When you work hard to hopefully earn big income for your kids or for a dream house or for a dream vacation, and you have to surrender a big portion of your income to the state in income taxes alone, you may feel bad because the politicians and other government administrators who invented and implemented the compulsory payment to the state have other priorities which are different from your personal priorities and
needs.
The same way, when you invented something revolutionary or miraculous, say an immune system-boosting rice variety, or a medicine that can cure AIDS or prostate cancer at a period three times faster than currently popular medicines, then the state will expropriate your property rights to such invention, you will also feel bad. All the big investments and risk-taking, all the years that you waited to test, re-test, and develop such inventions, all the sacrifices. If you failed to develop the medicine that you wanted, you simply lose money and other career opportunities. And if you succeeded, the state will simply expropriate the fruits of all your efforts and sacrifices and use it for some government or crony corporations, or other copycats
who never risked big money and time, to benefit.
Compulsory licensing (CL) is a tool used by some governments to use a patented invention or medicine without the approval of the patentee, usually at government-dictated compensation. The rationale is that many people are too poor to afford the expensive but effective and safe medicines. Come to think of it, products and medicines that are targeted for CL are only those effective ones. For instance, if there are 100 different medicines available in the country to cure AIDS or breast cancer or hypertension, the state will not issue CL to those medicines that are in the bottom of physicians' and patients' list. Rather, the state will issue CL only to the top five or top 10 most effective medicines, and it is those effective medicines that are priced higher precisely because the amount of investments and risks devoted to bring those medicines to the drugstore shelves were very high if not very prohibitive.
The case of the Thailand government's actions is an example. In 2006, the military government there declared that it could not afford several brand-name drugs to treat AIDS and heart disease. This was hardly plausible as the government refused massive discounts from the drugs' patent-holders. Thai leaders also rejected drug-purchase money offered by the Global Fund to Fight AIDS, Tuberculosis, and Malaria.
The state-owned Government Pharmaceutical Organization (GPO) issued CL to selected medicines, suspended the drugs' patents, and started making knock-offs. Local copies like these seldom win safety certification from the World Health Organization. And Thailand's GPO had a tragic track record. In 2005, scientists reported that the firm
had given Thais afflicted with AIDS received poor-quality medicines that may have increased the number of drug-resistant cases. That same year, the GPO took in US$35 million in profits from copied medicines.
Here in the Philippines, the proposed new legislation on "cheaper/affordable medicines" bill is not even planning to strengthen the CL system that is currently provided in the country's Intellectual Property Code (IPC). The proposed bills, which are now in the bicameral conference committee, is doing away with CL because
Philippine experience in CL shows that "it takes a long period of time to get approval because of procedural delays caused by appeals by the patent owners" (Senate Committee Report No. 6).
So what it proposed is "government use" where the CL approval procedures will be skipped and the Philippine government can just appropriate a patented drug and use it for whatever purpose. In addition, the "government use" provision will have a solid legal cover � exemption from granting of temporary restraining orders (TRO) and
preliminary injunctions, except when issued by the Supreme Court.
Abrogatory moves or attempts by governments like this, is sure to discourage the entry of more medicine innovator companies. Who will spend hundreds of millions of dollars and many years of clinical trials and development, to invent very effective and safe medicines against evolving killer diseases, when the state can come in anytime for some frivolous reasons and expropriate your invention?
What these proposals and attempts will attract are non-innovator drug companies, copycats, and traders/importers of very cheap but unsafe medicines.
If governments are sincere in making quality medicines be made more available and more affordable to the people, first thing they should do is to drastically cut, if not abolish, some or all of the taxes on medicines. Second is to strengthen the intellectual property right (IPR) system that attracts and protects medicine innovator companies, so that they will come into the country, many of them, and let them compete among each other, which will compel them to provide big discounts, which makes quality and safe medicines more affordable. Then the country will not court disaster by having less effective, if not harmful but very cheap, medicines.
Thursday, March 13, 2008
Tuesday, March 04, 2008
Tax Cut 8: Comparing HK and Philippine Taxes
I have read a recent report by Horwath Hong Kong re some tax cuts and rise in exemption allowances in HK. Below are the tax changes; those in parenthesis are comments by a friend, Peter Wong, Exec. Dir. Of Lion Rock Institute (www.lionrockinstitute.org), HK’s first and only free market think tank.
1. No tax on dividends, capital gains, interest from banks and other
financial institutions (no change).
2. No tax on business registration (one-time).
3. No tax on wine, beer, other alcoholic beverages except spirits with
immediate effects [high alcohol content drinks] (permanent cut).
4. No hotel accommodation tax (permanent cut).
5. Higher ceiling for tax-deductible donations (permanent).
6. Lower corporate profits tax from 17.5 percent to 16.5 percent (back to 2002 level).
7. 100 percent profits tax deduction for capex of environment-friendly
machinery and equipment in the first year of purchase (newly introduce but some of us don't like it).
8. Reduce personal income tax from 16 percent to 15 percent (back to 2002 level).
9. Raise exemption allowances for individuals, single parents and
married persons.
10. Lower property tax from 16 percent to 15 percent (back to 2002 level).
When you compare HK's and the Philippines' tax policies on these items
alone, you can shake your head. Because in the Philippines:
1. There ARE taxes on dividends, capital gains, interest income on
bank deposits (20 percent).
2. There ARE taxes and fees on business registration -- with SEC, BIR
(Bureau of Internal Revenue), DTI, local governments, etc.
3. Att least double taxes on wine, beer, spirits -- excise tax and
value added tax.
4. There ARE hotel accommodation taxes -- VAT by the national government, and local government tax.
5. No change in ceiling on tax-deductible donations.
6. Corporate income tax raised from 32 percent to 35 percent by 2005; but will go down to 30 percent by 2009.
7. Am not aware of tax cut on environment-friendly equipment, but I
think there's none.
8. Personal income tax still at 32% top rate for annual gross income of
US$12,500 or more, after some deductions. If you have this annual income and after the state has removed the 32 percent tax, if you have 2 or 3 children and you're the sole bread winner, you can easily slide to poverty level!
9. Somehow, there is an increase in income tax exemption level.
10. Property tax is applied even to houses and condo units, unlike in HK where only the landowners and building owners are taxed.
In the Philippines, if you own your house or condo unit, you will pay real property tax (RPT) to the city or municipal government. If you own a house or condo and you rent it to other people, you will pay at least 3 taxes -- RPT, value added tax (VAT) for rentals above PhP10,000 per month, and income tax for your rental income. But many people pay only the RPT and do not pay the latter 2 taxes.
Meanwhile, I wrote this last February 28, 2008
Tax Havens, Why They are Important
1. No tax on dividends, capital gains, interest from banks and other
financial institutions (no change).
2. No tax on business registration (one-time).
3. No tax on wine, beer, other alcoholic beverages except spirits with
immediate effects [high alcohol content drinks] (permanent cut).
4. No hotel accommodation tax (permanent cut).
5. Higher ceiling for tax-deductible donations (permanent).
6. Lower corporate profits tax from 17.5 percent to 16.5 percent (back to 2002 level).
7. 100 percent profits tax deduction for capex of environment-friendly
machinery and equipment in the first year of purchase (newly introduce but some of us don't like it).
8. Reduce personal income tax from 16 percent to 15 percent (back to 2002 level).
9. Raise exemption allowances for individuals, single parents and
married persons.
10. Lower property tax from 16 percent to 15 percent (back to 2002 level).
When you compare HK's and the Philippines' tax policies on these items
alone, you can shake your head. Because in the Philippines:
1. There ARE taxes on dividends, capital gains, interest income on
bank deposits (20 percent).
2. There ARE taxes and fees on business registration -- with SEC, BIR
(Bureau of Internal Revenue), DTI, local governments, etc.
3. Att least double taxes on wine, beer, spirits -- excise tax and
value added tax.
4. There ARE hotel accommodation taxes -- VAT by the national government, and local government tax.
5. No change in ceiling on tax-deductible donations.
6. Corporate income tax raised from 32 percent to 35 percent by 2005; but will go down to 30 percent by 2009.
7. Am not aware of tax cut on environment-friendly equipment, but I
think there's none.
8. Personal income tax still at 32% top rate for annual gross income of
US$12,500 or more, after some deductions. If you have this annual income and after the state has removed the 32 percent tax, if you have 2 or 3 children and you're the sole bread winner, you can easily slide to poverty level!
9. Somehow, there is an increase in income tax exemption level.
10. Property tax is applied even to houses and condo units, unlike in HK where only the landowners and building owners are taxed.
In the Philippines, if you own your house or condo unit, you will pay real property tax (RPT) to the city or municipal government. If you own a house or condo and you rent it to other people, you will pay at least 3 taxes -- RPT, value added tax (VAT) for rentals above PhP10,000 per month, and income tax for your rental income. But many people pay only the RPT and do not pay the latter 2 taxes.
Meanwhile, I wrote this last February 28, 2008
Tax Havens, Why They are Important
In recent days and weeks, Germany and UK, even the US, have been pounding on a tiny European economy Liechtenstein for being a "tax haven" to many of their rich nationals and suspected tax cheats who park their big savings there which should have been heavily taxed in those countries.
Are tax havens just a way for the rich to escape their tax obligations in their countries, or do they serve some positive function in the global economy?
My vote is the latter, that tax havens have a positive function in the global economy. Some very hard-working and innovative people in rich and industrialized countries are unhappy that a big portion of their income and savings are automatically confiscated by their governments in the form of high and multiple taxes to pay a huge bureaucracy and other government programs that they may not be in favor of.
For these hard-working people, one option is to work less, earn less, and pay less taxes. But a better option for them is to continue working hard, produce more goods and services that many people in the world need, earn big, and put their extra savings in tax havens. This latter option serves the global economy better.
Many Western European and North American investors have started leaving their country and do business in Eastern Europe, in East Asia, other countries/regions where taxes are lower and business regulations are more relaxed. Others opted to stay put and park their extra savings in tax havens.
Some of those savings temporarily parked in tax havens are invested in poorer countries in Asia and South America, which helps creates jobs there, make more people richer, so that they can also buy imported goods and services by companies from high taxes countries like W. Europe and N. America, and those countries receive more tax revenues from those firms. This is what “tax havens serve some function in the global economy” means
.
Are tax havens just a way for the rich to escape their tax obligations in their countries, or do they serve some positive function in the global economy?
My vote is the latter, that tax havens have a positive function in the global economy. Some very hard-working and innovative people in rich and industrialized countries are unhappy that a big portion of their income and savings are automatically confiscated by their governments in the form of high and multiple taxes to pay a huge bureaucracy and other government programs that they may not be in favor of.
For these hard-working people, one option is to work less, earn less, and pay less taxes. But a better option for them is to continue working hard, produce more goods and services that many people in the world need, earn big, and put their extra savings in tax havens. This latter option serves the global economy better.
Many Western European and North American investors have started leaving their country and do business in Eastern Europe, in East Asia, other countries/regions where taxes are lower and business regulations are more relaxed. Others opted to stay put and park their extra savings in tax havens.
Some of those savings temporarily parked in tax havens are invested in poorer countries in Asia and South America, which helps creates jobs there, make more people richer, so that they can also buy imported goods and services by companies from high taxes countries like W. Europe and N. America, and those countries receive more tax revenues from those firms. This is what “tax havens serve some function in the global economy” means
.
* See also Tax Cut 7: Reduce Business Taxes, December 19, 2007
Monday, March 03, 2008
Market Failure vs. Government Failure, Part 2
One big reason why there are so many instances or scandals of corruption and inefficiency in government is because there as so many opportunities for stealing and waste in so many agencies. And it has come to that situation because government has assumed or arrogated upon itself so many functions and responsibilities, many of which should have been personal and parental or corporate responsibilities in the first place. No thanks to many people who endlessly rant “market failure”, the “greedy nature of markets”, and “tendency for wide social inequity under markets” thinking.
Repeated attacks and distrust of the market is often bordering between ignorance and just evil desire to intervene in other people’s lives, like taking a big portion of people’s income and savings through various taxes and fees. The market is often equated with big corporations, like those engaged in the stock market and foreign exchange market. But market refers to all individuals, both consumers and producers. Even the economically dependent (children, physically or mentally disabled, old people) and the plain lazy and irresponsible people who don’t want to work, are part of the market. Because even if they earn no income, they consume (food, milk, medicines, alcohol, cigarettes, haircut, etc.) and that makes them part of the market for various goods and services in society.
“Market failure” has been abused to justify various forms of government intervention, regulation and taxation. And a number of people who enter the bloated government have seen opportunities for stealing and corruption. Some politicians run for public office, or bureaucrats beg to be appointed to high government positions, mainly to steal; or secure certain business favors that would not be available to them if they are out of government. Or perhaps just an ego-trip to show to other people how “intelligent” and how well-connected politically they are.
Those in government whose main intention is to steal can do it in various departments and their attached agencies or bureaus. Or there are several hundred government corporations, financial institutions, state universities, even constitutional bodies, to occupy where stealing or rent-seeking can be done. Or head certain regulatory agencies that decide who can do business and who cannot. All that one who leads any of those regulatory agencies do, is to make plenty of strict regulations, so that some of those who want to be allowed to do business quickly will be forced to pay bribes or grant certain economic and political favors. This largely explains the widespread existence of illegal gambling, illegal drugs, prostitution, and other services despite the fact that government prohibits all of them, at least in paper.
Those multiple and repeated instances of robbery, or small-scale wastes that happen a hundred or a thousand times elsewhere, already constitute ample proof of “government failure”. But instead of government withrawing from those sectors and services where abuses, red tape and corruption are repeatedly noted and reported, "government failure" is addressed by another set of government intervention, by instituting plenty of anti-corruption bodies and counter-check mechanisms and procedures. These moves are often pouring more public money to determine how much public money have been stolen and wasted already.
An option to go "back to the market" and "less government intervention" is far out among the minds and demands of many groups and people, even from those very vocal sectors and individuals that regularly note government failure, like those in media, the academe, NGOs and civil society groups.
There will always be market failure in all spheres of our lives as individuals and communities become more specialized, as tastes and preferences constantly change and evolve. For instance, Juan demands a rice variety that also boosts his and his family’s immunity against dengue and malaria because they live in a mosquito-infested neighborhood. But such rice variety does not exist yet, so this can be taken as “market failure” already. Or even assuming that such variety is already available but its price is too expensive for Juan and his family, other people will again call this “market failure” because the supplier/s of such rice variety only think of their profits, not public health and nutrition.
Market failure often creates market solutions. An initial lack of supply of a certain good or service that caught the attention of a big section of the public results in entrance of new players and producers. Pretty soon, the problem is no longer lack of supply but over-supply. Over-supply sends a signal to various producers and suppliers in the form of declining prices. The market's self-correcting mechanisms guide societies, producers and consumers alike, to allocate resources where they are needed, and stop supplying those resources when they are no longer needed.
Government failure on the other hand, almost always results in more government checks and balances, more bureaucracy, and hence, more taxes and fees to finance the expansion of the bureaucracy. Government failure is more sinister, more damaging and more disastrous to the lives of people, of private taxpayers especially.
Crisis situation of corrupt administrations should be a good opportunity to remind people that the problem lies less on the morality of the people that administer the state, but in having a big and interventionist state that can turn angels into devils. Stop or limit this transformation of people by limiting the size and power of the government.
Repeated attacks and distrust of the market is often bordering between ignorance and just evil desire to intervene in other people’s lives, like taking a big portion of people’s income and savings through various taxes and fees. The market is often equated with big corporations, like those engaged in the stock market and foreign exchange market. But market refers to all individuals, both consumers and producers. Even the economically dependent (children, physically or mentally disabled, old people) and the plain lazy and irresponsible people who don’t want to work, are part of the market. Because even if they earn no income, they consume (food, milk, medicines, alcohol, cigarettes, haircut, etc.) and that makes them part of the market for various goods and services in society.
“Market failure” has been abused to justify various forms of government intervention, regulation and taxation. And a number of people who enter the bloated government have seen opportunities for stealing and corruption. Some politicians run for public office, or bureaucrats beg to be appointed to high government positions, mainly to steal; or secure certain business favors that would not be available to them if they are out of government. Or perhaps just an ego-trip to show to other people how “intelligent” and how well-connected politically they are.
Those in government whose main intention is to steal can do it in various departments and their attached agencies or bureaus. Or there are several hundred government corporations, financial institutions, state universities, even constitutional bodies, to occupy where stealing or rent-seeking can be done. Or head certain regulatory agencies that decide who can do business and who cannot. All that one who leads any of those regulatory agencies do, is to make plenty of strict regulations, so that some of those who want to be allowed to do business quickly will be forced to pay bribes or grant certain economic and political favors. This largely explains the widespread existence of illegal gambling, illegal drugs, prostitution, and other services despite the fact that government prohibits all of them, at least in paper.
Those multiple and repeated instances of robbery, or small-scale wastes that happen a hundred or a thousand times elsewhere, already constitute ample proof of “government failure”. But instead of government withrawing from those sectors and services where abuses, red tape and corruption are repeatedly noted and reported, "government failure" is addressed by another set of government intervention, by instituting plenty of anti-corruption bodies and counter-check mechanisms and procedures. These moves are often pouring more public money to determine how much public money have been stolen and wasted already.
An option to go "back to the market" and "less government intervention" is far out among the minds and demands of many groups and people, even from those very vocal sectors and individuals that regularly note government failure, like those in media, the academe, NGOs and civil society groups.
There will always be market failure in all spheres of our lives as individuals and communities become more specialized, as tastes and preferences constantly change and evolve. For instance, Juan demands a rice variety that also boosts his and his family’s immunity against dengue and malaria because they live in a mosquito-infested neighborhood. But such rice variety does not exist yet, so this can be taken as “market failure” already. Or even assuming that such variety is already available but its price is too expensive for Juan and his family, other people will again call this “market failure” because the supplier/s of such rice variety only think of their profits, not public health and nutrition.
Market failure often creates market solutions. An initial lack of supply of a certain good or service that caught the attention of a big section of the public results in entrance of new players and producers. Pretty soon, the problem is no longer lack of supply but over-supply. Over-supply sends a signal to various producers and suppliers in the form of declining prices. The market's self-correcting mechanisms guide societies, producers and consumers alike, to allocate resources where they are needed, and stop supplying those resources when they are no longer needed.
Government failure on the other hand, almost always results in more government checks and balances, more bureaucracy, and hence, more taxes and fees to finance the expansion of the bureaucracy. Government failure is more sinister, more damaging and more disastrous to the lives of people, of private taxpayers especially.
Crisis situation of corrupt administrations should be a good opportunity to remind people that the problem lies less on the morality of the people that administer the state, but in having a big and interventionist state that can turn angels into devils. Stop or limit this transformation of people by limiting the size and power of the government.
Wednesday, February 20, 2008
Inflation and CBs 2: Panama has no Central Bank
One of the hallmarks of HK's free market economy is that its monetary authority (or central bank or federal reserve) does not print the national currency. The HK dollar is printed not by its monetary authority, but by private banks -- HSBC, Citibank i think, and one more bank. The monetary authority just function as it is -- to set monetary policy (levels of interest rate, money supply, exchange rate and international reserves, etc.).
But there's one economy that looks more free marketer than HK in monetary policy -- Panama. It has no central bank or monetary authority. No national currency, they're using the US$. And in some big infrastructure projects, like expanding the capacity of Panama Canal, the government will raise not a single tax rate, but rather use revenues from the canal to do the job.
To see more about this, see Andrew Work's article, "Panama -- the HK of Latin America?"
http://www.lionrockinstitute.org/
In earlier short articles, I have argued that central banks are shrinkable if not abolishable, if their main concern is "inflation targetting". High inflation rate, and high prices of commodities and services in an economy, is mainly a result of trade protectionism and less mobility of commodities around the world. When the price of some goods are high in country A when such goods are wide available elsewhere, that country's protectionism is the culprit. Conversely, when the price of other goods in that same country A are dirt cheap when these goods are expensive elsewhere, again that country's or other countries' protectionism is the culprit.
The level of money supply in the economy is not much a factor, though loose money supply can push prices up (ie, too much money chasing too few goods and services). But it's those central-planning thinking central bank bureaucrats that manipulate money supply and interest rate levels. And their manipulation can distort the price signal in an economy if market players are better left on their own to respond to changes in consumer demand and producer supply.
When central bank officials or bureaucrats say thay want to "cool off" an "over-heating" economy, they mean they want to control "over-spending" and high borrowings by the people because this can lead to high inflation. So what they usually do, is they raise interest rates -- to encourage savings and discourage high spending and borrowings. Then they say that they have controlled high inflation.
I am not in favor of this kind of intervention. When people have lots of money to spend, let them do so; someone's consumption is somebody else's production and services.
* See also: Inflation and CBs 1: Central Banks Can Be Anti-Globalists, June 29, 2006
But there's one economy that looks more free marketer than HK in monetary policy -- Panama. It has no central bank or monetary authority. No national currency, they're using the US$. And in some big infrastructure projects, like expanding the capacity of Panama Canal, the government will raise not a single tax rate, but rather use revenues from the canal to do the job.
To see more about this, see Andrew Work's article, "Panama -- the HK of Latin America?"
http://www.lionrockinstitute.org/
In earlier short articles, I have argued that central banks are shrinkable if not abolishable, if their main concern is "inflation targetting". High inflation rate, and high prices of commodities and services in an economy, is mainly a result of trade protectionism and less mobility of commodities around the world. When the price of some goods are high in country A when such goods are wide available elsewhere, that country's protectionism is the culprit. Conversely, when the price of other goods in that same country A are dirt cheap when these goods are expensive elsewhere, again that country's or other countries' protectionism is the culprit.
The level of money supply in the economy is not much a factor, though loose money supply can push prices up (ie, too much money chasing too few goods and services). But it's those central-planning thinking central bank bureaucrats that manipulate money supply and interest rate levels. And their manipulation can distort the price signal in an economy if market players are better left on their own to respond to changes in consumer demand and producer supply.
When central bank officials or bureaucrats say thay want to "cool off" an "over-heating" economy, they mean they want to control "over-spending" and high borrowings by the people because this can lead to high inflation. So what they usually do, is they raise interest rates -- to encourage savings and discourage high spending and borrowings. Then they say that they have controlled high inflation.
I am not in favor of this kind of intervention. When people have lots of money to spend, let them do so; someone's consumption is somebody else's production and services.
* See also: Inflation and CBs 1: Central Banks Can Be Anti-Globalists, June 29, 2006
Tuesday, February 12, 2008
CSOs and State 3: Poverty and Public Education
In the 70s to the 80s, there was a famous British rock band called “Supertramp” and one of their cool and hit songs was “The Logical Song”. A part of it goes like this:
Now watch what you say or they’ll be calling you a radical,
Liberal, fanatical, criminal.
Won’t you sign up your name, we’d like to feel you’re
Acceptable, respectable, presentable, a vegetable!
The Philippines is in a continuing grip of political instability as more cases of corruption charges are being investigated involving a number of top government officials who contracted big amount of taxpayers’ money for projects to “fight poverty” and “improve governance”. These are two seemingly “holy” goals that can justify high and multiple taxes and fees. After all, who doesn’t want to see an “end to poverty”?
But there are many shades of poverty and reasons for poverty. Among the quick ones that I can think of are:
1. Acts of nature – whole villages and farmlands wiped out by strong typhoon and landslides, or strong earthquakes and tsunami, or volcanic eruption and lava/lahar flows, etc. These are understandable causes of poverty and the victims really need some government support, assuming that they will seek it.
2. Acts of men – high and multiple taxation and corruption, thick bureaucracies that slow down if not kill entrepreneurship and job creation, robbery, killings, wars. These are often government-created inefficiencies that can lead to mass poverty..
3. Acts of personal irresponsibility – people who don't want to work; or work little and consume plenty or expensively; or work hard but also drink/gamble/spend hard; or those that get involved in frequent troubles; etc. Some of government’s welfare programs help encourage a culture of complacency and irresponsibility.
Any or all of these striking you will ensure that you will become a “logical poor” or you “logically become poor”. But if poverty is caused by personal irresponsibility, then we
should not “fight poverty” and instead, allow misery. Because it is not fair when governments, including foreign aid bureaucrats, will confiscate (or justify the confiscation of) a big portion of our income and savings to subsidize people who don't even bother look for a job or do not know how to save for the rainy days.
A friend once asked me why I could be so “cold and heartless” in saying these things. Well, it’s borne out of some personal observations. For instance, in a rice farming village that I frequently visit, I have heard and seen some farmers who died poor and miserable. These are industrious guys who work 6-7 days a week, but they also drink 6-7 nights a week. When their intestine or kidney or lung or other internal organ gave way, they have little or no savings to tide them over. If projected medical expenses are big, any support by relatives and friends will not be enough.
And I don’t know if the “poverty fighters” in governments and foreign aid institutions take into account poverty due to personal irresponsibility. If they cannot realize the tax burden of the bureaucracies that they work with and the economic distortions created by their intervention, then I doubt that said poverty fighters will really be successful in their avowed mission.
-------
A related note I wrote late last year,
Why Education Should be Parental Responsibility, Not Government Responsibility
November 19, 2007
Now watch what you say or they’ll be calling you a radical,
Liberal, fanatical, criminal.
Won’t you sign up your name, we’d like to feel you’re
Acceptable, respectable, presentable, a vegetable!
The Philippines is in a continuing grip of political instability as more cases of corruption charges are being investigated involving a number of top government officials who contracted big amount of taxpayers’ money for projects to “fight poverty” and “improve governance”. These are two seemingly “holy” goals that can justify high and multiple taxes and fees. After all, who doesn’t want to see an “end to poverty”?
But there are many shades of poverty and reasons for poverty. Among the quick ones that I can think of are:
1. Acts of nature – whole villages and farmlands wiped out by strong typhoon and landslides, or strong earthquakes and tsunami, or volcanic eruption and lava/lahar flows, etc. These are understandable causes of poverty and the victims really need some government support, assuming that they will seek it.
2. Acts of men – high and multiple taxation and corruption, thick bureaucracies that slow down if not kill entrepreneurship and job creation, robbery, killings, wars. These are often government-created inefficiencies that can lead to mass poverty..
3. Acts of personal irresponsibility – people who don't want to work; or work little and consume plenty or expensively; or work hard but also drink/gamble/spend hard; or those that get involved in frequent troubles; etc. Some of government’s welfare programs help encourage a culture of complacency and irresponsibility.
Any or all of these striking you will ensure that you will become a “logical poor” or you “logically become poor”. But if poverty is caused by personal irresponsibility, then we
should not “fight poverty” and instead, allow misery. Because it is not fair when governments, including foreign aid bureaucrats, will confiscate (or justify the confiscation of) a big portion of our income and savings to subsidize people who don't even bother look for a job or do not know how to save for the rainy days.
A friend once asked me why I could be so “cold and heartless” in saying these things. Well, it’s borne out of some personal observations. For instance, in a rice farming village that I frequently visit, I have heard and seen some farmers who died poor and miserable. These are industrious guys who work 6-7 days a week, but they also drink 6-7 nights a week. When their intestine or kidney or lung or other internal organ gave way, they have little or no savings to tide them over. If projected medical expenses are big, any support by relatives and friends will not be enough.
And I don’t know if the “poverty fighters” in governments and foreign aid institutions take into account poverty due to personal irresponsibility. If they cannot realize the tax burden of the bureaucracies that they work with and the economic distortions created by their intervention, then I doubt that said poverty fighters will really be successful in their avowed mission.
-------
A related note I wrote late last year,
Why Education Should be Parental Responsibility, Not Government Responsibility
November 19, 2007
When my wife was still pregnant, she and her 2 friends who were also pregnant (they all gave birth on different days of October 2006) were already discussing the kind of early training or schooling they will give their kids when their child is 2 years old, 3 years old, and so on. And in these 3 mothers’ minds, they sometimes have different preferences or plans for their respective children at a young age, much more when the kids reach college level.
Privatization of education (ie, abolition of public education system at all levels) is a long-term vision. And this “devolution” of responsibility from the state to the parents, the individuals, should be complemented with the abolition of certain taxes and government fees, those forced confiscation of income and savings of parents, so that the latter will have more disposable income to spend for their children’s education and other household needs.
(This article was also posted in http://www.thelobbyist.biz/column_detail.php?id_article=528&id_category=26)
Which brings us to the fact that when given the choice and resources, parents will have varying plans for their children. For instance, aside from the basic skills of reading-writing-math, some parents would want their elementary-level kids focus more on arts, music and dancing; others would want their kids to be good in European or Asian (Mandarin or Japanese or Korean) language; others would want their kids to be good in science and math; others would want their kids to be good in Catholic (or born-again, or Islamic or Protestant or Buddhist) virtues and religion; others would want their kids to be good in household care like cooking and home care; others would want their kids to be good in soccer or basketball, ballet or swimming, and so on.
Can government-sponsored public education respond to dozen-plus different needs by parents, say on a single municipality alone? I really doubt it.Government only gives uniform and general education. And when things are made uniform, what usually follows is mediocrity. Because uniformity discourages excellence, explicitly or implicitly; it just make things and people go "uniform, equalized and generalized".
Privatization of education (ie, abolition of public education system at all levels) is a long-term vision. And this “devolution” of responsibility from the state to the parents, the individuals, should be complemented with the abolition of certain taxes and government fees, those forced confiscation of income and savings of parents, so that the latter will have more disposable income to spend for their children’s education and other household needs.
What about the poor? Parents who are responsible will never run out of opportunities to improve their lives and the future of their children. Parents who are irresponsible and would rather spend their time drinking and gambling, and discussing how much subsidies they expect from government, will go poor, even starve. They deserve this because they chose this. But what about their children?
Humanity is filled with endless examples of charity. Pure, voluntary charity that requires zero taxation and zero political grandstanding. Their support to fellowmen, especially poor children and the aged, the physically and mentally handicapped, the victims of natural disasters, is endless. There are hundreds of civic and service organizations, church organizations, private enterprises and foundations, even sports associations, who are more than willing to provide charitable work to their fellowmen who have the dignity of showing ambition and aspiration to improve their lives in the future.
Humanity is filled with endless examples of charity. Pure, voluntary charity that requires zero taxation and zero political grandstanding. Their support to fellowmen, especially poor children and the aged, the physically and mentally handicapped, the victims of natural disasters, is endless. There are hundreds of civic and service organizations, church organizations, private enterprises and foundations, even sports associations, who are more than willing to provide charitable work to their fellowmen who have the dignity of showing ambition and aspiration to improve their lives in the future.
See also:
CSOs and State 1: AIDS and Perversion of Welfare, June 16, 2006
CSOs and State 2: NGOs and Government Clubs, November 09, 2006
Thursday, February 07, 2008
Taxes and Hypertension: How to reduce medicine prices
Sir Isaac Newton’s 3rd law of motion states that for every action, there is an equal and opposite reaction. When government intervenes to reduce the price of something, it imposes taxes or fees/ charges to finance whatever price subsidy and the salaries and perks of personnel who will do the price and income redistribution. Those taxes and fees raise the price of those things and services that government says it wants the price to go down. Sort of unintended consequence. And this affirms Newston’s 3rd law of motion.
In the on-going discussions and debates about “quality affordable medicines” or “cheaper medicines” bill, to the point of developing or aiding hypertension to some actors or players or would-be interventionists, various factors suspected of contributing to the high price of medicines have been identified and diagnosed with more government intervention: amendment of the law on patent system, price regulation and control, parallel importation and disrespect patent rights, “generics only” prescription by doctors. It is notable that government intervention itself – those high and multiple taxes and fees on medicines and medical products, bureaucratic regulations, attempts at price control – has never been identified as among the suspects. Why?
Blaming the multinational corporations, especially those in the petroleum, pharmaceutical and transportation sectors is always a convenient excuse for policy makers and implementers and their allied pressure groups. Thus, legislators and politicians can always impose various taxes (import tax, value added tax, documentary stamp tax, patent tax, other regulatory steps and fees) on those commodities and services, then blame the producers themselves, especially if they are multinationals.
People aspiring cheaper price of anything – cellphones, house, car, medicine, hospital stay, shoes, and so on – is a perfectly rational behavior. The assumption is that people should get good quality and safe products. After all, all fake, imitation and dangerous products are sold cheap compared to their original counterparts so that they can easily be sold. Producers and sellers are happy, buyers are happy, except when some of them will develop adverse effects if not die later, in the case of those taking counterfeit medicines.
One time-proven mechanism to reduce the price of something is to have as many producers and innovators of good quality products and let them compete with each other. And don’t impose high and too many taxes on the players so that they can compete more fairly. Some players will expand while others will fail. That’s the sad but necessary result when informed consumers make their decisions whom to patronize and whom to evade. Unfortunately, what the two versions of “affordable/cheaper medicines” bills, is to discourage entry of innovator companies and have more generics companies that do not engage in very expensive and time-consuming R&D and clinical trials. In addition, importers and distributors of locally-patented drugs other than the patentees are encouraged, under the “parallel importation” scheme.
One question that can be asked under this scheme is this: Supposing a patient develops bad allergies, if not died, after taking the imported medicines (maybe it’s a fake or mislabeled or mis-stored or mishandled that reduced or negated their effectiveness) from abroad by non-patentees, who will be accountable? (a) The physician who gave the prescription, or (b) the importer who brought the medicines, or (c) the drug manufacturer abroad, or (d) the local patentee who sells the same drugs domestically, or (e) the local drug store that stored and sold the medicine, or (f) the government which allowed and encouraged the entire scheme?
Unfortunately, the answer of who could be accountable could not be determined from both the Senate and House versions. What the two bills intend to achieve is to have cheap/affordable medicines at all cost. And at no cost to the government – ie, government tax collections should never be reduced because there are billions of pesos of pork barrel projects to finance every year.
So why can’t we start with drastically reducing if not abolishing the taxes and other regulatory fees imposed on medicines? Then encourage the entry of more innovator companies into the country, or the importation of those medicines at zero import tax and zero trade barriers by their local patentees who should be the sole accountable entity to the patients should they experience any adverse reactions later.
In the on-going discussions and debates about “quality affordable medicines” or “cheaper medicines” bill, to the point of developing or aiding hypertension to some actors or players or would-be interventionists, various factors suspected of contributing to the high price of medicines have been identified and diagnosed with more government intervention: amendment of the law on patent system, price regulation and control, parallel importation and disrespect patent rights, “generics only” prescription by doctors. It is notable that government intervention itself – those high and multiple taxes and fees on medicines and medical products, bureaucratic regulations, attempts at price control – has never been identified as among the suspects. Why?
Blaming the multinational corporations, especially those in the petroleum, pharmaceutical and transportation sectors is always a convenient excuse for policy makers and implementers and their allied pressure groups. Thus, legislators and politicians can always impose various taxes (import tax, value added tax, documentary stamp tax, patent tax, other regulatory steps and fees) on those commodities and services, then blame the producers themselves, especially if they are multinationals.
People aspiring cheaper price of anything – cellphones, house, car, medicine, hospital stay, shoes, and so on – is a perfectly rational behavior. The assumption is that people should get good quality and safe products. After all, all fake, imitation and dangerous products are sold cheap compared to their original counterparts so that they can easily be sold. Producers and sellers are happy, buyers are happy, except when some of them will develop adverse effects if not die later, in the case of those taking counterfeit medicines.
One time-proven mechanism to reduce the price of something is to have as many producers and innovators of good quality products and let them compete with each other. And don’t impose high and too many taxes on the players so that they can compete more fairly. Some players will expand while others will fail. That’s the sad but necessary result when informed consumers make their decisions whom to patronize and whom to evade. Unfortunately, what the two versions of “affordable/cheaper medicines” bills, is to discourage entry of innovator companies and have more generics companies that do not engage in very expensive and time-consuming R&D and clinical trials. In addition, importers and distributors of locally-patented drugs other than the patentees are encouraged, under the “parallel importation” scheme.
One question that can be asked under this scheme is this: Supposing a patient develops bad allergies, if not died, after taking the imported medicines (maybe it’s a fake or mislabeled or mis-stored or mishandled that reduced or negated their effectiveness) from abroad by non-patentees, who will be accountable? (a) The physician who gave the prescription, or (b) the importer who brought the medicines, or (c) the drug manufacturer abroad, or (d) the local patentee who sells the same drugs domestically, or (e) the local drug store that stored and sold the medicine, or (f) the government which allowed and encouraged the entire scheme?
Unfortunately, the answer of who could be accountable could not be determined from both the Senate and House versions. What the two bills intend to achieve is to have cheap/affordable medicines at all cost. And at no cost to the government – ie, government tax collections should never be reduced because there are billions of pesos of pork barrel projects to finance every year.
So why can’t we start with drastically reducing if not abolishing the taxes and other regulatory fees imposed on medicines? Then encourage the entry of more innovator companies into the country, or the importation of those medicines at zero import tax and zero trade barriers by their local patentees who should be the sole accountable entity to the patients should they experience any adverse reactions later.
Thursday, January 31, 2008
Stairway to heaven: prices and price control
One of the classic songs of the rock n roll genre was Led Zeppelin’s “Stairway to Heaven”. In that song, they wrote:
“And if you listen very hard
The tune will come to you at last
When all are one and one is all
To be a rock and not to roll.”
Some people think that different products or brands for one category should be priced as one, or at least the top or highest price among varying prices should be capped to a level that is deemed “affordable” to many people, so that those people can have their “stairway” to good health, fame, greatness, or whatever. The premise for this thinking is that some producers or manufacturers are evil and driven only by greed, and not the health and welfare of many people.
But people are diverse, and so are the various products and services that they produce. Diversity is the rule, not the exception. Producers and manufacturers face diverse production and marketing costs, like different taxes by different governments; different wages by different workers with different skills, and so on. And consumers have different aesthetic or health reactions to similar goods and services.
Thus, price segmentation – different prices for different products or services for different people – is a perfectly rationale and healthy mechanism. This way, people from different economic status can be served. Think of ticket prices in a single championship boxing fight: ringside seats are the most expensive; prices descend as one is seated farther away; for those who cannot afford even the cheapest ticket, they can watch through pay-tv which are cheaper and still watch the fight live. And for those who cannot even afford the pay-tv, or have no access to pay-tv, they can watch the game free via delayed broadcast by tv stations which paid their way inside the boxing stadium. At the end of the day, everyone who wanted to watch the fight was able to see it, live or delayed. Such is the beauty of price segmentation, or “tiered pricing”. But some people think this is ugly if not evil. Because only the rich are served well while the poor are served late or delayed, and they are pestered by too many tv commercials and ads.
Extend this thinking to the prices of food and medicines, and this group of people will push for price regulation or price control. That is, some bright men and women, often those in government bureaucracies, can determine and dictate which products are useful to people and which prices of these products should be allowed and which ones should be controlled. But can price control lead to good health?
The authors of the House version of “cheaper medicines bill” think it can, that is why they want to create a Drug Price Regulation Board. They think that high profits and high advertising costs by pharmaceutical companies – not high and multiple taxes, high cost of R&D in medicine innovation, related costs – are the main roadblocks why many people cannot have their “stairway to good health”. Hence, prices of certain medicines should be regulated, and people from the Health Department, Congress and other government bureaucracies, some civil society groups, have enough wisdom and heart for the sick that they can determine which prices are tolerable and which ones are not.
When prices are controlled, then producers who can possibly make some “miracle” products and medicines at sky-high costs will be discouraged from innovating and producing those products. Government puts up uncontrolled taxes, fees and regulations, then control the price of commodities later. This is unfair. And this will not lead to “stairway to heaven of good health”; rather, lead to a “stairway to bureaucracies and product
“And if you listen very hard
The tune will come to you at last
When all are one and one is all
To be a rock and not to roll.”
Some people think that different products or brands for one category should be priced as one, or at least the top or highest price among varying prices should be capped to a level that is deemed “affordable” to many people, so that those people can have their “stairway” to good health, fame, greatness, or whatever. The premise for this thinking is that some producers or manufacturers are evil and driven only by greed, and not the health and welfare of many people.
But people are diverse, and so are the various products and services that they produce. Diversity is the rule, not the exception. Producers and manufacturers face diverse production and marketing costs, like different taxes by different governments; different wages by different workers with different skills, and so on. And consumers have different aesthetic or health reactions to similar goods and services.
Thus, price segmentation – different prices for different products or services for different people – is a perfectly rationale and healthy mechanism. This way, people from different economic status can be served. Think of ticket prices in a single championship boxing fight: ringside seats are the most expensive; prices descend as one is seated farther away; for those who cannot afford even the cheapest ticket, they can watch through pay-tv which are cheaper and still watch the fight live. And for those who cannot even afford the pay-tv, or have no access to pay-tv, they can watch the game free via delayed broadcast by tv stations which paid their way inside the boxing stadium. At the end of the day, everyone who wanted to watch the fight was able to see it, live or delayed. Such is the beauty of price segmentation, or “tiered pricing”. But some people think this is ugly if not evil. Because only the rich are served well while the poor are served late or delayed, and they are pestered by too many tv commercials and ads.
Extend this thinking to the prices of food and medicines, and this group of people will push for price regulation or price control. That is, some bright men and women, often those in government bureaucracies, can determine and dictate which products are useful to people and which prices of these products should be allowed and which ones should be controlled. But can price control lead to good health?
The authors of the House version of “cheaper medicines bill” think it can, that is why they want to create a Drug Price Regulation Board. They think that high profits and high advertising costs by pharmaceutical companies – not high and multiple taxes, high cost of R&D in medicine innovation, related costs – are the main roadblocks why many people cannot have their “stairway to good health”. Hence, prices of certain medicines should be regulated, and people from the Health Department, Congress and other government bureaucracies, some civil society groups, have enough wisdom and heart for the sick that they can determine which prices are tolerable and which ones are not.
When prices are controlled, then producers who can possibly make some “miracle” products and medicines at sky-high costs will be discouraged from innovating and producing those products. Government puts up uncontrolled taxes, fees and regulations, then control the price of commodities later. This is unfair. And this will not lead to “stairway to heaven of good health”; rather, lead to a “stairway to bureaucracies and product
Globalization and market turbulence
With the continuing volatility of global warkets that started with the substantial US housing loan defaults, some people are asking if globalization is to blame. Yes, we can blame globalization for the current market volatility in major markets around the world. The same way that globalization should be credited for to the expansion of the same markets around the world.
Are the markets entering a new era? No. The era of market interconnection on a global level will remain because that’s what people around the world need and they work for it. Otherwise there will be no international trade, no international mobility of people and their talent and services.
Will fluctuations continue to snowball from market to market, or is this just a tempest in a teapot? Snowball into something bigger turbulence, possibly not. The turbulence has been around for the last 4 or 5 months, and major market players have already instituted some mechanisms to curtail any major damage to their companies and their markets.
We need market turbulence. Those who are complacent need to be jolted with the entry of new players who are very adventurous and innovative. And those who are irresponsible in managing their corporate or personal finance should be jolted too. Market turbulence then will adjust markets to a higher and more responsible level. Until another round of turbulence as new breed of innovators come up and new breed of irresponsible guys fall down.
Are the markets entering a new era? No. The era of market interconnection on a global level will remain because that’s what people around the world need and they work for it. Otherwise there will be no international trade, no international mobility of people and their talent and services.
Will fluctuations continue to snowball from market to market, or is this just a tempest in a teapot? Snowball into something bigger turbulence, possibly not. The turbulence has been around for the last 4 or 5 months, and major market players have already instituted some mechanisms to curtail any major damage to their companies and their markets.
We need market turbulence. Those who are complacent need to be jolted with the entry of new players who are very adventurous and innovative. And those who are irresponsible in managing their corporate or personal finance should be jolted too. Market turbulence then will adjust markets to a higher and more responsible level. Until another round of turbulence as new breed of innovators come up and new breed of irresponsible guys fall down.
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