A news report last August 29 at the IHT has this story,
http://www.iht.com/articles/2006/08/28/business/trade.php
U.S. urges the IMF to reflect new order
By Steven R. Weisman The New York Times
Published: August 28, 2006
Washington. The United States is seeking to increase the power of China and other countries within the International Monetary Fund to reflect their growing weight on the world economic stage, an effort that is
being resisted by some European countries whose voices could be weakened within the organization.
The Bush administration, arguing that the IMF has been "asleep" as the world economy changed, is seeking a first step that would grant more voting power immediately to four countries - China, South Korea, Turkey and Mexico - on the grounds that their economic growth entitles them to more influence.
But because the administration's proposal would mean less representation by some countries in Europe, it has run into objections and questions, especially among European countries that could lose power.
Resistance has come from Belgium, the Netherlands and Scandinavian countries, which might lose voting share to Spain, Ireland and other rapidly growing countries in Europe. In general, Europe would lose voting share to Asia and the United States. Poor countries in Africa also fear a loss of power...
Voting at the IMF is determined in part by a quota system that defines how much a country must contribute to the fund and how much it can borrow in emergencies. The United States has 30 percent of the world economy but only 17 percent share of the quotas; Europe's share of 23 percent is roughly equal to its share of the world economy.
The IMF, along with the World Bank, was created in 1944 at BrettonWoods, New Hampshire, as part of a postwar financial structure designed to avoid a repetition of the economic crises of the 1930s that preceded World War II. The fund has $28 billion in loansoutstanding to 74 of its 184 member countries, given out over the years to avert defaults, bankruptcies and other crises. In the early1990s, the fund was involved in bailing out Mexico.
Later in the decade it helped rescue Thailand, South Korea and several other Asian countries from insolvency. But since then the fund has had no major crises to deal with, and many recipients of its previous efforts have paid off their loans. Some economists joke that with little to do, board members have theluxury of squabbling among themselves for power over an organizationwith an ill- defined mission....
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I think the IMF is an abolishable institute that has become more of an expensive and intrusive bureaucracy to taxpayers around the world, than any help in terms of macroeconomic stabilization function that it used to do. But since IMF abolition is next to impossible in the minds of national politicians, Finance/Treasury, and Central Bank bureaucrats around the world, "re-engineering" its quota composition is the next best alternative.
Nonetheless, even the bureaucrats in the US Treasury Department still peddle a number of misconceptions about China and other industrializing developing economies. For instance, China's "overvalued" currency (the yuan) as the bane for the US' high trade deficit ($200B from China alone out of its $800+ B total trade deficitin 2005) and growing unemployment.
Come on guys, many US consumers buy China-made products (often by US multinational companies locating there) not so much because the yuan is "cheap", but mainly because of rigid US labor laws, ala-Europe's "expensive to hire, difficult to fire" policies, and paranoid immigration policies. Many potential migrants are willing to offer their cheap labor for US companies in the US mainland, so that said US companies can produce cheap and competitive goods and services, reducing the need to import a lot from China, Korea, Mexico, and soon.
Majority if not all bureaucrats at the IMF, as well as the US TreasuryDepartment and EU Finance Ministries, look like broken records in blaming China's (and India's and Turkey's and Korea's and Mexico's and many other countries') over-valued currencies and other global inflationary pressures (like the spiralling world oil prices) for theUS' and Europe's anemic growth and high unemployment rates. Why can't they look inwards and ask their own consumers, their very own citizens, why these people prefer bargains from abroad at the expense of local jobs and slow domestic growth? Should they blame their owncountrymen and consumers why they prefer to buy cheaper clothes and shoes, cheaper food and drinks, cheaper toys and vehicles, available from industrializing poor countries, or they blame the politicians andFinance/Central Bank bureaucrats of the latter?
As many people hunt for bargains everywhere, from bargain hotels and restaurants to bargain computers and shoes, the high-taxes countries of Europe and north America should expect slower economic growth and high unemployment rate. Because demand for their hotels and restaurants is not big, and demand for computers and shoes made in their countries is not big. High and multiple taxes -- to finance expensive welfare and bureaucracies, including internationalbureaucracies like the IMF, UN and the WB -- are inflationary. They make the prices of many goods and services produced in high taxes economies very expensive, and hence, far from bargains.
A re-engineering of the quota system at the IMF maybe a 2nd best alternative. And even such alternative meets fierce opposition by Finance bureaucrats of a number of European countries. They've gotten use to over-taxing their citizens and over-extending their power in the lives of citizens of poorer economies who borrow from the IMF.
There are not much relevance for the IMF even among fiscally irresponsible governments, like the Philippine government. Every year, the Phil. government makes about $7B foreign loans and another $7-8B domestic loans (in Peso value). About 60-70% ofthose foreign loans are from private bondholders abroad, the rest are mostly from the ADB and JBIC (Japan government's ODA lender), a few others from the WB and other government's foreign aid bodies. The Philippine government's Department of Finance (DOF) and central bank(BSP), even the Office of the President (OP) are more afraid of ratings downgrade by Standard & Poors, or by Fitch, or by another ratings firm, than from any visiting IMF bureaucrats makingmacroeconomic and external account reviews.
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Last June 21, 2006, I wrote this,
Why the IMF Should be Abolished
The IMF should ultimately be disbanded and abolished. I only have 2 main reasons for saying so: taxes and growing IMF irrelevance.
1) High cost to taxpayers of many international bureaucracies.
There are already so many government clubs now -- IMF, WB, UN, WTO, OECD, ADB, AfDB, APEC, G-77, EU, ASEAN, MERCUSOR, various other regional and bilateral clubs of governments. Such international and regional clubs cost money to taxpayers, and national and international bureaucrats just spend such tax money, from fat salaries and per diems to endless travels and conferences. Yes, they have various "development" projects, but for many taxpayers, the benefits of those projects are often less visible compared to their reduced welfare through high and multiple taxes removed from their pockets.
2) Growing irrelevance of the IMF.
Private bondholders, the main lenders to many fiscally-irresponsible governments, both rich and poor countries alike, do not look much to the IMF for macroeconomic scanning of governments wanting to float new bonds (ie, borrow from them), but to ratings agencies and big investment banks.
Such fiscally irresponsible governments spend more than what they can collect from taxes and privatization, so they borrow left and right and get more indebted. And irresponsible poor governments cannot borrow much from governments of rich countries either because many of them, the G7 countries's governments in particular, are themselves highly indebted.
General government gross debt as % of GDP, G7, 2005:
1) Japan 175.5%
2) Italy 106.3%
3) Canada 85.0%
4) Germany 67.5%
5) France 67.3%
6) US 62.9%
7) UK 43.3%
(source: IMF, World Economic Outlook, April 2006 database)
So, those spend-and-borrow governments, especially poor-country governments, turn to private bondholders, from individuals to corporations and banks. Bondholders would rather wait for Moody's or S&P or Fitch, whether they would downgrade or upgrade the credit ratings of a borrowing government, than look up to the IMF.
Not much relevance for IMF and many other government clubs. The money of taxpayers siphoned off by governments to sustain those international bureaucracies are better diverted as tax cuts, so taxpayers can better take care of themselves and their families, rather than be dependent on various subsidies from indebted and fiscally-irresponsible governments.
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See also:
Foreign Aid 4: Easterly vs. Sachs, May 01, 2006
Foreign Aid 5: Failure in East Timor, May 31, 2006
Tuesday, September 05, 2006
Limits of EFW rankings
Various economic freedom index studies (Fraser Institute's "Economic Freedom of the World" {EFW}), Heritage Foundation's "Economic Freedom Index", and so on) are useful, but they are not really precise.
The WB and IFC jointly produce an annual study, "Doing Business". Results of this good study I think are not taken into account by those EFW studies. Take their definition of "economic freedom" -- (a) full property rights and protection from forcible grabbing of property, and (b) ability to exchange (sell, lease, etc.) your property. This is very limited. Consider continental Europe like France, Germany, Italy, Belgium. Their very high unemployment rates of 9-11% annually means that employers and entrepreneurs in those countries do not have much "economic freedom" to hire people. The rigid government labor regulations and very strict environmental regulations tie the hands of entrepreneurs. Some of them would rather keep their firms small than expand and hire more people because hiring more workers means more labor laws to follow, more labor insurance and fees to pay.
On the other hand, some Asian industrializing countries like China, Korea, Thailand, Malaysia, HK, Taiwan, others (the Philippines not one of them, unfortunately), the entrepreneurs there have more "economic freedom" in ever-expanding their businesses, that results in more workers hired, more economic growth. But in the EFW index ranking, many of those Asian countries (China, Thailand, etc.) rank very low.
The WB and IFC jointly produce an annual study, "Doing Business". Results of this good study I think are not taken into account by those EFW studies. Take their definition of "economic freedom" -- (a) full property rights and protection from forcible grabbing of property, and (b) ability to exchange (sell, lease, etc.) your property. This is very limited. Consider continental Europe like France, Germany, Italy, Belgium. Their very high unemployment rates of 9-11% annually means that employers and entrepreneurs in those countries do not have much "economic freedom" to hire people. The rigid government labor regulations and very strict environmental regulations tie the hands of entrepreneurs. Some of them would rather keep their firms small than expand and hire more people because hiring more workers means more labor laws to follow, more labor insurance and fees to pay.
On the other hand, some Asian industrializing countries like China, Korea, Thailand, Malaysia, HK, Taiwan, others (the Philippines not one of them, unfortunately), the entrepreneurs there have more "economic freedom" in ever-expanding their businesses, that results in more workers hired, more economic growth. But in the EFW index ranking, many of those Asian countries (China, Thailand, etc.) rank very low.
Tuesday, August 08, 2006
Israel-Hezbollah war
First of all, I don't consider the current Israel-Hezbollah war a Middle East "crisis". There is no "crisis" situation, where, there's a 50-50 chance that Hezbollah will win in oblitaring Israel; or 50-50 chance that the whole of Lebanon will be invaded and occupied by Israel. Not a bit of that. If we have to use the term "crisis", the more appropriate term I think should be a "Hezbollah crisis" because there is a 50-50 chance, or even higher probability, that Hezbollah will be wiped out in southern Lebanon, at least temporarily. But if we refer to the whole of Mid-East, I'd prefer to call it a Middle East "conflict", one of those dozens of conflicts in the region, dating back from the creation of the state of Israel in 1948. Or if you want a longer view, dating back thousands of years ago, before Jesus Christ, where conflict among the Jews, Palestines, other groups have been on-going.
In the first 2 weeks of Israel invasion of Hezbollah territories in southern Lebanon, I noticed the absence of loud condemnation in the same level as the anti-Iraq war prior and during the invasion, even among the Arab countries. I think there is general recognition (with denial by the minority) in the world that Hezbollah has only 1 strategic goal: the destruction of Israeli state, and reclaim the land where the Israelis now settle, give the land to the Palestinians and other Arabs. The song "this land is mine" seems to be the common song of both Israelis and anti-Israeli Arabs.
I think the Hezbollah and its back-up force, Iranian government, know pretty well that they have very little chance of ever achieving their goal of "vaporizing" Israel. What they hoped perhaps, is large-scale sympathy by the Arab citizens and pressure their own governments (Saudi, Egypt, Syria, Jordan, others) to send in their own armies, fighter planes and tanks to square off with Israel's armed forces once more. But the lesson of the past wars (especially '67, '73, and early 80s wars) was still very clear: invading troops meet their deaths on Israeli lands, and Israel will have the option of further expanding its territory if it wants to. But then people are entitled to their dreams.
For the leaders of Hamas, Fatah, Hezbollah, other militants, even if their dreams will take 100 years, 200 years, even longer to materialize, they will pursue their dreams. My modest estimate is that the Mid-east conflict will be with us for at least another 100 years. What all those ceasefire talks and resolutions can achieve is only to mitigate the conflict, say instead of 10,000 possible deaths on both sides, occassional ceasefires will reduce the casualties to only 2,000 or less. But the deep-seated hatred by the militant Palestininans and Arabs against Israel will remain in their hearts, and in the hearts of their children 3 or more generations away. So is in the hearts of Israelis, of their deep-seated beliefs that the lands they currently settle is theirs, and no foreigner has the right to uproot them from their lands.
Relating the current conflict in the literature of free market and limited government movement around the world, this highlights the important function of government -- to protect lives and properties, to assert territorial rights of citizens to their lands. And all the other welfare functions (subsidies for education, health care, housing, pension, credit, farming, etc.) become secondary. Because citizens can secure for themselves those social and welfare services on their own, if they will only assume greater personal responsibility of their lives and rely less on government responsibilities. Because the bigger government responsibility, is the protection of citizens' lives, properties, and individual liberties.
In the first 2 weeks of Israel invasion of Hezbollah territories in southern Lebanon, I noticed the absence of loud condemnation in the same level as the anti-Iraq war prior and during the invasion, even among the Arab countries. I think there is general recognition (with denial by the minority) in the world that Hezbollah has only 1 strategic goal: the destruction of Israeli state, and reclaim the land where the Israelis now settle, give the land to the Palestinians and other Arabs. The song "this land is mine" seems to be the common song of both Israelis and anti-Israeli Arabs.
I think the Hezbollah and its back-up force, Iranian government, know pretty well that they have very little chance of ever achieving their goal of "vaporizing" Israel. What they hoped perhaps, is large-scale sympathy by the Arab citizens and pressure their own governments (Saudi, Egypt, Syria, Jordan, others) to send in their own armies, fighter planes and tanks to square off with Israel's armed forces once more. But the lesson of the past wars (especially '67, '73, and early 80s wars) was still very clear: invading troops meet their deaths on Israeli lands, and Israel will have the option of further expanding its territory if it wants to. But then people are entitled to their dreams.
For the leaders of Hamas, Fatah, Hezbollah, other militants, even if their dreams will take 100 years, 200 years, even longer to materialize, they will pursue their dreams. My modest estimate is that the Mid-east conflict will be with us for at least another 100 years. What all those ceasefire talks and resolutions can achieve is only to mitigate the conflict, say instead of 10,000 possible deaths on both sides, occassional ceasefires will reduce the casualties to only 2,000 or less. But the deep-seated hatred by the militant Palestininans and Arabs against Israel will remain in their hearts, and in the hearts of their children 3 or more generations away. So is in the hearts of Israelis, of their deep-seated beliefs that the lands they currently settle is theirs, and no foreigner has the right to uproot them from their lands.
Relating the current conflict in the literature of free market and limited government movement around the world, this highlights the important function of government -- to protect lives and properties, to assert territorial rights of citizens to their lands. And all the other welfare functions (subsidies for education, health care, housing, pension, credit, farming, etc.) become secondary. Because citizens can secure for themselves those social and welfare services on their own, if they will only assume greater personal responsibility of their lives and rely less on government responsibilities. Because the bigger government responsibility, is the protection of citizens' lives, properties, and individual liberties.
Thursday, June 29, 2006
Inflation and CBs 1: Central Banks Can Be Anti-Globalists
When the price of certain goods and services is rising, the old but realiable law of supply and demand has an explanation. This means either or both of two things happen:
a) Fast growth in demand relative to their supply due to increase in consumers' income, change in their tastes and preferences, other reasons; and/or
b) Shrank or decreased supply (both local and global supply) relative to stable or increased demand due to natural disasters that wiped out harvests, big fires/terrorist attacks that destroyed the production plants, and other reasons.
These temporary "market failures" also create market solutions. A rise in the price of certain goods and services would invite entrepreneurs and businessmen to go and supply those commodities to cash in potentially high profits, even temporarily.
Now comes central banks (Federal Reserve, Bangko Sentral, etc.) and their inflation-targeting policies and philosophies. When a central bank rushes in to "control inflationary pressure" in the economy, it has lots of tools in its wings that it can manipulate: reduce money supply by raising overnight rates of commercial banks, raise their required reserves (RRs), among others. When this happens, this also squeezes short-term credits to entrepreneurs who would have otherwise put up new firms, or expand existing companies' operations, to supply certain goods and services that experience supply gap or reduction, whether temporarily or permanently.
It is possible to have hyper-inflation (very high rise in prices) in some commodities and deflation (reduction in prices) in other commodities, all happening at the same time. For instance, a hyper-inflation in school supplies (say the 2 largest manufacturing plants and suppliers were gutted by fire) and a deflation in burgers, pizza and softdrinks (say Coke, Pepsi, McDonald, Burger King, Jollibee, dozen other companies engaged in a sudden and fierce price war). In this case, there is no need for national government or central bank interventions to stabilize prices.
Recently, the Bank for International Settlements (BIS), also known as central bankers' bank (not the IMF), cautioned central banks around the world to prepare to raise interest rates due to (i) rising global inflationary pressure, and (ii) vulnerability to "bang" in market turbulence. Let's take these one by one.
The main drivers of global inflationary pressure are (a) high and volatile oil prices, and (b) still insufficient trade liberalization across countries. There aren't much the world can do on (a) partly because some poor countries have experienced fast economic growth (think of China and India alone) and their people are buying vehicles and boats and appliances left and right. Oil refineries are also not catching up fast enough (no thanks to hurricanes Katrina and others) to supply big demand. There are other reasons for the high world oil prices.
On (b), many countries, or more appropriately, politicians and trade negotiators of those countries, would only blame their counterparts in other countries, that is why they are closing off a big portion of their economies from foreign imports of certain commodities. That is, they are depriving their citizens of more options. These imported commodities (which are just surplus production in the exporting countries, are cheaply produced there) could have reduced inflation, even result in temporary deflation, for the sectors/commodities of the importing countries if only they allowed those goods to enter. Again, no need for national governments and central banks to come and intervene.
Central banks, the BIS and US Fed particularly, think they must make borrowers poorer by raising their cost of borrowing; by making the cost of money for business expansion that should help boost supply that should fight inflationary pressure, more expensive. After all, they are waging a holy war against global inflationary pressures.
a) Fast growth in demand relative to their supply due to increase in consumers' income, change in their tastes and preferences, other reasons; and/or
b) Shrank or decreased supply (both local and global supply) relative to stable or increased demand due to natural disasters that wiped out harvests, big fires/terrorist attacks that destroyed the production plants, and other reasons.
These temporary "market failures" also create market solutions. A rise in the price of certain goods and services would invite entrepreneurs and businessmen to go and supply those commodities to cash in potentially high profits, even temporarily.
Now comes central banks (Federal Reserve, Bangko Sentral, etc.) and their inflation-targeting policies and philosophies. When a central bank rushes in to "control inflationary pressure" in the economy, it has lots of tools in its wings that it can manipulate: reduce money supply by raising overnight rates of commercial banks, raise their required reserves (RRs), among others. When this happens, this also squeezes short-term credits to entrepreneurs who would have otherwise put up new firms, or expand existing companies' operations, to supply certain goods and services that experience supply gap or reduction, whether temporarily or permanently.
It is possible to have hyper-inflation (very high rise in prices) in some commodities and deflation (reduction in prices) in other commodities, all happening at the same time. For instance, a hyper-inflation in school supplies (say the 2 largest manufacturing plants and suppliers were gutted by fire) and a deflation in burgers, pizza and softdrinks (say Coke, Pepsi, McDonald, Burger King, Jollibee, dozen other companies engaged in a sudden and fierce price war). In this case, there is no need for national government or central bank interventions to stabilize prices.
Recently, the Bank for International Settlements (BIS), also known as central bankers' bank (not the IMF), cautioned central banks around the world to prepare to raise interest rates due to (i) rising global inflationary pressure, and (ii) vulnerability to "bang" in market turbulence. Let's take these one by one.
The main drivers of global inflationary pressure are (a) high and volatile oil prices, and (b) still insufficient trade liberalization across countries. There aren't much the world can do on (a) partly because some poor countries have experienced fast economic growth (think of China and India alone) and their people are buying vehicles and boats and appliances left and right. Oil refineries are also not catching up fast enough (no thanks to hurricanes Katrina and others) to supply big demand. There are other reasons for the high world oil prices.
On (b), many countries, or more appropriately, politicians and trade negotiators of those countries, would only blame their counterparts in other countries, that is why they are closing off a big portion of their economies from foreign imports of certain commodities. That is, they are depriving their citizens of more options. These imported commodities (which are just surplus production in the exporting countries, are cheaply produced there) could have reduced inflation, even result in temporary deflation, for the sectors/commodities of the importing countries if only they allowed those goods to enter. Again, no need for national governments and central banks to come and intervene.
Central banks, the BIS and US Fed particularly, think they must make borrowers poorer by raising their cost of borrowing; by making the cost of money for business expansion that should help boost supply that should fight inflationary pressure, more expensive. After all, they are waging a holy war against global inflationary pressures.
Wednesday, June 28, 2006
Welfarism 5: Germany's Tax Hikes
Three weeks ago, May 12, I wrote this:
The government of Chancellor Angela Merkel found a solution to address Germany's financial needs to retain its expensive welfarism programs while avoiding budget deficit of 3 percent of GDP or higher -- by raising VAT from 16 percent to 19 percent. Taxpayers in the private sector naturally, raised howl as their money will buy less since the government will siphon off nearly 1/5 of the retail prices of the goods and services that they will consume. They protest, and rightly so, that their government has deemed it more important to raise already high taxes, than cut expenditures and pursue painful but necessary reforms in social security and the labor market.
The projected increase in government revenue from such 3 percentage point increase in VAT would be E8.1B ($10B) this year.
In addition, the government will also scrap selected tax rebates for individuals and introduce a 3 percentage-point top-up tax for high earners. In effect, this package of "tax reforms" is a double whammy of hikes in both income tax and consumption tax! Boy, if you're a politician and a high level government bureaucrat, what more can you ask? You got most of the money you want, forcibly taken away from the pockets of citizens, and spend that money on whatever programs you have in mind. From retaining if not expanding the already expensive welfare programs, to paying off large debts (principal + interest) accummulated through the years again, to finance the elaborate domestic welfarism and external military and foreign aid expenditures.
* But on the EU front, Ms. Merkel proposed slashing EU legislation by 25 percent in an effort to shrink the EU bureaucracy and encourage entrepreneurship (www.ft.com, May 11, 2006, "Germany proposes cutting EU laws by 25%", by Bertrand Benoit).
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Ms. Merkel ran on promises of more competition, smaller bureaucracy and tax cuts. Eight months into the office and she has already hiked VAT from 16 to 19 percent, effective January next year. In the works is another tax hike, possibly in income tax.
Why the double-whammy of tax hikes? You bet it, to finance welfare hikes. The new plan is to spur birth rate, to arrest the "greying" of the population, and encourage working women to have a family then return to work. This will necessitate expanding the already expensive and bureaucratic health care system, to cover children that would cost from €16 to €25 billion, or $20 to $31 billion.
Currently, around 90 percent of German adults are insured through 250 health care insurance companies, a system that eats up money with little accountability. Patients in the public system do not receive bills. Instead, the doctor is reimbursed through the patient's public insurance company. Conversely, in the private health insurance system, patients receive a bill that meticulously records the cost of each treatment.
Again this is another kind of "social engineering" by the politicians and the dominant political parties. They did some social engineering in the past, something that discouraged people from having bigger families, or from having a family in the first place. So, this new round of social engineering is to reverse that, to encourage people to have more babies, so that those children will work someday to finance the unfunded social security and health care currently enjoyed by their grandparents, and in a few years to be enjoyed by their parents.
If falling birth rate, and expensive, bureaucratic public health care are the problems, then I think new round of tax hikes and more welfare are not the answers. Instead, the government should (a) loosen the welfare system and cut taxes, allow individuals and households to assume greater responsibility for their families, from education to housing and health care. And government should (b) relax entry of migrants from other countries when demand for them by households and the citizens increased. How would these twin moves help encourage bigger families?
When parents have bigger disposable income and immigration is relaxed, they will hire nannies and domestic workers from abroad who will help them take care of their kids and the house while the couple is working and partying sometimes.
I have a German friend, a lawyer, who married a beautiful Filipina, also a friend, and they live south of Munich. They have a handsome son with a good Euro-Asian features (white skin, black eyes, and so on). Their son is a bit sickly sometimes, and the wife can possibly work if she wants to. So I asked my German friend why they will not hire a Filipina nanny to help them with the kids and household work. After all, the wife can find someone in the Philippines whom they can trust very well, and the pay is not expensive. My German friend said, "No Nonoy, it's very expensive to hire a nanny here. I can pay for her monthly pay, but I will also have to pay for her health insurance, social security insurance, unemployment insurance, and many other government-required insurance and welfare programs." Well, not to mention the difficulty of getting a work visa in Germany.
Germany's welfare vs. tax woes is a good case to watch for those in many poor countries. Many of our politicians, NGO and labor leaders, academics and media people, some businessmen, and foreign aid staff and consultants, "envy" the extensive welfare system of Germany and many European countries. They want to replicate many of those system in their respective poor countries, to "fight poverty". And so they are all one in justifying high and multiple taxes, especially in "taxing the rich", so the poor can be given generous welfare, from free education (elementary to university) to free hospitalization, and so on.
I say to them: don't arrogate personal responsibilities to the "collective"; don't assign parental responsibilities to government responsibilities; and don't confiscate parents' incomes for government and politicians' funding.
Related story, see http://www.iht.com/articles/2006/06/27/news/germany.php
* See also:
Welfarism 1: Dependence vs. Individual Responsibility, October 17, 2005
Welfarism 2: France Riots, Taxes in Welfare States, November 17, 2005
Welfarism 3: Spiraling Costs and Rent-Seeking, April 21, 2006
Welfarism 4: Italy's Fiscal Woes, Kid Glove to Criminals, May 29, 2006
The government of Chancellor Angela Merkel found a solution to address Germany's financial needs to retain its expensive welfarism programs while avoiding budget deficit of 3 percent of GDP or higher -- by raising VAT from 16 percent to 19 percent. Taxpayers in the private sector naturally, raised howl as their money will buy less since the government will siphon off nearly 1/5 of the retail prices of the goods and services that they will consume. They protest, and rightly so, that their government has deemed it more important to raise already high taxes, than cut expenditures and pursue painful but necessary reforms in social security and the labor market.
The projected increase in government revenue from such 3 percentage point increase in VAT would be E8.1B ($10B) this year.
In addition, the government will also scrap selected tax rebates for individuals and introduce a 3 percentage-point top-up tax for high earners. In effect, this package of "tax reforms" is a double whammy of hikes in both income tax and consumption tax! Boy, if you're a politician and a high level government bureaucrat, what more can you ask? You got most of the money you want, forcibly taken away from the pockets of citizens, and spend that money on whatever programs you have in mind. From retaining if not expanding the already expensive welfare programs, to paying off large debts (principal + interest) accummulated through the years again, to finance the elaborate domestic welfarism and external military and foreign aid expenditures.
* But on the EU front, Ms. Merkel proposed slashing EU legislation by 25 percent in an effort to shrink the EU bureaucracy and encourage entrepreneurship (www.ft.com, May 11, 2006, "Germany proposes cutting EU laws by 25%", by Bertrand Benoit).
------
Ms. Merkel ran on promises of more competition, smaller bureaucracy and tax cuts. Eight months into the office and she has already hiked VAT from 16 to 19 percent, effective January next year. In the works is another tax hike, possibly in income tax.
Why the double-whammy of tax hikes? You bet it, to finance welfare hikes. The new plan is to spur birth rate, to arrest the "greying" of the population, and encourage working women to have a family then return to work. This will necessitate expanding the already expensive and bureaucratic health care system, to cover children that would cost from €16 to €25 billion, or $20 to $31 billion.
Currently, around 90 percent of German adults are insured through 250 health care insurance companies, a system that eats up money with little accountability. Patients in the public system do not receive bills. Instead, the doctor is reimbursed through the patient's public insurance company. Conversely, in the private health insurance system, patients receive a bill that meticulously records the cost of each treatment.
Again this is another kind of "social engineering" by the politicians and the dominant political parties. They did some social engineering in the past, something that discouraged people from having bigger families, or from having a family in the first place. So, this new round of social engineering is to reverse that, to encourage people to have more babies, so that those children will work someday to finance the unfunded social security and health care currently enjoyed by their grandparents, and in a few years to be enjoyed by their parents.
If falling birth rate, and expensive, bureaucratic public health care are the problems, then I think new round of tax hikes and more welfare are not the answers. Instead, the government should (a) loosen the welfare system and cut taxes, allow individuals and households to assume greater responsibility for their families, from education to housing and health care. And government should (b) relax entry of migrants from other countries when demand for them by households and the citizens increased. How would these twin moves help encourage bigger families?
When parents have bigger disposable income and immigration is relaxed, they will hire nannies and domestic workers from abroad who will help them take care of their kids and the house while the couple is working and partying sometimes.
I have a German friend, a lawyer, who married a beautiful Filipina, also a friend, and they live south of Munich. They have a handsome son with a good Euro-Asian features (white skin, black eyes, and so on). Their son is a bit sickly sometimes, and the wife can possibly work if she wants to. So I asked my German friend why they will not hire a Filipina nanny to help them with the kids and household work. After all, the wife can find someone in the Philippines whom they can trust very well, and the pay is not expensive. My German friend said, "No Nonoy, it's very expensive to hire a nanny here. I can pay for her monthly pay, but I will also have to pay for her health insurance, social security insurance, unemployment insurance, and many other government-required insurance and welfare programs." Well, not to mention the difficulty of getting a work visa in Germany.
Germany's welfare vs. tax woes is a good case to watch for those in many poor countries. Many of our politicians, NGO and labor leaders, academics and media people, some businessmen, and foreign aid staff and consultants, "envy" the extensive welfare system of Germany and many European countries. They want to replicate many of those system in their respective poor countries, to "fight poverty". And so they are all one in justifying high and multiple taxes, especially in "taxing the rich", so the poor can be given generous welfare, from free education (elementary to university) to free hospitalization, and so on.
I say to them: don't arrogate personal responsibilities to the "collective"; don't assign parental responsibilities to government responsibilities; and don't confiscate parents' incomes for government and politicians' funding.
Related story, see http://www.iht.com/articles/2006/06/27/news/germany.php
* See also:
Welfarism 1: Dependence vs. Individual Responsibility, October 17, 2005
Welfarism 2: France Riots, Taxes in Welfare States, November 17, 2005
Welfarism 3: Spiraling Costs and Rent-Seeking, April 21, 2006
Welfarism 4: Italy's Fiscal Woes, Kid Glove to Criminals, May 29, 2006
Monday, June 26, 2006
Pol. Ideology 5: Have Movements for Liberty Progressed?
Prof. Tibor Machan, a faculty at Argyros School of Business & Economics, Chapman University, and a researchfellow at the Hoover Institution, Stanford University, wrote a paper, "Are we making progress?". Here's a portion of his paper:
While it is true that the number of free market think tanks around the world is expanding, so is the number of statist think tanks and organizations. From NGOs to government think tanks and multilateral, foreign aid think tanks. In the Philippines for example, for every free-market oriented think tank that is created, there are at least a hundred NGOs, pressure groups and think tanks that advocate continued big, if not bigger, government intervention in the economy and society.
Another indicator that I consider in saying the rather pessimistic answer, is the ratio of government spending (G) as a percentage of GDP. This ratio will somehow tell you how strong is the intellectual influence of free market think tanks and individuals in shaping public policy, especially in the dollars and cents aspect of government expenditures and taxation, in each country. The more successful the the free marketers are, the G/GDP ratio should be declining through time. The less successful they are, the ratio will either remain flat if not increase through time. Below are some relevant data.
General Government* Expenditures as % of GDP, 2002 (unless year is specified)
Sweden 56.7%
Denmark 55.9%
France 52.4%
Austria 51.2%
Belgium 49.7% (2001)
Germany 48.6%
Netherlands 46.6%
Italy 46.4% (2000)
UK 40.8%
Switzerland 35.4% (2001)
Poland 42.9%
Czech Rep. 42.2%
Slovak Rep. 40.0%
Russia 37.0%
Australia 35.7%
S. Africa 32.2%
Thailand 21.1%
(source: IMF, Government Finance Statistics Yearbook, 2003)
* General government = central/national government + state/provincial & municipal governments
Data is not available for the US, Canada, Japan, China, other big economies. Only central government expenditures as % of GDP is available, but this will not make data comparison possible because general government includes expenditures by state/provincial and local government units (LGUs).
For the Philippines, expenditures of the national government is around 18% of GDP. If expenditures by LGUs (because they also raise their own taxes and revenues on top of transfers by the national government) are included, it could be around 22% of GDP.
Now, these numbers often do not include unfunded social security and medicare or health claims, both present and future claims. This is an indicator of how welfarist and nanny-statist governments are. That is, the extent of what should have been personal and parental responsibilities, have been arrogated to the "collective" as social and government responsibilities. And so, the higher the ratio, the more welfarist, the more government responsibilities, and the lesser personal responsibilities, are assigned.
Here, the numbers can be scary. For instance, it's about 200% of GDP in France. In the US, unfunded social security and medicare claims is estimated to be $36 trillion, or around 300% of GDP. When public debt and other traditional federal liabilities are included, the total U.S. federal debt is over $46 trillion, or nearly 400% of GDP!
So, if my personal assessment that the movements for liberty and free market have not progressed as fast as the movements for big government (local, national, international), does it mean that we're weak and not doing well enough? I don't think so. Maybe many of us have not yet dwelt into the harder campaigns for lesser government responsibility and lesser taxation.
About statist intellectuals and think tanks reaching far high in justifying high and multiple taxes in many countries partly to finance giant international bureaucracies like the UN, WB, IMF, ADB, and other foreign aid bodies and agencies, they are indeed successful. That is why think tanks who call themselves "free market-oriented" should not live off on funding from foreign aid money, money taken from the pockets of citizens of rich countries. Because if they should go into the hard campaign of tax cuts and smaller government, being indebted to foreign aid money will be a hindrance.
* See also:
Pol. Ideology 4: Comments to Minimal Government Manifesto, December 05, 2005
OK, but when compared to what statists are doing, is this anywhere sufficient to advance the cause of liberty? Is it only that the pie ofintellectual activism is growing, with everyone having pretty much the same percentage of a slice of it as forty years ago or is the percentage of the slice with libertarian content growing compared to the rest?...
I think most of those who have devoted much of their energy to studying and defending the free society, in various areas of specialty or in the mostgeneral terms, would wish to know just how the movement is faring. I am sure those who are championing opposite ideas and ideals would also like to know how well they are doing in the war of ideas. I do know that some have reached great influence, for example, with the United Nations, The World Bank, the International Monetary Fund and similar outfits. And they have no compunction about utilizing money extorted from the rest of us to promote their agenda....From my observations in my country, as well as what I can gather from some friends abroad, my gut feel tells me that the answer to the question, "is the percentage of the slice with libertarian content growing compared with the rest?" is NO.
While it is true that the number of free market think tanks around the world is expanding, so is the number of statist think tanks and organizations. From NGOs to government think tanks and multilateral, foreign aid think tanks. In the Philippines for example, for every free-market oriented think tank that is created, there are at least a hundred NGOs, pressure groups and think tanks that advocate continued big, if not bigger, government intervention in the economy and society.
Another indicator that I consider in saying the rather pessimistic answer, is the ratio of government spending (G) as a percentage of GDP. This ratio will somehow tell you how strong is the intellectual influence of free market think tanks and individuals in shaping public policy, especially in the dollars and cents aspect of government expenditures and taxation, in each country. The more successful the the free marketers are, the G/GDP ratio should be declining through time. The less successful they are, the ratio will either remain flat if not increase through time. Below are some relevant data.
General Government* Expenditures as % of GDP, 2002 (unless year is specified)
Sweden 56.7%
Denmark 55.9%
France 52.4%
Austria 51.2%
Belgium 49.7% (2001)
Germany 48.6%
Netherlands 46.6%
Italy 46.4% (2000)
UK 40.8%
Switzerland 35.4% (2001)
Poland 42.9%
Czech Rep. 42.2%
Slovak Rep. 40.0%
Russia 37.0%
Australia 35.7%
S. Africa 32.2%
Thailand 21.1%
(source: IMF, Government Finance Statistics Yearbook, 2003)
* General government = central/national government + state/provincial & municipal governments
Data is not available for the US, Canada, Japan, China, other big economies. Only central government expenditures as % of GDP is available, but this will not make data comparison possible because general government includes expenditures by state/provincial and local government units (LGUs).
For the Philippines, expenditures of the national government is around 18% of GDP. If expenditures by LGUs (because they also raise their own taxes and revenues on top of transfers by the national government) are included, it could be around 22% of GDP.
Now, these numbers often do not include unfunded social security and medicare or health claims, both present and future claims. This is an indicator of how welfarist and nanny-statist governments are. That is, the extent of what should have been personal and parental responsibilities, have been arrogated to the "collective" as social and government responsibilities. And so, the higher the ratio, the more welfarist, the more government responsibilities, and the lesser personal responsibilities, are assigned.
Here, the numbers can be scary. For instance, it's about 200% of GDP in France. In the US, unfunded social security and medicare claims is estimated to be $36 trillion, or around 300% of GDP. When public debt and other traditional federal liabilities are included, the total U.S. federal debt is over $46 trillion, or nearly 400% of GDP!
So, if my personal assessment that the movements for liberty and free market have not progressed as fast as the movements for big government (local, national, international), does it mean that we're weak and not doing well enough? I don't think so. Maybe many of us have not yet dwelt into the harder campaigns for lesser government responsibility and lesser taxation.
About statist intellectuals and think tanks reaching far high in justifying high and multiple taxes in many countries partly to finance giant international bureaucracies like the UN, WB, IMF, ADB, and other foreign aid bodies and agencies, they are indeed successful. That is why think tanks who call themselves "free market-oriented" should not live off on funding from foreign aid money, money taken from the pockets of citizens of rich countries. Because if they should go into the hard campaign of tax cuts and smaller government, being indebted to foreign aid money will be a hindrance.
* See also:
Pol. Ideology 1: Minimal Government Manifesto, October 18, 2005
Pol. Ideology 2: Evolution of Market and State, October 25, 2005
Pol. Ideology 3: Liberal vs. Libertarian, November 06, 2005
Pol. Ideology 4: Comments to Minimal Government Manifesto, December 05, 2005
Wednesday, June 21, 2006
Spontaneous Market 3: No Nurses' Brain Drain
There's a short but clear argument why nurses' migration from the Philippines and other poor countries to the rich countries should not be considered as "brain drain", but a positive thing for the country of the departing nurses. Mr. Michael Clemens posted (May 25, 2006) in
http://blogs.cgdev.org/globaldevelopment/2006/05/nurse_drain_a_problem_think_ag.php
and argued the following:
"Nurse Drain A Problem? Think Again
The effect of nurse emigration on the countries of origin is not that simple, despite yesterday's somber New York Times piece, "U.S. Plan to Lure Nurses May Hurt Poor Nations." Yes, the Philippines has been the world's top exporter of nurses for decades, but today it has more nurses than almost any other country in its income group. According to the World Health Organization (PDF), it actually has more nurses per capita than Great Britain. Why? Because there is no such thing as a fixed quantity of nurses to be "drained" from the Philippines or Africa, like petroleum from the ground. People -- in this case mostly low-income women -- react to global markets and change their career plans accordingly. Many Filipinas wouldn't have become nurses if not for the migration opportunity, and thus are not 'lost' in any sense when they depart. Africans are starting to follow suit, opening career paths for professional women who would otherwise have few. This should not be discouraged through closed immigration policy, but rather taken advantage of -- through the establishment of for-export nurse training programs as the Philippines has done en masse. Unlike petroleum, these women are human beings. They have rights and ambitions whose fruition in the United States is a beautiful thing."
Mr. Clemens is right. In the Philippines now, many career people shift to nursing so they can easily be hired in the US, Canada and UK. Physicians and doctors, engineers and architects, lawyers and managers, teachers and civil servants, among others, have shifted career, studied nursing, passed the nursing board exams, and waited for their turn to be hired abroad.
The supply of nursing students have greatly increased, and the number of private colleges and universities, as well as private hospitals offering BS nursing, have also increased. There will be no "under-supply" in the nursing and health professionals in the Philippines as there is a steady stream of new students and other professionals shifting career to the health sector. Although admittedly, there are some short-term problems, like large-scale exodus of experienced nurses and doctors from provincial hospitals, creating an immediate "vacuum" of experienced health professionals in some parts of the country.
But there are also short-term and immediate gains, like ever-increasing remittances of overseas Filipino workers (OFWs) back to their families. Total remittances via official financial channels in 2005 was $10.7 billion, and estimated remittances via friends and other unofficial channels is at least $3 billion more. This year 2006, projected remittances will reach $12 billion, or an average of $1 billion a month, excluding several billion $ of remittances via friends and unofficial channels.
In addition, some sick and well-off people in rich countries who get impatient with protectionism of their countries by limiting the entry of foreign nurses, doctors and other health professionals, come to the Philippines' many hospitals and private clinics for medical treatment and check-ups. This phenomenon is now called "medical tourism", and there are a number of local and foreign entrepreneurs wanting to cash in on this emerging phenomenon.
There are also a number of plans and projects on-going to develop "retirement villages" in some parts of the Philippines, where retirees and old people from other countries, as well as returning Filipinos who have worked abroad for decades, can stay and retire. Health caregiving and nursing are essential components of those retirement villages.
Finally, many of those nurses and physicians who have worked abroad for many years come back home, not as nurses and physicians, but as businessmen and entrepreneurs, or at least managers, of new or expanded hospitals and clinics for medical tourism and retirement villages.
Overall, there is no such thing as "brain drain". Only short-term reallocation of human resources, and long-term gains of freeing people to seek their own fortunes, and remitting back savings and investments into their folks and families in their home countries. These are all part of spontaneous reallocation of resources and individual or household priorities.
* See also:
Spontaneous Market 1: Profit, Trade and Personal Responsibility, May 22, 2006
Spontaneous Market 2: Market Failure vs. Government Failure, June 07, 2006
http://blogs.cgdev.org/globaldevelopment/2006/05/nurse_drain_a_problem_think_ag.php
and argued the following:
"Nurse Drain A Problem? Think Again
The effect of nurse emigration on the countries of origin is not that simple, despite yesterday's somber New York Times piece, "U.S. Plan to Lure Nurses May Hurt Poor Nations." Yes, the Philippines has been the world's top exporter of nurses for decades, but today it has more nurses than almost any other country in its income group. According to the World Health Organization (PDF), it actually has more nurses per capita than Great Britain. Why? Because there is no such thing as a fixed quantity of nurses to be "drained" from the Philippines or Africa, like petroleum from the ground. People -- in this case mostly low-income women -- react to global markets and change their career plans accordingly. Many Filipinas wouldn't have become nurses if not for the migration opportunity, and thus are not 'lost' in any sense when they depart. Africans are starting to follow suit, opening career paths for professional women who would otherwise have few. This should not be discouraged through closed immigration policy, but rather taken advantage of -- through the establishment of for-export nurse training programs as the Philippines has done en masse. Unlike petroleum, these women are human beings. They have rights and ambitions whose fruition in the United States is a beautiful thing."
Mr. Clemens is right. In the Philippines now, many career people shift to nursing so they can easily be hired in the US, Canada and UK. Physicians and doctors, engineers and architects, lawyers and managers, teachers and civil servants, among others, have shifted career, studied nursing, passed the nursing board exams, and waited for their turn to be hired abroad.
The supply of nursing students have greatly increased, and the number of private colleges and universities, as well as private hospitals offering BS nursing, have also increased. There will be no "under-supply" in the nursing and health professionals in the Philippines as there is a steady stream of new students and other professionals shifting career to the health sector. Although admittedly, there are some short-term problems, like large-scale exodus of experienced nurses and doctors from provincial hospitals, creating an immediate "vacuum" of experienced health professionals in some parts of the country.
But there are also short-term and immediate gains, like ever-increasing remittances of overseas Filipino workers (OFWs) back to their families. Total remittances via official financial channels in 2005 was $10.7 billion, and estimated remittances via friends and other unofficial channels is at least $3 billion more. This year 2006, projected remittances will reach $12 billion, or an average of $1 billion a month, excluding several billion $ of remittances via friends and unofficial channels.
In addition, some sick and well-off people in rich countries who get impatient with protectionism of their countries by limiting the entry of foreign nurses, doctors and other health professionals, come to the Philippines' many hospitals and private clinics for medical treatment and check-ups. This phenomenon is now called "medical tourism", and there are a number of local and foreign entrepreneurs wanting to cash in on this emerging phenomenon.
There are also a number of plans and projects on-going to develop "retirement villages" in some parts of the Philippines, where retirees and old people from other countries, as well as returning Filipinos who have worked abroad for decades, can stay and retire. Health caregiving and nursing are essential components of those retirement villages.
Finally, many of those nurses and physicians who have worked abroad for many years come back home, not as nurses and physicians, but as businessmen and entrepreneurs, or at least managers, of new or expanded hospitals and clinics for medical tourism and retirement villages.
Overall, there is no such thing as "brain drain". Only short-term reallocation of human resources, and long-term gains of freeing people to seek their own fortunes, and remitting back savings and investments into their folks and families in their home countries. These are all part of spontaneous reallocation of resources and individual or household priorities.
* See also:
Spontaneous Market 1: Profit, Trade and Personal Responsibility, May 22, 2006
Spontaneous Market 2: Market Failure vs. Government Failure, June 07, 2006
Friday, June 16, 2006
CSOs and State 1: AIDS and Perversion of Welfare
There was a very disturbing news from the Wall Street Journal last April about AIDS. It was entitled,
"Dangerous DecisionIn South Africa, Poor AIDS Patients Adopt Risky Ploy"
To Get Disability Payments, Some Skip Medications, Putting Lives in Peril
Aiming to Be 'Very, Very Sick'
By MICHAEL M. PHILLIPS April 7, 2006; Page A1
The South African government gives advanced anti-AIDS drugs for free to patients. The pills, antiretroviral "cocktails", would boost one's immune system, relieve symptoms and restore his/her health. In addition, the government gives out a $130-a-month disability grant, if one is really sick.
The results were rather sickening. Some poor people who have bad AIDS situation and receive the allowance from the government stopped taking the anti-AIDS medication so they will remain sick and can continue drawing the allowance. While those who have better or improved conditions have stopped taking the medicines, find ways to be infected further, to get sick further, so they will qualify for the government allowance!
According to Mr. Phillips' report, patients who do this would rather endure terrible sickness just to get the allowance so they will have extra cash to feed their kids, or pay rentals and debts, or start a small business. There are estimated 5.3 to 6.3 million HIV carriers in South Africa.
In economics, you call that behavior of choosing to be sicker to get allowance as "moral hazards" problem. If people know that there are some form of rewards or protection (bail out, subsidies, allowances, stipends, other forms of protection) if they misbehave, then they will misbehave. Well, at least for those who are desperate enough and consider the rewards for irresponsibility better than the pain (physical, emotional, whatever) of such irresponsibility.
In the Philippines and other poorer countries, there are similar behavior.
Here for instance, we have a law that squatters cannot simply be removed from the lands they're squatting on, unless the owner/s of the land (government or private) will find a relocation site for those who will be evicted, facilitate their transfer. In some government relocation sites, government even gives the relocated squatters land titles.
Result? Squatters mushrooming in many places. They just occupy private lands, or government lands. Many private land-owners are more determined to evict the squatters and guard their lots. Government, the biggest landowner in the country, even confiscating some private lands if landowners did not pay the real property taxes plus the high penalties for delayed payment, is more tolerant of squatters. Government leaders for one (from mayors, congressmen, governors to the President) often protect the squatters from eviction so long as the latter will vote for them, and support them if they are experiencing political crisis.
There are also the so-called "professional squatters". When government gives them land titles, they sell that title to other people, get the money, then hop to another lot or location and squat the area, waiting for another round of new land titles to be given to them.
So, people really respond to incentives.
If there are incentives for irresponsibility and misbehavior, or the penalties are too light for misbehavior like stealing, then some people will abuse any government welfare and remain irresponsible.
------
A friend sent me also an awful news from The Washington Times (date not indicated), entitled
"AIDS INCENTIVES COSTLY TO AGENCIES"
by Karen Palmer.
The disturbing news is that in Malawi and other parts of Africa, people who are potential victims of AIDS, if not already suffering from it, now require "allowance" fees and per diems (effectively, bribes) before they will attend AIDS meetings and seminars that will directly benefit them. The going rate, according to the report, was 1,500 kwachas, or about $10 equivalent per day. And the international NGOs, or UN agencies have started the practice of distributing money to people and local government bureaucrats to entice them to come to their seminars. The report said, "Some blame UNICEF, others blame Oxfam, but no one remembers who first offered envelopes of cash in exchange for attendance. The point, they say, is that now everyone does it. And people say, 'If you don't give us pocket money, sorry, we're not interested.'"
In addition, government officials and civil servants also require payments, "sitting fee" they call it, for them to attend meetings and seminars. Continued the report, "The result is that some HIV workers use training sessions as a lucrative source of income, floating from one workshop to another, shopping around for conferences where participants stand the greatest chance of making a bit of cash."
So if the international NGOs will not give money, no one will come to their AIDS seminars, so what? The NGOs are afraid that they will have no picture and real reports to show to their donors? Then why bother to help people who don't bother to help themselves either, why put in your money (or other people's money)? And the national or local government bureaucrats, why bother to invite them if all they need is "attendance fee"?
It's bad that tax-funded government foreign aid has corrupted the concept of "national development" of many poor country governments. It's equally bad that private-funded NGO foreign aid has corrupted the concept of "personal welfare" of many poor country citizens.
Maybe we should consider the fact that if nature is killing people (AIDS, malaria, TB, and so on) and people don't want to help themselves, then let nature take its course.
"Dangerous DecisionIn South Africa, Poor AIDS Patients Adopt Risky Ploy"
To Get Disability Payments, Some Skip Medications, Putting Lives in Peril
Aiming to Be 'Very, Very Sick'
By MICHAEL M. PHILLIPS April 7, 2006; Page A1
The South African government gives advanced anti-AIDS drugs for free to patients. The pills, antiretroviral "cocktails", would boost one's immune system, relieve symptoms and restore his/her health. In addition, the government gives out a $130-a-month disability grant, if one is really sick.
The results were rather sickening. Some poor people who have bad AIDS situation and receive the allowance from the government stopped taking the anti-AIDS medication so they will remain sick and can continue drawing the allowance. While those who have better or improved conditions have stopped taking the medicines, find ways to be infected further, to get sick further, so they will qualify for the government allowance!
According to Mr. Phillips' report, patients who do this would rather endure terrible sickness just to get the allowance so they will have extra cash to feed their kids, or pay rentals and debts, or start a small business. There are estimated 5.3 to 6.3 million HIV carriers in South Africa.
In economics, you call that behavior of choosing to be sicker to get allowance as "moral hazards" problem. If people know that there are some form of rewards or protection (bail out, subsidies, allowances, stipends, other forms of protection) if they misbehave, then they will misbehave. Well, at least for those who are desperate enough and consider the rewards for irresponsibility better than the pain (physical, emotional, whatever) of such irresponsibility.
In the Philippines and other poorer countries, there are similar behavior.
Here for instance, we have a law that squatters cannot simply be removed from the lands they're squatting on, unless the owner/s of the land (government or private) will find a relocation site for those who will be evicted, facilitate their transfer. In some government relocation sites, government even gives the relocated squatters land titles.
Result? Squatters mushrooming in many places. They just occupy private lands, or government lands. Many private land-owners are more determined to evict the squatters and guard their lots. Government, the biggest landowner in the country, even confiscating some private lands if landowners did not pay the real property taxes plus the high penalties for delayed payment, is more tolerant of squatters. Government leaders for one (from mayors, congressmen, governors to the President) often protect the squatters from eviction so long as the latter will vote for them, and support them if they are experiencing political crisis.
There are also the so-called "professional squatters". When government gives them land titles, they sell that title to other people, get the money, then hop to another lot or location and squat the area, waiting for another round of new land titles to be given to them.
So, people really respond to incentives.
If there are incentives for irresponsibility and misbehavior, or the penalties are too light for misbehavior like stealing, then some people will abuse any government welfare and remain irresponsible.
------
A friend sent me also an awful news from The Washington Times (date not indicated), entitled
"AIDS INCENTIVES COSTLY TO AGENCIES"
by Karen Palmer.
The disturbing news is that in Malawi and other parts of Africa, people who are potential victims of AIDS, if not already suffering from it, now require "allowance" fees and per diems (effectively, bribes) before they will attend AIDS meetings and seminars that will directly benefit them. The going rate, according to the report, was 1,500 kwachas, or about $10 equivalent per day. And the international NGOs, or UN agencies have started the practice of distributing money to people and local government bureaucrats to entice them to come to their seminars. The report said, "Some blame UNICEF, others blame Oxfam, but no one remembers who first offered envelopes of cash in exchange for attendance. The point, they say, is that now everyone does it. And people say, 'If you don't give us pocket money, sorry, we're not interested.'"
In addition, government officials and civil servants also require payments, "sitting fee" they call it, for them to attend meetings and seminars. Continued the report, "The result is that some HIV workers use training sessions as a lucrative source of income, floating from one workshop to another, shopping around for conferences where participants stand the greatest chance of making a bit of cash."
So if the international NGOs will not give money, no one will come to their AIDS seminars, so what? The NGOs are afraid that they will have no picture and real reports to show to their donors? Then why bother to help people who don't bother to help themselves either, why put in your money (or other people's money)? And the national or local government bureaucrats, why bother to invite them if all they need is "attendance fee"?
It's bad that tax-funded government foreign aid has corrupted the concept of "national development" of many poor country governments. It's equally bad that private-funded NGO foreign aid has corrupted the concept of "personal welfare" of many poor country citizens.
Maybe we should consider the fact that if nature is killing people (AIDS, malaria, TB, and so on) and people don't want to help themselves, then let nature take its course.
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