact on GDP? If the absence of interventions had added an additional 2 percent annual growth, this would have resulted in 141 percent more output today. The 2005 GDP would have been over $30 trillion and the median family income would now be $107,000. The worker described above with the $44,389 gross salary and the $28,850 of after tax pay, would have an income of $107,000. The depredations have reduced his net income by 73 percent.
* Those of us making the case for liberty have logic, history and morality on our side. Government intervention is immoral and should be stopped for that reason alone. However, the economic costs of the intervention are also important. Part of the appeal of freedom is that it leads to tremendously higher standards of living and these numbers show that government interventions that cause seemingly small amounts of harm, over time, impoverish a society.
But it also is the most indebted country in the world.
And it has the biggest government spending, the biggest bureaucracy, in the world.
Just how big are the spending, and the taxes and borrowings to keep those huge expenditures?
Lucky that I checked the Mackinac website, and I saw Mr. Mark Brandly's article, "How big is Bush' big government?". For brevity purposes, I removed certain paragraphs; if interested to see the whole paper, please see
http://www.mackinac.org/article.aspx?ID=7689
Below are the relevant numbers from Mr. Brandly's paper:
* Federal spending alone in fiscal year 2006 is expected to be over $2.7 trillion, which means the federal government spends $7.4 billion a day or $5.1 million in every minute of the year. This is 815 times the level of federal spending in 1930.
* This $2.7 trillion in federal spending breaks down to $9,000 per capita or more than $36,000 for the average family of four. If we add in all state and local spending, then total government depredations (a term Murray Rothbard used to describe the greater of government spending and government receipts) are currently over $4.4 trillion or about $14,700 per person annually.
* A significant portion of this spending is being financed with government borrowing. In 1930, the per capita debt load was $140 per person. The current federal total debt level is $8.4 trillion, which works out to around $28,000 per person. In short, the per capita debt load is 200 times larger than it was in 1930. Adjusting for inflation, the real debt per capita is still over 16 times more than it was in 1930.
* Federal government debt increased $553 billion in fiscal year 2005 alone. That's more than $1.5 billion of additional debt per day and over $1 million of borrowing per minute for every minute of the year. The interest on the debt in 2005 was $352 billion or more than $1,100 for every man, woman and child in the country. These interest payments are roughly equal to 37 percent of federal income tax revenues.
* Much of this debt is owed to the Federal Reserve. U.S. taxpayers are on the hook for $758 billion of government securities that are held by the Fed. So, on average, every person in the country owes the Fed about $2,500.
* One way to see the harm of government intervention is to realize its effects on our standard of living. The depredations of the state reduce the incentives to be productive, destroy our capital base and have a negative effect on economic growth. From 1959 to 2005, adjusting the numbers using the implicit price deflator, real Gross Domestic Product increased an average of 3.37 percent annually.
* Consider the possibility that government interventions reduced real economic growth 1 percent annually during this time. If there had been an additional 1 percent per year economic growth since 1959, then real GDP would currently be 55 percent higher than it is. The 2005 GDP of $12.5 billion would have been $19.3 billion. The median family income is estimated to be $44,389. A proportionate increase in this statistic results in a median income of $68,800.
* In this scenario, a worker with a salary of $44,389 who is losing 35 percent of his salary to taxes has a tax liability of $15,536. After paying the various types of taxes he gets to keep only $28,853 of his salary. With the extra 1 percent growth per year since 1959, if that worker represented the average, his gross salary would be $68,800 and he would get to keep all of it.
* It is conceivable that the $4.4 trillion of annual depredations could have caused more than 1 percent annual damage to our economic growth since 1959. What are the implications of a 2 percent negative impact on GDP? If the absence of interventions had added an additional 2 percent annual growth, this would have resulted in 141 percent more output today. The 2005 GDP would have been over $30 trillion and the median family income would now be $107,000. The worker described above with the $44,389 gross salary and the $28,850 of after tax pay, would have an income of $107,000. The depredations have reduced his net income by 73 percent.
* Those of us making the case for liberty have logic, history and morality on our side. Government intervention is immoral and should be stopped for that reason alone. However, the economic costs of the intervention are also important. Part of the appeal of freedom is that it leads to tremendously higher standards of living and these numbers show that government interventions that cause seemingly small amounts of harm, over time, impoverish a society.
Monday, May 01, 2006
Foreign Aid 4: Easterly vs. Sachs
What do Bono (U2 band), Jeff Sachs (Kofi Anan's chief consultant on the UN Millenium Devt. Goals, MDG), Bill and Melinda Gates (multi-billion philantrophists), former US Presidents Jimmy Carter and Bill Clinton, Make poverty history (headed by former rock star Bob Geldoff) and William Easterly (of NYU) have in common? They're either Americans or Brits?
Well, they are among the nominees in the "2006 Commitment to Development Award" sponsored by the Center for Global Development (CGD, www.cgdev.org) and Foreign Policy magazine. And that's where the commonality among them ends. For these guys have varying, even opposing, ways in advancing development in the world's poorest regions and countries. For instance, while Bono, Geldoff and Sachs are campaigning hard for "more foreign aid" to Africa and other poor regions of the world (of course they cannot be as loud in campaigning as well for "more taxes please" to finance those "more foreign aid"), Easterly wrote a book, "The White Man's Burden: Why the West's Efforts to Aid the Rest HaveDone So Much Ill and So Little Good" (http://www.cgdev.org/content/article/detail/6926/ ). I voted for Easterly in the CGD survey.
Dr. Easterly by the way came to my alma mater, the University of thePhilippines, School of Economics (UPSE) January 17 this year. He spoke on "Can national policies really raise growth?". His talk was based on his other book, "The elusive quest for growth: economists'adventures and misadventures in the tropics". I was in that big conference, also attended by the Philippines' 5 past economic planning secretaries and ministers! Easterly didn't talk much about foreign aid though. I spoke briefly during the open forum, and argued that "less government and less taxes can raise economic growth".
"The white man's burden" was among the recently featured articles in Tech Central Station (www.tcsdaily.com), below. For brevity purposes, I cut some paragraphs. If interested to see the entire article, see
http://www.tcsdaily.com/article.aspx?id=042806D.
--------
Planners vs. Searchers
By Roger Bate
28 Apr 2006
The White Man's Burden is a rare book. Its author, William Easterlydistills all of his considerable knowledge and experience aboutforeign aid into it, and never pulls punches in a subject noted forstar-studded platitudes and uncritical thinking. Given how aid hasfailed so utterly in so many places to alleviate the suffering of thepoorest people, The White Man's Burden could have been a depressingread. But Easterly's natural good humor and humility -- as well as hissolid narrative abilities -- make it an inspirational work. Perhaps noone knows better than Easterly that you need a good sense of humor towork in foreign aid to begin with.
The 2005 love-fest with Africa -- G8 summit, Live8 concerts, Angelina,Bono and Brad highlighting the plight of the poor, etc. -- and theideal of making poverty history has led to an increase in aid fundingfrom private and, especially, state coffers. Easterly's conclusion,however, is that this money will not only be wasted, but it will becounterproductive.
Foreign-aid is driven by "Planners" says Easterly. Perhaps the most famous planner and a determined opponent of Easterly is Jeffrey Sachs of Columbia University and the United Nations. Planners think of development as a technical problem that can be overcome by ambitious, multi-faceted, centrally-controlled campaigns, backed up by oodles of cash. Unfortunately, planning lacks market feedback mechanisms, so cannot measure useful performance indicators. Plus, Planners are rarely held accountable for their myriad failures...
Easterly demonstrates that nearly all aid programs fail to reach individually set targets "A UN summit in 1990, for example, set a goal for the year 2000 of universal primary-school enrollment. (That is now planned for 2015). A previous summit, in 1977, set 1990 as the deadline for realizing the goal of universal access to water and sanitation. (Under theMillennium Development Goals, that target is now 2015). Nobody was held accountable for these missed goals....
While Easterly is critical of the foreign aid status quo, he cites many examples of ways in which aid has worked, such as food vouchersto poor families -- contingent upon children attending school ratherthan working in low productivity jobs. Such a scheme was pioneered inMexico and is working well there and elsewhere....
--------
Last April 20, 2006, I wrote this:
Debt-Relievers are Themselves Indebted
The G7 countries -- US, Japan, Germany, UK, France, Italy, Canada -- are among the world's largest lender countries. They set aside billions of dollars every year in foreign aid to be lent to the world's poorest economies through the multilateral institutions like the UN, World Bank (WB), and Asian Development Bank (ADB), and their respective countries' international development agencies.
Presidents and politicians of indebted poor countries always look up to the G7 and other rich countries for "debt forgiveness/write-off", debt swaps like "debt for nature", "debt for UN MDG goals", and other forms of "debt relief". But are these rich countries, the G7 in particular, still that rich to throw in more money to the indebted poor countries? Nope, many of them are not, and they themselves are highly indebted. See table below.
General government gross debt as % of GDP, G7, 2000 and 2005 respectively:
1) Japan: 142.2%, 175.5%
2) Italy: 111.3%, 106.3%
3) Canada: 101.5%, 85.0%
4) Germany: 58.7%, 67.5%
5) France: 56.6%, 67.3%
6) US: 57.1%, 62.9%
7) UK: 41.6%, 43.3%.
(source: IMF, World Economic Outlook, April 2006 database).
So how can these countries continue their practice of throwing more money into the same problem in poor countries, when they themselves are indebted? The G7 and other indebted rich countries can help the poor countries even with less foreign aid if the former will reduce their indebtedness, reduce their borrowings, which will help push world interest rates downwards. Poor countries' debt service payment (both foreign and domestic debts) will decline if interest rates (both world and national) will go down. Then poor countries can either reallocate part of their expenditures from debt payment to social services, or cut taxes to encourage entrepreneurship and job creation among the people.
-------
See also: Foreign Aid 3: Bob Geldoff and More Aid, November 10, 2005
Well, they are among the nominees in the "2006 Commitment to Development Award" sponsored by the Center for Global Development (CGD, www.cgdev.org) and Foreign Policy magazine. And that's where the commonality among them ends. For these guys have varying, even opposing, ways in advancing development in the world's poorest regions and countries. For instance, while Bono, Geldoff and Sachs are campaigning hard for "more foreign aid" to Africa and other poor regions of the world (of course they cannot be as loud in campaigning as well for "more taxes please" to finance those "more foreign aid"), Easterly wrote a book, "The White Man's Burden: Why the West's Efforts to Aid the Rest HaveDone So Much Ill and So Little Good" (http://www.cgdev.org/content/article/detail/6926/ ). I voted for Easterly in the CGD survey.
Dr. Easterly by the way came to my alma mater, the University of thePhilippines, School of Economics (UPSE) January 17 this year. He spoke on "Can national policies really raise growth?". His talk was based on his other book, "The elusive quest for growth: economists'adventures and misadventures in the tropics". I was in that big conference, also attended by the Philippines' 5 past economic planning secretaries and ministers! Easterly didn't talk much about foreign aid though. I spoke briefly during the open forum, and argued that "less government and less taxes can raise economic growth".
"The white man's burden" was among the recently featured articles in Tech Central Station (www.tcsdaily.com), below. For brevity purposes, I cut some paragraphs. If interested to see the entire article, see
http://www.tcsdaily.com/article.aspx?id=042806D.
--------
Planners vs. Searchers
By Roger Bate
28 Apr 2006
The White Man's Burden is a rare book. Its author, William Easterlydistills all of his considerable knowledge and experience aboutforeign aid into it, and never pulls punches in a subject noted forstar-studded platitudes and uncritical thinking. Given how aid hasfailed so utterly in so many places to alleviate the suffering of thepoorest people, The White Man's Burden could have been a depressingread. But Easterly's natural good humor and humility -- as well as hissolid narrative abilities -- make it an inspirational work. Perhaps noone knows better than Easterly that you need a good sense of humor towork in foreign aid to begin with.
The 2005 love-fest with Africa -- G8 summit, Live8 concerts, Angelina,Bono and Brad highlighting the plight of the poor, etc. -- and theideal of making poverty history has led to an increase in aid fundingfrom private and, especially, state coffers. Easterly's conclusion,however, is that this money will not only be wasted, but it will becounterproductive.
Foreign-aid is driven by "Planners" says Easterly. Perhaps the most famous planner and a determined opponent of Easterly is Jeffrey Sachs of Columbia University and the United Nations. Planners think of development as a technical problem that can be overcome by ambitious, multi-faceted, centrally-controlled campaigns, backed up by oodles of cash. Unfortunately, planning lacks market feedback mechanisms, so cannot measure useful performance indicators. Plus, Planners are rarely held accountable for their myriad failures...
Easterly demonstrates that nearly all aid programs fail to reach individually set targets "A UN summit in 1990, for example, set a goal for the year 2000 of universal primary-school enrollment. (That is now planned for 2015). A previous summit, in 1977, set 1990 as the deadline for realizing the goal of universal access to water and sanitation. (Under theMillennium Development Goals, that target is now 2015). Nobody was held accountable for these missed goals....
While Easterly is critical of the foreign aid status quo, he cites many examples of ways in which aid has worked, such as food vouchersto poor families -- contingent upon children attending school ratherthan working in low productivity jobs. Such a scheme was pioneered inMexico and is working well there and elsewhere....
--------
Last April 20, 2006, I wrote this:
Debt-Relievers are Themselves Indebted
The G7 countries -- US, Japan, Germany, UK, France, Italy, Canada -- are among the world's largest lender countries. They set aside billions of dollars every year in foreign aid to be lent to the world's poorest economies through the multilateral institutions like the UN, World Bank (WB), and Asian Development Bank (ADB), and their respective countries' international development agencies.
Presidents and politicians of indebted poor countries always look up to the G7 and other rich countries for "debt forgiveness/write-off", debt swaps like "debt for nature", "debt for UN MDG goals", and other forms of "debt relief". But are these rich countries, the G7 in particular, still that rich to throw in more money to the indebted poor countries? Nope, many of them are not, and they themselves are highly indebted. See table below.
General government gross debt as % of GDP, G7, 2000 and 2005 respectively:
1) Japan: 142.2%, 175.5%
2) Italy: 111.3%, 106.3%
3) Canada: 101.5%, 85.0%
4) Germany: 58.7%, 67.5%
5) France: 56.6%, 67.3%
6) US: 57.1%, 62.9%
7) UK: 41.6%, 43.3%.
(source: IMF, World Economic Outlook, April 2006 database).
So how can these countries continue their practice of throwing more money into the same problem in poor countries, when they themselves are indebted? The G7 and other indebted rich countries can help the poor countries even with less foreign aid if the former will reduce their indebtedness, reduce their borrowings, which will help push world interest rates downwards. Poor countries' debt service payment (both foreign and domestic debts) will decline if interest rates (both world and national) will go down. Then poor countries can either reallocate part of their expenditures from debt payment to social services, or cut taxes to encourage entrepreneurship and job creation among the people.
-------
See also: Foreign Aid 3: Bob Geldoff and More Aid, November 10, 2005
Friday, April 21, 2006
Welfarism 3: Spiraling Costs and Rent-Seeking
A story today from the Financial Times reported, "Welfare costs threaten Merkel reform agenda". The related numbers from the same report are as follows:
* Spiralling welfare costs could add €4bn to Germany’s 2006 budget deficit and undermine Chancellor Angela Merkel’s efforts to bring her country’s finances under control
* faster-than-expected rise in the number of households claiming long-term unemployment benefits could bring this year’s deficit from a planned €38.3bn to well above €40bn ($49bn, £27.7bn).
* the number of households claiming “unemployment benefit II”, the most basic form of welfare support, comparable to the UK’s income support, has risen from 2.9m to 3.9m since its introduction 15 months ago.
* According to a labour ministry document obtained by the FT, the actual number is even higher. The document shows the agency’s monthly reports, based on samples, had underestimated the number of claimants by 200,000 a month throughout last year, suggesting today’s figure was around 4.2m.
* estimates total payments in 2006 could reach €28bn, well above the €24.4bn provided for in the budget.
* loopholes appeared in the system that have led to a flood of claims. Young jobseekers, for instance, have moved out of their parents’ homes and into their own flats in order to claim generous rent subsidies.
* news that her fiscal consolidation plan may be in jeopardy could be a blessing for Ms Merkel. It should make it easier to justify a hefty, three-point increase in value-added tax planned for next January.
Never fails. People respond to incentives and shy away from disincentives. If you put a lot of incentives and subsidies on something (unemployment claims, house rental subsidies, etc.), then you'll have more claimants than what you expect. If you tax people more, like the planned 3 point increase in VAT, you'll discourage more investments and job creation that will solve your high unemployment, high unemployment claims spending. Many businessmen will still invest, of course, but not in home country where taxes are high and piling on each other. Many of them will do business elsewhere where taxes are lower, labor and environmental laws are more liberal, then send some income and profit back home.
Many left-leaning, welfarist, socialist and statist groups in the Philippines and other developing countries dream of following the welfare system of Germany, France and many European coutries. They want to force social equality by over-taxing and over-regulating the productive and hard-working people, give the money to guys who are encouraged by generous welfare, with the huge, thick and expensive layers of government bureaucracy and politicians as intermediaries.
Subsidizing personal irresponsibility and penalizing hard work is one formula for social equality and mediocrity. And this is the folly of socialism. As Larry Reed of Mackinac Center pointed out, "equal people are not free and free people are not equal". Not that Germany and other rich countries of Europe are largy socialist, they are still predominantly capitalist but the bureaucratic, high state welfare system and high taxes discourage certain individual initiatives and entrepreneurship of their citizens. European countries are just lucky that they have put up good and less corruptible institutions. Government personnel are less corruptible because of their high pay and generous allowances and pensions someday. But what was corrupted is the system of incentives and disincentives in society.
I guess this is one reason why a number of Asian countries are growing much faster than the rest of the world. Aside from certain philosophical and cultural ethics that drive their people to high ambitions, they are not burdened by strict government-mandated welfare standards and the energy-sapping bureaucratic regulations and taxes. For instance, people work 10 to 14 hours a day, 6 days a week (equivalent to 60 to 84 hours/week), and any government labor laws that limit people's work to only 35 or 40 hours/week are not strictly followed.
Rent-seeking and Government
In the book Government Failure: A Primer in Public Choice written by Tullock, Seldon and Brady (2002, published by Cato Institute, Washington DC), chapter 4 was entitled "The cost of rent-seeking", written by Prof. Gordon Tullock. Dr. Tullock defined the words "rent seeking" as "the use of resources for the purpose of obtaining rents for people where the rents themselves come from some activity that has negative social value."
Examples of rent-seeking are (a) trade protectionism, where the protected local industry benefits but the local consumers are worse off; (b) private monopolies, and (c) direct income transfers by government where A is taxed and B receives the money. The real cost of rent seeking, according to Tullock, comes from the distortion of the voting process. People vote for politicians and legislators who promise them special local projects, barely realizing that the cost of high taxes from many other taxpayers elsewhere, and the high taxes that they themselves pay to finance the special local projects elsewhere, is high.
But the indirect damage of rent-seeking, he says, is even worse than direct damage. Example of indirect damage is drawing a big number of intelligent and energetic people into an activity that has no social product, or may have a negative social product (example, political lobbying for special privileges and protections).
I would say that around 95 percent of all forms of government restrictions, from bureaucratic procedures in starting a business, to erecting rigid labor laws like setting up high minimum wages mandated by Congress, to welfarism financed by high and complicated taxes, are rent-seeking in nature. They are tying productive people's hands, siphoning off if not outrightly confiscating, their income and savings, and transferred to people often driven by envy and too lazy to accept personal responsibilities on things that ought to be their private domain. The huge government bureaucracy and long layers of politicians that stand in-between the people whose incomes are confiscated and the beneficiaries who wait for such wealth transfer, also eat up precious social resources.
* See also: Welfarism 2: France Riots, Taxes in Welfare States, November 17, 2005
* Spiralling welfare costs could add €4bn to Germany’s 2006 budget deficit and undermine Chancellor Angela Merkel’s efforts to bring her country’s finances under control
* faster-than-expected rise in the number of households claiming long-term unemployment benefits could bring this year’s deficit from a planned €38.3bn to well above €40bn ($49bn, £27.7bn).
* the number of households claiming “unemployment benefit II”, the most basic form of welfare support, comparable to the UK’s income support, has risen from 2.9m to 3.9m since its introduction 15 months ago.
* According to a labour ministry document obtained by the FT, the actual number is even higher. The document shows the agency’s monthly reports, based on samples, had underestimated the number of claimants by 200,000 a month throughout last year, suggesting today’s figure was around 4.2m.
* estimates total payments in 2006 could reach €28bn, well above the €24.4bn provided for in the budget.
* loopholes appeared in the system that have led to a flood of claims. Young jobseekers, for instance, have moved out of their parents’ homes and into their own flats in order to claim generous rent subsidies.
* news that her fiscal consolidation plan may be in jeopardy could be a blessing for Ms Merkel. It should make it easier to justify a hefty, three-point increase in value-added tax planned for next January.
Never fails. People respond to incentives and shy away from disincentives. If you put a lot of incentives and subsidies on something (unemployment claims, house rental subsidies, etc.), then you'll have more claimants than what you expect. If you tax people more, like the planned 3 point increase in VAT, you'll discourage more investments and job creation that will solve your high unemployment, high unemployment claims spending. Many businessmen will still invest, of course, but not in home country where taxes are high and piling on each other. Many of them will do business elsewhere where taxes are lower, labor and environmental laws are more liberal, then send some income and profit back home.
Many left-leaning, welfarist, socialist and statist groups in the Philippines and other developing countries dream of following the welfare system of Germany, France and many European coutries. They want to force social equality by over-taxing and over-regulating the productive and hard-working people, give the money to guys who are encouraged by generous welfare, with the huge, thick and expensive layers of government bureaucracy and politicians as intermediaries.
Subsidizing personal irresponsibility and penalizing hard work is one formula for social equality and mediocrity. And this is the folly of socialism. As Larry Reed of Mackinac Center pointed out, "equal people are not free and free people are not equal". Not that Germany and other rich countries of Europe are largy socialist, they are still predominantly capitalist but the bureaucratic, high state welfare system and high taxes discourage certain individual initiatives and entrepreneurship of their citizens. European countries are just lucky that they have put up good and less corruptible institutions. Government personnel are less corruptible because of their high pay and generous allowances and pensions someday. But what was corrupted is the system of incentives and disincentives in society.
I guess this is one reason why a number of Asian countries are growing much faster than the rest of the world. Aside from certain philosophical and cultural ethics that drive their people to high ambitions, they are not burdened by strict government-mandated welfare standards and the energy-sapping bureaucratic regulations and taxes. For instance, people work 10 to 14 hours a day, 6 days a week (equivalent to 60 to 84 hours/week), and any government labor laws that limit people's work to only 35 or 40 hours/week are not strictly followed.
Rent-seeking and Government
In the book Government Failure: A Primer in Public Choice written by Tullock, Seldon and Brady (2002, published by Cato Institute, Washington DC), chapter 4 was entitled "The cost of rent-seeking", written by Prof. Gordon Tullock. Dr. Tullock defined the words "rent seeking" as "the use of resources for the purpose of obtaining rents for people where the rents themselves come from some activity that has negative social value."
Examples of rent-seeking are (a) trade protectionism, where the protected local industry benefits but the local consumers are worse off; (b) private monopolies, and (c) direct income transfers by government where A is taxed and B receives the money. The real cost of rent seeking, according to Tullock, comes from the distortion of the voting process. People vote for politicians and legislators who promise them special local projects, barely realizing that the cost of high taxes from many other taxpayers elsewhere, and the high taxes that they themselves pay to finance the special local projects elsewhere, is high.
But the indirect damage of rent-seeking, he says, is even worse than direct damage. Example of indirect damage is drawing a big number of intelligent and energetic people into an activity that has no social product, or may have a negative social product (example, political lobbying for special privileges and protections).
I would say that around 95 percent of all forms of government restrictions, from bureaucratic procedures in starting a business, to erecting rigid labor laws like setting up high minimum wages mandated by Congress, to welfarism financed by high and complicated taxes, are rent-seeking in nature. They are tying productive people's hands, siphoning off if not outrightly confiscating, their income and savings, and transferred to people often driven by envy and too lazy to accept personal responsibilities on things that ought to be their private domain. The huge government bureaucracy and long layers of politicians that stand in-between the people whose incomes are confiscated and the beneficiaries who wait for such wealth transfer, also eat up precious social resources.
* See also: Welfarism 2: France Riots, Taxes in Welfare States, November 17, 2005
Thursday, April 20, 2006
China Watch 1: World's Largest Economies, Population, 2005
The International Monetary Fund (IMF) has released today the full text of its World Economic Outlook (WEO), April 2006 issue (www.imf.org). I immediately checked the database, created my own table and arranged countries based on size of their economies represented by their Gross Domestic Product (GDP). To adjust for cost of living in each country, economists use the Purchasing Power Parity (PPP) valuation. I have a ranking of more than 180 countries, will show here only the top 25.
Its interesting to note that out of the 25 largest economies in the world in 2005, 9 are Asians (including Iran); and more interesting is that 3 Asian countries (China, Japan and India) are in the top 4 and have economies much larger than any of the European countries.
I also checked the ranking of countries in 1980, to see how countries fared 25 years ago, when the pace of globalization was slower (next table after the 2005 ranking). Back then, China and India ranked #s 8 and 9.
Over the last 25 years, China's GDP has increased by 21x, Korea's GDP has increased by 10.8x, Taiwan's by 9.4x, Thailand's by 8.6x, India's by 8.4x.
In contrast, over the last 25 years, the US's GDP has increased by 4.5x, Canada's by 4.2x, Mexico's by 3.8x, Brazil's by 3.5x. For the European countries, Spain's by 4.2x, UK's by 3.8x, France's by 3.4x, Germany's by 3.3x, Italy's by 3.1x.
Indeed, faster globalization has benefitted the Asians more than the North and South Americans, and the Europeans. No wonder anti-globalization sentiment is much stronger among Europeans and Americans than Asians.
Below are the 2 tables for 2005 and 1980 figures.
GDP based on PPP valuation of country GDP, US$ Billion, 2005
1. United States 12,277.6
2. China 9,412.4
3. Japan 3,910.7
4. India 3,633.4
5. Germany 2,521.7
6. United Kingdom 1,832.8
7. France 1,830.1
8. Italy 1,668.2
9. Brazil 1,576.7
10. Russia 1,575.6
11. Canada 1,104.7
12. Spain 1,089.1
13. Mexico 1,072.6
14. Korea 994.4
15. Indonesia 977.4
16. Taiwan 631.2
17. Australia 630.1
18. South Africa 570.2
19. Turkey 569.2
20. Iran 554.8
21. Thailand 544.8
22. Argentina 533.7
23. Netherlands 503.4
24. Poland 495.9
25. Philippines 414.7
GDP based on PPP valuation of country GDP, US$ Billion, 1980
1. United States 2,750.4
2. Japan 1,053.0
3. Germany 768.3
4. France 540.0
5. Italy 535.5
6. United Kingdom 475.7
7. Brazil 447.1
8. China 445.1
9. India 431.1
10. Mexico 278.5
11. Canada 267.6
12. Spain 257.5
13. Argentina 176.8
14. South Africa 167.3
15. Indonesia 148.5
16. Poland 147.3
17. Netherlands 141.0
18. Australia 131.7
19. Saudi Arabia 106.2
20. Philippines 103.4
21. Iran 98.8
22. Belgium 96.8
23. Turkey 96.6
24. Korea 92.4
25. Switzerland 80.3
World's Most Populous Countries, 2005
In the world's largest economies by GDP, PPP valuation, 9 of top 25 are Asians.
Of the world's 25 most populous countries, nearly half or 11 are Asians. The top 2 are occupied of course, by China and India, the only billion-plus population countries.
Mid-2005 Population estimates:
1. China 1,306.3
2. India 1,080.3
3. US 295.7
4. Indonesia 242.0
5. Brazil 186.1
6. Pakistan 162.4
7. Bangladesh 144.3
8. Russia 143.4
9. Nigeria 128.8
10. Japan 127.4
11. Mexico 106.2
12. Philippines 87.9
13. Vietnam 83.5
14. Germany 82.4
15. Egypt 77.5
16. Ethiopia 73.1
17. Turkey 69.7
18. Iran 68.0
19. Thailand 65.4
20. France 60.7
21. UK 60.4
22. Congo Dem. Rep. 60.1
23. Italy 58.1
24. S. Korea 48.4
25. Ukraine 47.4
(source: http://www.infoplease.com/ipa/A0004379.html)
Its interesting to note that out of the 25 largest economies in the world in 2005, 9 are Asians (including Iran); and more interesting is that 3 Asian countries (China, Japan and India) are in the top 4 and have economies much larger than any of the European countries.
I also checked the ranking of countries in 1980, to see how countries fared 25 years ago, when the pace of globalization was slower (next table after the 2005 ranking). Back then, China and India ranked #s 8 and 9.
Over the last 25 years, China's GDP has increased by 21x, Korea's GDP has increased by 10.8x, Taiwan's by 9.4x, Thailand's by 8.6x, India's by 8.4x.
In contrast, over the last 25 years, the US's GDP has increased by 4.5x, Canada's by 4.2x, Mexico's by 3.8x, Brazil's by 3.5x. For the European countries, Spain's by 4.2x, UK's by 3.8x, France's by 3.4x, Germany's by 3.3x, Italy's by 3.1x.
Indeed, faster globalization has benefitted the Asians more than the North and South Americans, and the Europeans. No wonder anti-globalization sentiment is much stronger among Europeans and Americans than Asians.
Below are the 2 tables for 2005 and 1980 figures.
GDP based on PPP valuation of country GDP, US$ Billion, 2005
1. United States 12,277.6
2. China 9,412.4
3. Japan 3,910.7
4. India 3,633.4
5. Germany 2,521.7
6. United Kingdom 1,832.8
7. France 1,830.1
8. Italy 1,668.2
9. Brazil 1,576.7
10. Russia 1,575.6
11. Canada 1,104.7
12. Spain 1,089.1
13. Mexico 1,072.6
14. Korea 994.4
15. Indonesia 977.4
16. Taiwan 631.2
17. Australia 630.1
18. South Africa 570.2
19. Turkey 569.2
20. Iran 554.8
21. Thailand 544.8
22. Argentina 533.7
23. Netherlands 503.4
24. Poland 495.9
25. Philippines 414.7
GDP based on PPP valuation of country GDP, US$ Billion, 1980
1. United States 2,750.4
2. Japan 1,053.0
3. Germany 768.3
4. France 540.0
5. Italy 535.5
6. United Kingdom 475.7
7. Brazil 447.1
8. China 445.1
9. India 431.1
10. Mexico 278.5
11. Canada 267.6
12. Spain 257.5
13. Argentina 176.8
14. South Africa 167.3
15. Indonesia 148.5
16. Poland 147.3
17. Netherlands 141.0
18. Australia 131.7
19. Saudi Arabia 106.2
20. Philippines 103.4
21. Iran 98.8
22. Belgium 96.8
23. Turkey 96.6
24. Korea 92.4
25. Switzerland 80.3
World's Most Populous Countries, 2005
In the world's largest economies by GDP, PPP valuation, 9 of top 25 are Asians.
Of the world's 25 most populous countries, nearly half or 11 are Asians. The top 2 are occupied of course, by China and India, the only billion-plus population countries.
Mid-2005 Population estimates:
1. China 1,306.3
2. India 1,080.3
3. US 295.7
4. Indonesia 242.0
5. Brazil 186.1
6. Pakistan 162.4
7. Bangladesh 144.3
8. Russia 143.4
9. Nigeria 128.8
10. Japan 127.4
11. Mexico 106.2
12. Philippines 87.9
13. Vietnam 83.5
14. Germany 82.4
15. Egypt 77.5
16. Ethiopia 73.1
17. Turkey 69.7
18. Iran 68.0
19. Thailand 65.4
20. France 60.7
21. UK 60.4
22. Congo Dem. Rep. 60.1
23. Italy 58.1
24. S. Korea 48.4
25. Ukraine 47.4
(source: http://www.infoplease.com/ipa/A0004379.html)
Wednesday, April 05, 2006
CSR as "mandatory requirement" = extortionism
There was a good article on corporate social responsibility (CSR) in Tech Central Station (www.tcsdaily.com) co-authored by Mr. Stagnaro and Mr. Kogan, entitled "Corporate Social Restriction". The 2 guys got the right adjective: restriction. Although I would add a more appropriate term: extortion.
Making those CSR benchmarks as "mandatory requirements" to be administered by statist NGOs + UN + national governments (or a mafia of statism and interventionism) is tantamount to extortion. You slug it out in a very competitive market, where your competitors are employing various cost-minimizing production techniques (through expensive R&D and innovation, through locating their factories in low-wages countries, etc.), so you must employ more innovative production processes since your consumers want "good quality goods and services at reasonable and competitive prices". You don't please your consumers, you lose them, they buy the products of your competitors. Later on you close shop, forget about "social responsibility", whether realistic or imposed upon you.
If you combine the various national government taxes/charges/fees + local government taxes/charges/fees + environmental clearances/permits/licenses/registrations + payment to third-party groups to make sure that you abide by the "mandatory CSR practices", that's a lot of expenses already on top of your normal production costs.
Taking care of the environment, giving out scholarships and free livelihood trainings to the communities, other social and ecological programs, are something that is up to corporations to undertake or not. These should be voluntary, not mandatory; freely provided, not coercively required.
Making those CSR benchmarks as "mandatory requirements" to be administered by statist NGOs + UN + national governments (or a mafia of statism and interventionism) is tantamount to extortion. You slug it out in a very competitive market, where your competitors are employing various cost-minimizing production techniques (through expensive R&D and innovation, through locating their factories in low-wages countries, etc.), so you must employ more innovative production processes since your consumers want "good quality goods and services at reasonable and competitive prices". You don't please your consumers, you lose them, they buy the products of your competitors. Later on you close shop, forget about "social responsibility", whether realistic or imposed upon you.
If you combine the various national government taxes/charges/fees + local government taxes/charges/fees + environmental clearances/permits/licenses/registrations + payment to third-party groups to make sure that you abide by the "mandatory CSR practices", that's a lot of expenses already on top of your normal production costs.
Taking care of the environment, giving out scholarships and free livelihood trainings to the communities, other social and ecological programs, are something that is up to corporations to undertake or not. These should be voluntary, not mandatory; freely provided, not coercively required.
Wednesday, March 29, 2006
Socialized Healthcare 1: More Government = Less Health Care
What restricts the poor to have access to efficient healthcare, and what prevents medicine development? Big and intrusive government.
About 50 per cent of people in parts of Asia and Africa have no access to medicines due to harmful government policies, reports the "Civil Society Report on Intellectual Property, Innovation and Health", released on March 28. The document was produced by 16 civil society organizations from around the world, and was released ahead of a report on a similar theme from the World Health Organisation (WHO). I was one of the many discussants actually in the final revision of the paper.
How does big and intrusive government restrict the poor access to efficient healthcare, as identified in the report?
1) High taxes and tariffs, up to 55 per cent on imported medicines price people out of treatment. In the Philippines, medicines and health services (like medical and dental check-ups, hospitalization, etc.) are also covered by the 12% VAT. Weak, sick and dying people are still taxed to prop up fiscally irresponsible and tax-hungry government.
2) Complicated and costly registration requirements, where many medicines already approved in the US, EU and Japan are simply not registered in most poor countries because manufacturers cannot justify the investment in registration.
3) Regulations by various government agencies, that hamper development of private health insurance. The poor are unable to obtain insurance and are only able to pay for treatments if they have sufficient savings, or must rely of charity or meagre government healthcare provision.
4) Price controls, supposedly to benefit the poor, actually reduce the availability of drugs, especially in distant rural regions, by making it uneconomic for pharmacies to stock them. Even in relatively wealthy South Africa, price controls have led to the closure of scores of rural pharmacies – leaving thousands of poor people without any access to medicines at all.
5) Inadequate protection for intellectual property in poor countries, this undermines incentives to invest in R&D for the diseases of poverty by making it more difficult to recover costs. The report found no evidence that intellectual property protection had hampered access to medicines.
I will add that restrictions in opening up new private schools for health sciences, new hospitals and clinics discourage the emergence of more health educational institutions that can churn out and supply more nurses, more doctors, other health professionals, to replace those who have migrated to wealthier countries. In the Philippines, thousands of Filipino nurses and doctors are leaving every year, affecting both government- and privately-run hospitals and clinics. If there is big demand for health professionals (domestically and internationally) or other professions, supply normally follows. Thus, greater supply should not be restricted by high corporate taxes and bureaucratic regulations that discourage more private enterprises that want to open up new health learning institutions.
Big and intrusive government is the author of big and multiple taxes; the administrator of multiple permits, licenses and fees, of a maze of regulations, registrations, inspections and accreditations. Ultimately, it is the main hindrance to the poor having greater access to cheaper and more effective medicines and health care.
If there are less taxes, less business regulations and registrations, more private enterprises that produce more medicines (from R&D to marketing), that build more hospitals and clinics, that open more colleges and universities offering health sciences, will spring up. The simple and old formula of "more competition" and NOT "more government regulations", should ensure that rich and poor alike, will have some access to various medicines and health care at various price ranges and packages.
(If you want electronic copy of the report, pdf form, 76 pages long including bibliography, write me: minimalgovernment@gmail.com)
About 50 per cent of people in parts of Asia and Africa have no access to medicines due to harmful government policies, reports the "Civil Society Report on Intellectual Property, Innovation and Health", released on March 28. The document was produced by 16 civil society organizations from around the world, and was released ahead of a report on a similar theme from the World Health Organisation (WHO). I was one of the many discussants actually in the final revision of the paper.
How does big and intrusive government restrict the poor access to efficient healthcare, as identified in the report?
1) High taxes and tariffs, up to 55 per cent on imported medicines price people out of treatment. In the Philippines, medicines and health services (like medical and dental check-ups, hospitalization, etc.) are also covered by the 12% VAT. Weak, sick and dying people are still taxed to prop up fiscally irresponsible and tax-hungry government.
2) Complicated and costly registration requirements, where many medicines already approved in the US, EU and Japan are simply not registered in most poor countries because manufacturers cannot justify the investment in registration.
3) Regulations by various government agencies, that hamper development of private health insurance. The poor are unable to obtain insurance and are only able to pay for treatments if they have sufficient savings, or must rely of charity or meagre government healthcare provision.
4) Price controls, supposedly to benefit the poor, actually reduce the availability of drugs, especially in distant rural regions, by making it uneconomic for pharmacies to stock them. Even in relatively wealthy South Africa, price controls have led to the closure of scores of rural pharmacies – leaving thousands of poor people without any access to medicines at all.
5) Inadequate protection for intellectual property in poor countries, this undermines incentives to invest in R&D for the diseases of poverty by making it more difficult to recover costs. The report found no evidence that intellectual property protection had hampered access to medicines.
I will add that restrictions in opening up new private schools for health sciences, new hospitals and clinics discourage the emergence of more health educational institutions that can churn out and supply more nurses, more doctors, other health professionals, to replace those who have migrated to wealthier countries. In the Philippines, thousands of Filipino nurses and doctors are leaving every year, affecting both government- and privately-run hospitals and clinics. If there is big demand for health professionals (domestically and internationally) or other professions, supply normally follows. Thus, greater supply should not be restricted by high corporate taxes and bureaucratic regulations that discourage more private enterprises that want to open up new health learning institutions.
Big and intrusive government is the author of big and multiple taxes; the administrator of multiple permits, licenses and fees, of a maze of regulations, registrations, inspections and accreditations. Ultimately, it is the main hindrance to the poor having greater access to cheaper and more effective medicines and health care.
If there are less taxes, less business regulations and registrations, more private enterprises that produce more medicines (from R&D to marketing), that build more hospitals and clinics, that open more colleges and universities offering health sciences, will spring up. The simple and old formula of "more competition" and NOT "more government regulations", should ensure that rich and poor alike, will have some access to various medicines and health care at various price ranges and packages.
(If you want electronic copy of the report, pdf form, 76 pages long including bibliography, write me: minimalgovernment@gmail.com)
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