Yesterday afternoon, while attending a round-table discussion on the global public debts, I was interviewed by Ms. Cai Ordinario, reporter for the business paper, Business Mirror. Her querry was about my reaction to the economic team of the new Philippine President, Benigno "Noynoy" Aquino.
Below is a portion of her report.
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http://businessmirror.com.ph/index.php?option=com_content&view=article&id=27093:economists-approve-of-new-economic-team&catid=23:topnews&Itemid=58
Economists approve of new economic team
"AFTER President-elect Benigno Aquino III unveiled his new economic team on Tuesday, local economists and former economic managers gave their approval of the incoming President’s choices....
Academician and former president of Philippine Economic Society Dr. Fernando Aldaba said the President chose a “team heavy with experience and integrity.” The team, he said, is likely to maintain macroeconomic stability and improve the country’s investment climate....
For his part, economist Bienvenido Oplas, president of independent think tank Minimal Government Thinkers, said the choice of the new economic team is not really important. What is important, Oplas said, was who the President was.
Oplas said after nine years of the Arroyo administration, so much negativity and hopelessness enveloped the economy. But with the new government, the economy can expect a more positive outlook.
He is also hoping that the new economic team will exert efforts to liberalize the economy more. But Oplas said the more important thing now is that there is a change in government which will revive hope among Filipinos."
Wednesday, June 30, 2010
Rule of Law 9: Laws, Prohibitions and Corruption
(Note: this is my article for "People's Brigada News", submitted June 25, 2010)
Laws are enacted by the legislators of any country in order to restrain what they consider as bad and anti-social behavior. Laws by nature are prohibitions and restrictions.
Such prohibitions are either direct (do not do this) or indirect, aka mandatory (do that, or the State will penalize you if you don't do that). There are some laws that look "innocent", like mandatory 20% discount to senior citizens and persons with disabilities (PWDs). It looks very welfarist, and all drugstores, all restaurants, all moviehouses, all public transpo (plane, ship, bus, jeepney, etc.) are mini-criminals if they will not give the mandatory discount. Then the State can run after them.
Since all laws are prohibitions, then more laws = more prohibitions. It should be a formula to restrict individual freedom. I will be more than happy if everyone, no exception, will follow the prohibition against killing, against stealing, kidnapping, etc. But if new laws will tell us, "You cannot improve or expand your own house or your own office unless you get a 'Permit to Renovate' from the city hall", then another law that says, "You cannot re-occupy your own renovated house or office unless you get a 'Permit to Re-occupy' from the city hall", man that's something really restrictive.
I know a friend here in Metro Manila whose office has no electricity for at least one month because their "permit to renovate" was not yet signed by the city hall. I adviced her, "It only means one thing: those city hall building permit division bureaucrats want a bribe."
And we go to a discussion of a free and unfree society. In a free society, the dominant rule is: "Everything is allowed unless explicitly prohibited." And those expressly prohibited are just few, like no killing, no stealing, no kidnapping, no raping, etc. Everything else is allowed, like putting up your own vulcanizing shop with zero or just two signatures needed, from the city hall and from the national government, say the BIR.
In an unfree society though, the rule is a complete reversal : "Everything is prohibited unless explicitly allowed." So, putting up a business and creating job for the jobless is not allowed, unless one goes through a maze of bureaucracies. Putting up your own house, or renovating an old one, is not allowed, unless one gets certain permits from the local and/or national government agency.
The "rule of law” therefore, means the rule of prohibitions. Rule of law means no exception, no one is exempted from the law, and no one can grant exemption from the law. The law applies equally to unequal people.
Where there is full promulgation of the rule of law, the natural size of government will be small. Why? Because all laws and prohibitions that apply to ordinary people will also apply to all government officials, from the President or Prime Minister, to the lowest-ranking bureaucrat. This means that even the President and his/her military and police security aides should stop on red lights, should not counter-flow one-way streets, should not park on “No Parking” areas.
Since most politicians and bureaucrats do not like too many restrictions themselves, then they are obliged not to create new restrictions that will equally apply to them, to their friends and family. And they will be obliged to reverse or abrogate previous unnecessary restrictions. When there are few restrictions in society, then there will be few agencies and bureaucrats who will monitor and implement those restrictions and prohibitions. Overall result: small government.
Governments become big and expansive only because politicians and bureaucrats know that certain rules apply only to ordinary mortals but not to them, they know that they are exempted from such restrictions as they themselves granted the exceptions. This is wrong.
---------
On a related note, I wrote this last April 12, 2010:
Coercion and Corruption
Coercion and corruption are two aspects of the same body, whether government or private. They are not exactly the same but there is some causality between the two. Corruption is greatly facilitated when there is some coercion involved. And in many countries where there is weak promulgation of the rule of law, coercion is instituted and retained mainly to create the best opportunity for corruption.
Consider the coercion of outlawing certain drugs and other addictive chemicals. There are strict, if not deadly. penalties in producing and distributing prohibited drugs. But up to now, drug pushing and addiction remains a big issue in many countries, from poorer ones with weak promulgation of the rule of law like the Philippines, to richer countries with stronger implementation of the rule of law like the US. Corruption by certain law enforcers is the main explanation why the coercion against prohibited drugs is not and can not be fully implemented.
In many public discourses, even in electoral campaigns, the focus of discussion by almost all political parties, groups and individuals is on corruption. There is in fact general acceptance, if not consensus, that widespread corruption is happening in the country, and that the next administration should radically move to curtail and control it.
Coercion though, is never publicly discussed. The implication is that the various coercions instituted and enacted by the State and its various agencies, both national and local, are correct and acceptable. What government administrators and law enforcers need to do, in this philosophy, is simply implement those coercive laws and regulations without fear or favor.
This kind of thinking was hijacked by various vested interests in society who do not want to assume more personal responsibility about their own lives, their own households, their own communities. Thus, various lobbyists succeeded in having coercive laws that give them entitlement to certain subsidies and welfare. More subsidies, more personnel and bureaucrats to implement those subsidies, more taxes and fees to pay for the thick army of government personnel and another thick army of people expecting the subsidies.
Government is power, force and coercion. Government is never about voluntary exchange, it is all about coercive exchange. Government says, "I take your money (taxes and fees), I give you this policeman, this public works engineer, this taxation assessor, this school teacher... whether you like them or not, they are your public officials."
All the public noise about "bad governance" mainly refers to the government – from the Executive, Legislative, Judiciary, down to the local governments. It is not much with the private sector. If people find the richest man in the country as a labor exploiter, a shrewd businessman, or whatever complaint, the people have the option to boycott that man’s businesses like malls and banks. They can patronize the malls, supermarkets, banks, and other business interests of the competing businessmen, or simply not visit any mall at all. There is choice.
In government, choice is almost zero. Especially if you one is a fixed income earner. Thus, since government is an imposition, a coercion in body and spirit, then such coercion should not be big. Let there be big coercion and over-regulation of criminals, rapists, killers, kidnappers, thieves, land-grabbers, extortionists, etc. But there should be little or zero coercion in entrepreneurship and job creation.
Take the case of the Finance Department or Ministry of many countries. It is usually in an ugly position. It is a powerful agency but ordinary citizens hate it because their mandate is mainly to tax and penalize those who work, those who create jobs, those who produce various goods and services in society.
Is your job stealing, bank hold-ups or kidnapping children? The Finance Department will not deal with you.
Is your job to manufacture food, sell medicines and clothing, distribute housing and construction materials, operate a barber shop or an internet shop? The Finance Department will deal with you. If there are only two to four taxes to pay each year, at low rates, people would gladly comply and not hate that Department. But since there are one dozen to four dozen taxes and fees to pay, including those imposed by other agencies and local government units who also want a slice of the sweat and blood of the job creators and workers, then people begin to dislike, if not hate, the taxes and fees collectors. Thus, it is not surprising that the Finance Department is among the most corrupt agencies in the Executive branch.
Where there is more coercion, where there is more prohibition, there is more corruption.
----------
See also Rule of Law 8: Purpose and Supremacy of the Law, June 15, 2010
Laws are enacted by the legislators of any country in order to restrain what they consider as bad and anti-social behavior. Laws by nature are prohibitions and restrictions. 
Such prohibitions are either direct (do not do this) or indirect, aka mandatory (do that, or the State will penalize you if you don't do that). There are some laws that look "innocent", like mandatory 20% discount to senior citizens and persons with disabilities (PWDs). It looks very welfarist, and all drugstores, all restaurants, all moviehouses, all public transpo (plane, ship, bus, jeepney, etc.) are mini-criminals if they will not give the mandatory discount. Then the State can run after them.
Since all laws are prohibitions, then more laws = more prohibitions. It should be a formula to restrict individual freedom. I will be more than happy if everyone, no exception, will follow the prohibition against killing, against stealing, kidnapping, etc. But if new laws will tell us, "You cannot improve or expand your own house or your own office unless you get a 'Permit to Renovate' from the city hall", then another law that says, "You cannot re-occupy your own renovated house or office unless you get a 'Permit to Re-occupy' from the city hall", man that's something really restrictive.
I know a friend here in Metro Manila whose office has no electricity for at least one month because their "permit to renovate" was not yet signed by the city hall. I adviced her, "It only means one thing: those city hall building permit division bureaucrats want a bribe."
And we go to a discussion of a free and unfree society. In a free society, the dominant rule is: "Everything is allowed unless explicitly prohibited." And those expressly prohibited are just few, like no killing, no stealing, no kidnapping, no raping, etc. Everything else is allowed, like putting up your own vulcanizing shop with zero or just two signatures needed, from the city hall and from the national government, say the BIR.
In an unfree society though, the rule is a complete reversal : "Everything is prohibited unless explicitly allowed." So, putting up a business and creating job for the jobless is not allowed, unless one goes through a maze of bureaucracies. Putting up your own house, or renovating an old one, is not allowed, unless one gets certain permits from the local and/or national government agency.
The "rule of law” therefore, means the rule of prohibitions. Rule of law means no exception, no one is exempted from the law, and no one can grant exemption from the law. The law applies equally to unequal people.
Where there is full promulgation of the rule of law, the natural size of government will be small. Why? Because all laws and prohibitions that apply to ordinary people will also apply to all government officials, from the President or Prime Minister, to the lowest-ranking bureaucrat. This means that even the President and his/her military and police security aides should stop on red lights, should not counter-flow one-way streets, should not park on “No Parking” areas.
Since most politicians and bureaucrats do not like too many restrictions themselves, then they are obliged not to create new restrictions that will equally apply to them, to their friends and family. And they will be obliged to reverse or abrogate previous unnecessary restrictions. When there are few restrictions in society, then there will be few agencies and bureaucrats who will monitor and implement those restrictions and prohibitions. Overall result: small government.
Governments become big and expansive only because politicians and bureaucrats know that certain rules apply only to ordinary mortals but not to them, they know that they are exempted from such restrictions as they themselves granted the exceptions. This is wrong.
---------
On a related note, I wrote this last April 12, 2010:
Coercion and Corruption
Coercion and corruption are two aspects of the same body, whether government or private. They are not exactly the same but there is some causality between the two. Corruption is greatly facilitated when there is some coercion involved. And in many countries where there is weak promulgation of the rule of law, coercion is instituted and retained mainly to create the best opportunity for corruption.
Consider the coercion of outlawing certain drugs and other addictive chemicals. There are strict, if not deadly. penalties in producing and distributing prohibited drugs. But up to now, drug pushing and addiction remains a big issue in many countries, from poorer ones with weak promulgation of the rule of law like the Philippines, to richer countries with stronger implementation of the rule of law like the US. Corruption by certain law enforcers is the main explanation why the coercion against prohibited drugs is not and can not be fully implemented.
In many public discourses, even in electoral campaigns, the focus of discussion by almost all political parties, groups and individuals is on corruption. There is in fact general acceptance, if not consensus, that widespread corruption is happening in the country, and that the next administration should radically move to curtail and control it.
Coercion though, is never publicly discussed. The implication is that the various coercions instituted and enacted by the State and its various agencies, both national and local, are correct and acceptable. What government administrators and law enforcers need to do, in this philosophy, is simply implement those coercive laws and regulations without fear or favor.
This kind of thinking was hijacked by various vested interests in society who do not want to assume more personal responsibility about their own lives, their own households, their own communities. Thus, various lobbyists succeeded in having coercive laws that give them entitlement to certain subsidies and welfare. More subsidies, more personnel and bureaucrats to implement those subsidies, more taxes and fees to pay for the thick army of government personnel and another thick army of people expecting the subsidies.
Government is power, force and coercion. Government is never about voluntary exchange, it is all about coercive exchange. Government says, "I take your money (taxes and fees), I give you this policeman, this public works engineer, this taxation assessor, this school teacher... whether you like them or not, they are your public officials."
All the public noise about "bad governance" mainly refers to the government – from the Executive, Legislative, Judiciary, down to the local governments. It is not much with the private sector. If people find the richest man in the country as a labor exploiter, a shrewd businessman, or whatever complaint, the people have the option to boycott that man’s businesses like malls and banks. They can patronize the malls, supermarkets, banks, and other business interests of the competing businessmen, or simply not visit any mall at all. There is choice.
In government, choice is almost zero. Especially if you one is a fixed income earner. Thus, since government is an imposition, a coercion in body and spirit, then such coercion should not be big. Let there be big coercion and over-regulation of criminals, rapists, killers, kidnappers, thieves, land-grabbers, extortionists, etc. But there should be little or zero coercion in entrepreneurship and job creation.
Take the case of the Finance Department or Ministry of many countries. It is usually in an ugly position. It is a powerful agency but ordinary citizens hate it because their mandate is mainly to tax and penalize those who work, those who create jobs, those who produce various goods and services in society.
Is your job stealing, bank hold-ups or kidnapping children? The Finance Department will not deal with you.
Is your job to manufacture food, sell medicines and clothing, distribute housing and construction materials, operate a barber shop or an internet shop? The Finance Department will deal with you. If there are only two to four taxes to pay each year, at low rates, people would gladly comply and not hate that Department. But since there are one dozen to four dozen taxes and fees to pay, including those imposed by other agencies and local government units who also want a slice of the sweat and blood of the job creators and workers, then people begin to dislike, if not hate, the taxes and fees collectors. Thus, it is not surprising that the Finance Department is among the most corrupt agencies in the Executive branch.
Where there is more coercion, where there is more prohibition, there is more corruption.
----------
See also Rule of Law 8: Purpose and Supremacy of the Law, June 15, 2010
Sunday, June 27, 2010
June 29, lots of forum
This coming Tuesday, June 29, 2010, there are lots of forum that I know.
1. Interdisciplinary Conference on Caritas in Veritate, Univ. of Asia and the Pacific (UA&P), Ortigas, whole day. Free, no registration fee.
2. Forum on Universal Health Care, Univ. of the Philippines, College of Public Administration, whole day. Sponsored by WomanHealth, CHAT, other groups. Also Free.
3. Power Forum, NEDA sa Makati Building, Amorsolo St., 1-5pm, sponsored by the Philippine Economic Society (PES). Free for PES members, non-members pay P1,000.
4. Coal forum, Edsa Shangrila, Ortigas, 1-5pm, sponsored by Platts. By invite, free.
5. Global public debt troubles: the next phase of the global crisis?
Balay Internasyonal, UP Diliman, 2-5pm, sponsored by IBON Foundation, free.
I'm sure there are other fora somewhere else on the same day. And I wonder why they have to happen on the same day, just when I'm interested to attend ALL of them... So will skip some and attend some.
The next day, June 30, will be the inauguration of the next President of the Philippines. He will be in power for the next 6 years, and the outgoing President who has been in power for the past 9 years, will bow down.
I think that in many of those fora before the June 30 inauguration, the organizers or sponsors will submit some recommendations to the incoming administration.
Personally, unless those fora and papers will have new data to show and new perspectives to offer, I don't think they should be forwarded to the incoming administration.
I believe that any political party that wins an election already has a definite program of action. It is sort of its "social contract" with the voters. The political party was saying, "Vote for us, we will implement the following." And the voters are also saying, "we voted for you, we hope you will implement what you promised to us."
That's why I never joined any group or any online networking sites that gave "unsolicited advice" to the incoming administration. Let the winning political party implement what it promised to the voters prior to the elections. But I respect the opinion of other people who gave unsolicited advice to the new government. It's just that I don't believe I should join them.
1. Interdisciplinary Conference on Caritas in Veritate, Univ. of Asia and the Pacific (UA&P), Ortigas, whole day. Free, no registration fee.
2. Forum on Universal Health Care, Univ. of the Philippines, College of Public Administration, whole day. Sponsored by WomanHealth, CHAT, other groups. Also Free.
3. Power Forum, NEDA sa Makati Building, Amorsolo St., 1-5pm, sponsored by the Philippine Economic Society (PES). Free for PES members, non-members pay P1,000.
4. Coal forum, Edsa Shangrila, Ortigas, 1-5pm, sponsored by Platts. By invite, free.
5. Global public debt troubles: the next phase of the global crisis?
Balay Internasyonal, UP Diliman, 2-5pm, sponsored by IBON Foundation, free.
I'm sure there are other fora somewhere else on the same day. And I wonder why they have to happen on the same day, just when I'm interested to attend ALL of them... So will skip some and attend some.
The next day, June 30, will be the inauguration of the next President of the Philippines. He will be in power for the next 6 years, and the outgoing President who has been in power for the past 9 years, will bow down.
I think that in many of those fora before the June 30 inauguration, the organizers or sponsors will submit some recommendations to the incoming administration.
Personally, unless those fora and papers will have new data to show and new perspectives to offer, I don't think they should be forwarded to the incoming administration.
I believe that any political party that wins an election already has a definite program of action. It is sort of its "social contract" with the voters. The political party was saying, "Vote for us, we will implement the following." And the voters are also saying, "we voted for you, we hope you will implement what you promised to us."
That's why I never joined any group or any online networking sites that gave "unsolicited advice" to the incoming administration. Let the winning political party implement what it promised to the voters prior to the elections. But I respect the opinion of other people who gave unsolicited advice to the new government. It's just that I don't believe I should join them.
Freeing markets amidst rising govt debts
(Note: this is my article for www.thelobbyist.biz, June 27, 2010)
When the housing bubble burst started in the US in 2007 and later spread out as a global financial turmoil, many people blamed “market failure” and called for greater government regulations and bigger intervention in the economy. When public debt woes are surfacing, especially in Greece, Spain and UK, we do not hear the term “government failure” from those people.
Below are some data on the budget balance (deficit or surplus) as percent of GDP of selected countries, 2010
Deficit, Europe
Ireland, -19.0
Britain, -12.0
Greece, -10.2
Spain, -9.9
France, -8.4
Portugal, -7.9
Slovakia, -6.5
Netherlands, -6.2
Belgium, -6.0
Germany, -5.6
Italy, -5.2
Deficit, N.America, Asia
US, -8.8
Canada, -4.3
Japan, -7.8
Vietnam, -7.7
India, -5.5
Malaysia, -5.4
* Philippines, -3.6
Fiscal surplus:
Norway, 9.9
Saudi Arabia, 4.3
Hong Kong, 0.6
Source: The Economist, June 17th 2010,
http://www.economist.com/node/16379995?story_id=16379995
We are no longer talking about “maximum -3.5 percent of GDP” as the “warning bell”. We are now talking about -6 percent, -10, -19 percent. And this is one of the economic backgrounds when leaders of the G20 member-economies will meet this weekend in Canada.
Government failure is much worse than market failure. There are lots of market solutions to market failure, but there are just few “government solutions” to government failure.
This coming September 28 to 30, 2010, the 4th Pacific Rim Policy Exchange to be held in Sydney, Australia, promises to have lots of discussions how to limit the actual and potential damages to the global economy by ever-expanding governments around the world in general, and the Pacific Rim countries in particular.
Among the topics and panels to be discussed are the following.
One, obstacles to investment. The seemingly endless government taxation, intervention and regulations are inconsistent with the realities. How come that the institution that does not have the discipline to live within its means and sustains its profligacy only by endless borrowings, can impose lots of regulations supposedly to instill discipline to private individuals and enterprises?
Two, free trade. The freedom to trade, to buy and/or sell to anyone and from anyone from anywhere, is among the major characteristics of a free and dynamic society. But as the financial turmoil dragged last year, more governments turned protectionist, which prevented their economies from recovering fast.
Three, digital liberty. Individual liberty is better respected via revolutions in the information technology and the digital world. People now have more options other than tuning in to major and traditional media outlets. But there are attempts by governments for more regulations and implicit censorship of content by both traditional and alternative media outlets like blogs.
Four, intellectual property (IP), jobs, and the economy. Societies develop and modernize because of continuing innovation by different economic actors and players, individuals and corporations. Innovation in more expensive undertakings like health need some protection, if only to give incentives to innovators and inventors to continue what they are doing.
The event will be co-sponsored by 4 independent think tanks: the Americans for Tax Reforms (ATR, www.atr.org), the Property Rights Alliance (PRA, www.propertyrightsalliance.org), the Institute of Public Affairs (IPA, www.ipa.org.au) and the Heartland Institute (www.heartland.org). More details about the event can be found at http://pacrimpolicyexchange.com/agenda.
Freeing markets means freeing individuals. Because markets are composed of individuals, both buyers and sellers, producers and consumers, rich and poor, young and old, male and female. The economy, culture and arts, science and sports, they all become more modern and more useful to society when individuals are freed from the shackles of various restrictions and prohibition by governments.
When the housing bubble burst started in the US in 2007 and later spread out as a global financial turmoil, many people blamed “market failure” and called for greater government regulations and bigger intervention in the economy. When public debt woes are surfacing, especially in Greece, Spain and UK, we do not hear the term “government failure” from those people.
Below are some data on the budget balance (deficit or surplus) as percent of GDP of selected countries, 2010
Deficit, Europe
Ireland, -19.0
Britain, -12.0
Greece, -10.2
Spain, -9.9
France, -8.4
Portugal, -7.9
Slovakia, -6.5
Netherlands, -6.2
Belgium, -6.0
Germany, -5.6
Italy, -5.2
Deficit, N.America, Asia
US, -8.8
Canada, -4.3
Japan, -7.8
Vietnam, -7.7
India, -5.5
Malaysia, -5.4
* Philippines, -3.6
Fiscal surplus:
Norway, 9.9
Saudi Arabia, 4.3
Hong Kong, 0.6
Source: The Economist, June 17th 2010,
http://www.economist.com/node/16379995?story_id=16379995
We are no longer talking about “maximum -3.5 percent of GDP” as the “warning bell”. We are now talking about -6 percent, -10, -19 percent. And this is one of the economic backgrounds when leaders of the G20 member-economies will meet this weekend in Canada.
Government failure is much worse than market failure. There are lots of market solutions to market failure, but there are just few “government solutions” to government failure.
This coming September 28 to 30, 2010, the 4th Pacific Rim Policy Exchange to be held in Sydney, Australia, promises to have lots of discussions how to limit the actual and potential damages to the global economy by ever-expanding governments around the world in general, and the Pacific Rim countries in particular.
Among the topics and panels to be discussed are the following.
One, obstacles to investment. The seemingly endless government taxation, intervention and regulations are inconsistent with the realities. How come that the institution that does not have the discipline to live within its means and sustains its profligacy only by endless borrowings, can impose lots of regulations supposedly to instill discipline to private individuals and enterprises?
Two, free trade. The freedom to trade, to buy and/or sell to anyone and from anyone from anywhere, is among the major characteristics of a free and dynamic society. But as the financial turmoil dragged last year, more governments turned protectionist, which prevented their economies from recovering fast.
Three, digital liberty. Individual liberty is better respected via revolutions in the information technology and the digital world. People now have more options other than tuning in to major and traditional media outlets. But there are attempts by governments for more regulations and implicit censorship of content by both traditional and alternative media outlets like blogs.
Four, intellectual property (IP), jobs, and the economy. Societies develop and modernize because of continuing innovation by different economic actors and players, individuals and corporations. Innovation in more expensive undertakings like health need some protection, if only to give incentives to innovators and inventors to continue what they are doing.
The event will be co-sponsored by 4 independent think tanks: the Americans for Tax Reforms (ATR, www.atr.org), the Property Rights Alliance (PRA, www.propertyrightsalliance.org), the Institute of Public Affairs (IPA, www.ipa.org.au) and the Heartland Institute (www.heartland.org). More details about the event can be found at http://pacrimpolicyexchange.com/agenda.
Freeing markets means freeing individuals. Because markets are composed of individuals, both buyers and sellers, producers and consumers, rich and poor, young and old, male and female. The economy, culture and arts, science and sports, they all become more modern and more useful to society when individuals are freed from the shackles of various restrictions and prohibition by governments.
Friday, June 25, 2010
An ever-expanding universe
The University of the Philippines (UP) in Diliman, Quezon City campus, has a Science, Technology and Society (STS) subject that is mandatory for certain undergrad courses. Currently, the director of that program is my good friend, Dr. Fidel Nemenzo (below), who is a faculty member of the UP Math Department. Fidel is a bright guy, his specialization is number theory, perhaps the purest and the most abstract of all math topics.
The STS occasionally holds large lectures. One of their lectures that I attended early this year was about the 150th anniversary of the publication of Charles Darwin’s “The origin of species”. And last June 15, 2010, STS sponsored another big forum, “An accelerated history of the universe” given by Dr. Daniel Holz of the Los Alamos National Laboratory (LANL) in New Mexico, US.
Daniel Holz, below, is another bright guy, he’s a young cosmologist at LANL. Cosmology is the study of the universe, from its beginning to its end. Well, the beginning is definite, they have computed the age of the universe, 13.8 billion years old, from the “big bang”. The end is still indefinite though, so cosmology keeps developing theories that will predict the “future” of the universe.
Albert Einstein and the “Big Bang” theory. I didn’t realize until that afternoon that it was Einstein who developed this theory. Anyway, here’s one slide by Daniel.
Gravity. A very very important force in our planet, in our solar system, in the universe. Without gravity, the Earth will spin out of its axis and possibly get out of the solar system, and we will be doomed to indefinite darkness and global cooling as it’s the Sun that gives us light and warmth. Without gravity, our solar system might spin out and get out of our galaxy and go somewhere else.
So it’s gravity that somehow hold planets, comets, stars, galaxies and constellations in the universe. If there is a super-super-huge gravity somewhere, then the expansion of the universe should somehow slow down, if not stop later on, right?
The cosmologists and other physicists though were surprised that the universe’ expansion was even accelerating, not decelerating. Which means there is another force, stronger and more powerful than gravity, that allows the universe to expand further.
Daniel said it’s the “dark energy”. And dark energy comprises 70 percent of the entire composition of the universe. Much much bigger than stars, dust and gases. The other components of the universe are “dark matter” 25 percent, and “baryons” and ordinary matter (protons, neutrons, electrons, etc.) cover the remaining 5 percent. Below is the summary of the “vital statistics” of the universe.
Our universe is really dynamic, never static and dormant. Change and cycles dominate nature. Like water cycle, hydrologic cycle, carbon cycle, weather cycle.
I wanted to ask Daniel about “cosmology and the Earth’s climate” as I believe more the Sun-climate link theory and not the “man-made warming” junk, but I did not. I think such question may be too parochial as the general topic is really beautiful – the beginning and the (possible) “end” of the universe. But will there be an end to the universe? I do not know, I’m only an ordinary audience of scientific discussions.
Meanwhile, I really thanked Fidel for emailing and texting me about the last 2 STS lectures, the Darwin and evolution lecture and the cosmology lecture. Well, I’m his fan, so whenever he invites me to certain lectures in UP, I am 100 percent sure that it is going to be an interesting one.
The STS occasionally holds large lectures. One of their lectures that I attended early this year was about the 150th anniversary of the publication of Charles Darwin’s “The origin of species”. And last June 15, 2010, STS sponsored another big forum, “An accelerated history of the universe” given by Dr. Daniel Holz of the Los Alamos National Laboratory (LANL) in New Mexico, US.
Daniel Holz, below, is another bright guy, he’s a young cosmologist at LANL. Cosmology is the study of the universe, from its beginning to its end. Well, the beginning is definite, they have computed the age of the universe, 13.8 billion years old, from the “big bang”. The end is still indefinite though, so cosmology keeps developing theories that will predict the “future” of the universe.
Albert Einstein and the “Big Bang” theory. I didn’t realize until that afternoon that it was Einstein who developed this theory. Anyway, here’s one slide by Daniel.
Gravity. A very very important force in our planet, in our solar system, in the universe. Without gravity, the Earth will spin out of its axis and possibly get out of the solar system, and we will be doomed to indefinite darkness and global cooling as it’s the Sun that gives us light and warmth. Without gravity, our solar system might spin out and get out of our galaxy and go somewhere else.
So it’s gravity that somehow hold planets, comets, stars, galaxies and constellations in the universe. If there is a super-super-huge gravity somewhere, then the expansion of the universe should somehow slow down, if not stop later on, right?
The cosmologists and other physicists though were surprised that the universe’ expansion was even accelerating, not decelerating. Which means there is another force, stronger and more powerful than gravity, that allows the universe to expand further.
Daniel said it’s the “dark energy”. And dark energy comprises 70 percent of the entire composition of the universe. Much much bigger than stars, dust and gases. The other components of the universe are “dark matter” 25 percent, and “baryons” and ordinary matter (protons, neutrons, electrons, etc.) cover the remaining 5 percent. Below is the summary of the “vital statistics” of the universe.
Our universe is really dynamic, never static and dormant. Change and cycles dominate nature. Like water cycle, hydrologic cycle, carbon cycle, weather cycle.
I wanted to ask Daniel about “cosmology and the Earth’s climate” as I believe more the Sun-climate link theory and not the “man-made warming” junk, but I did not. I think such question may be too parochial as the general topic is really beautiful – the beginning and the (possible) “end” of the universe. But will there be an end to the universe? I do not know, I’m only an ordinary audience of scientific discussions.
Meanwhile, I really thanked Fidel for emailing and texting me about the last 2 STS lectures, the Darwin and evolution lecture and the cosmology lecture. Well, I’m his fan, so whenever he invites me to certain lectures in UP, I am 100 percent sure that it is going to be an interesting one.
Wednesday, June 23, 2010
Market Failure vs. Government Failure, Part 3
After posting my short essay “The purpose of the law” in one of my various online discussion groups, I got comments from two friends. The discussion has actually veered from the philosophy of the law, and towards market and state.
One argued that “Greed is part of human nature, and it is up to the government to stifle that greed. Business is all about greed, so it has to be regulated. En ceteris paribus, a society is better off with business regulated by government, because the concept of a self regulated global citizen who is morally and ethically perfect is but a dream.”
The other argued that “the best response to this is Greenspan's own mea culpas for the excesses of the ‘free market’ environment that he championed for so long. ‘Market forces’ is really a misleading term. By it, one is led to believe that the seller has the same inherent interest as the buyer. That is not so, obviously. Any "self-correction" that the "free market" (as espoused by Greenspan) may experience, is obviously not so much to match price with demand, but rather to maximize profits.”
-----
On the first comment, I argue that the best regulatory mechanism for business is competition, not government.
Consider Toyota, how arrogant their staff will be and how lousy their cars will be, if they have no competitors -- no Honda, no Ford, no BMW, no Benz, no Kia, no GM, no Nissan, no Hyundai, no one else. But with the competition by many other auto companies, the staff of Toyota -- and all other auto companies -- are friendly to their customers, have good after-sales service, and their price is not far out compared to the price of their competitors.
Or Consider Jollibee, how arrogant their staff will be and how lousy their food will be, if there is no McDo, no Burger King, no Chowking, no Pizza hut, no other food chains, and Jollibee is the only monopoly food chain across the country.
It is true that greed often rules our instinct. The greed for more profit of one company is tempered by the greed for a slice of the overall profit by other companies.
Why is yahoo and yahoogroups making this service to us for free? Because it wants big profit, because there are huge competitors like google and gmail and facebook and many other social networking sites.
Government regulations exist mainly so that politicians and bureaucrats will feel they are doing something. Corporate expansion and corporate bankruptcies are 100 percent part of capitalism. Capitalism without failure is like religion without sin. Or like Christianity without hell. People were clapping their hands when capitalism was expanding and creating millions of jobs. But when capitalism is doing some internal checks and bringing to bankruptcy some companies that abuse their power, people are wondering that capitalism is "dying" or "finished".
On the second comment, I told him that he’s got a really wrong example of a free marketer. A central banker -- like central planner -- is never a free marketer. Central bankers centralize the monetary policies in their hands -- when to raise or cut interest rates, by how much, when to print more money, by how much, when to "recall" the excess money by raising the bank required reserves and other monetary tools, etc.
And in the case of the Philippines, supposedly independent central bankers play chummy-chummy with fiscal authorities at the Executive branch. There is coordinated monetary and fiscal central planning.
There will ALWAYS be market failures as anyone can create a market failure anytime anywhere. For instance, if I demand to buy a USB flash disk with 120 GB memory for only P10,000 or about $210, presto, 100 percent market failure. There is demand by at least one person, there is zero supply, anywhere in the world at such price. Supply does not meet the demand, market failure.
Or Juan Penduko dela Cruz produces a hybrid balut with the embryo of duck-chicken- crocodile in one egg, and sells for P5 million pesos each egg because of the huge cost of his scientific R&D. No one buys the egg, Ergo, another market failure. There is supply, there is zero demand, market failure.
So what now because there is market failure, governments should come in to "correct" the market failure, by heavily subsidizing the manufacturing of 120 GB or more powerful memory USB flash disks for only $200 or less? And governments will over-tax people so it can have plenty of money to subsidize this and subsidize that?
Both sellers and buyers have the same objective: to optimize their respective utility in buying or selling something. A buyer wants to buy as cheaply as possible, a seller wants to sell as expensively as possible. If both will insist on his original goal, there will be market failure. The buyer cannot buy anything at the low price he's asking for, the seller cannot sell anything at the high price he's asking for. And both will become miserable, will have no money and possibly starve. So they decide to meet half-way, supply meets demand at a particular price for a particular quantity of commodities. And both are happy somehow. The beauty of trade, of free trade and free market.
Would the lawyer be happy if he cannot decide how much will be his legal fees as there might be market failure somewhere, so government comes in to dictate how much that lawyer can charge his legal services so that there will be no market failure?
One argued that “Greed is part of human nature, and it is up to the government to stifle that greed. Business is all about greed, so it has to be regulated. En ceteris paribus, a society is better off with business regulated by government, because the concept of a self regulated global citizen who is morally and ethically perfect is but a dream.”
The other argued that “the best response to this is Greenspan's own mea culpas for the excesses of the ‘free market’ environment that he championed for so long. ‘Market forces’ is really a misleading term. By it, one is led to believe that the seller has the same inherent interest as the buyer. That is not so, obviously. Any "self-correction" that the "free market" (as espoused by Greenspan) may experience, is obviously not so much to match price with demand, but rather to maximize profits.”-----
On the first comment, I argue that the best regulatory mechanism for business is competition, not government.
Consider Toyota, how arrogant their staff will be and how lousy their cars will be, if they have no competitors -- no Honda, no Ford, no BMW, no Benz, no Kia, no GM, no Nissan, no Hyundai, no one else. But with the competition by many other auto companies, the staff of Toyota -- and all other auto companies -- are friendly to their customers, have good after-sales service, and their price is not far out compared to the price of their competitors. 
Or Consider Jollibee, how arrogant their staff will be and how lousy their food will be, if there is no McDo, no Burger King, no Chowking, no Pizza hut, no other food chains, and Jollibee is the only monopoly food chain across the country.It is true that greed often rules our instinct. The greed for more profit of one company is tempered by the greed for a slice of the overall profit by other companies.
Why is yahoo and yahoogroups making this service to us for free? Because it wants big profit, because there are huge competitors like google and gmail and facebook and many other social networking sites.
Government regulations exist mainly so that politicians and bureaucrats will feel they are doing something. Corporate expansion and corporate bankruptcies are 100 percent part of capitalism. Capitalism without failure is like religion without sin. Or like Christianity without hell. People were clapping their hands when capitalism was expanding and creating millions of jobs. But when capitalism is doing some internal checks and bringing to bankruptcy some companies that abuse their power, people are wondering that capitalism is "dying" or "finished".
On the second comment, I told him that he’s got a really wrong example of a free marketer. A central banker -- like central planner -- is never a free marketer. Central bankers centralize the monetary policies in their hands -- when to raise or cut interest rates, by how much, when to print more money, by how much, when to "recall" the excess money by raising the bank required reserves and other monetary tools, etc.
And in the case of the Philippines, supposedly independent central bankers play chummy-chummy with fiscal authorities at the Executive branch. There is coordinated monetary and fiscal central planning.There will ALWAYS be market failures as anyone can create a market failure anytime anywhere. For instance, if I demand to buy a USB flash disk with 120 GB memory for only P10,000 or about $210, presto, 100 percent market failure. There is demand by at least one person, there is zero supply, anywhere in the world at such price. Supply does not meet the demand, market failure.
Or Juan Penduko dela Cruz produces a hybrid balut with the embryo of duck-chicken- crocodile in one egg, and sells for P5 million pesos each egg because of the huge cost of his scientific R&D. No one buys the egg, Ergo, another market failure. There is supply, there is zero demand, market failure.
So what now because there is market failure, governments should come in to "correct" the market failure, by heavily subsidizing the manufacturing of 120 GB or more powerful memory USB flash disks for only $200 or less? And governments will over-tax people so it can have plenty of money to subsidize this and subsidize that?
Both sellers and buyers have the same objective: to optimize their respective utility in buying or selling something. A buyer wants to buy as cheaply as possible, a seller wants to sell as expensively as possible. If both will insist on his original goal, there will be market failure. The buyer cannot buy anything at the low price he's asking for, the seller cannot sell anything at the high price he's asking for. And both will become miserable, will have no money and possibly starve. So they decide to meet half-way, supply meets demand at a particular price for a particular quantity of commodities. And both are happy somehow. The beauty of trade, of free trade and free market.
Would the lawyer be happy if he cannot decide how much will be his legal fees as there might be market failure somewhere, so government comes in to dictate how much that lawyer can charge his legal services so that there will be no market failure?
Tuesday, June 22, 2010
Electing political parties, not politicians
When we buy hamburger or pasta or roasted chicken, we do not ask who are the owners, presidents and board of directors of McDo, Jollibee, Burger King, Pizza Hut, Andok’s Manok, etc. We just buy the food because of the brand that those food corporations have built through the years. It is a brand or image of safe (non-poisonous) and delicious (need not be nutritious) food at a particular price range.
The same can be said when we buy a car (brand new or second hand), a cell phone, a tv, a computer, gasoline, etc. We do not ask who are the Presidents, major owners and Board of Directors of those companies, we buy their products based on the brand and corporate integrity that they have built which the public has accepted and respected.
The same cannot be said of politics though. People do not look at the brand or integrity of a political party; people look at the politicians that represent their parties. And in the case of the Philippines, politicians who are intent on running for a political position, if they cannot be the standard bearer of a political party that they originally belong to, they create and register a new political party (or resurrect an old and dying one) with them as the standard bearer, and such political party has little or no track record of good governance to speak of.
This situation largely explains the weak party-system in the country. The existence and institutionalization of the “party-list” system further exacerbated this situation. In the last May 2010 elections for instance, nearly 500 different party-lists – on top of existing dozens of national and provincial political parties – registered with the Commission on Elections (Comelec) and 187 were accredited.
The multitude of thousands of politicians from hundreds of political parties promising the moon and the stars only succeeded in confusing the voters and exacerbating the personality-oriented politics in the country, never in developing principle- and philosophy-based politics.
In the recent post-election forum organized by the Ateneo School of Government (ASoG) entitled “Leaning Lessons, consolidating gains: the 2010 national elections” last June 18, 2010, I raised some of those issues during the open forum and during the workshop.
.jpg)
It was a good forum. Among the speakers were Atty. Rene Sarmiento of Comelec, Dr. Mahar Mangahas of the Social Weather Stations, Mr. Ramon Casiple of the Institute for Political and Electoral Reforms (IPER), Atty. Eduardo Nuque of the Legal Network for Truthful Elections (LENTE), and Police CS Ager Ontog of the Philippine National Police (PNP).
.jpg)
During the open forum, I argued that the party-list system is wrong even in theory, and much more wrong in practice. Thus, the system should be abolished, there are no marginalized sectors, only marginalized individuals. I also suggested that ASoG should consider having a special forum on the party-list system alone.
I also commended the PNP – one of the few instances that I do so – for having a generally peaceful elections. Here is the PNP data for the decline in election-related violent incidents (ERVIs): from 249 incidents in the 2004 elections to 229 in the 2007 elections and only 180 in the recent 2010 elections.
.jpg)
Prior to the recent elections, the PNP was among the most distrustful agencies in the government. It has improved its image, I think, after the elections last month. It took a long time for the PNP to destroy and continue destroying its reputation. It will take also a long time to regain that reputation. It will need a series of confidence-building measures and proof to achieve this. The recent elections has contributed to that confidence-building.
I like the idea that the PNP also accosted and arrested some of its own personnel who violated the Comelec gun ban. Out of the 3,182 people who were arrested, 108 of them were PNP personnel (those carrying their firearms while off-duty and wearing civilian clothes). Some military personnel were likewise arrested for the same offense.
In one of the simultaneous workshops in the afternoon session, I argued that civil society groups should push for a change in the electoral system – via legislation – where voters will only vote the political party, never the name of politicians. Voters will judge and select the principles and political philosophies of political parties including their track records, not so much the politicians that represent those parties. This way, political parties will be forced to really define their party principles and stick to them, and not just blabber with generalities like “anti-corruption” where hundreds of political parties and party-lists in the country, all of them without exception, were campaigning against.
Picture below during the workshop discussions. Beside me is Byron Abadeza of the Transparency and Accountability Network (TAN).
.jpg)
A number of participants in the workshop group like the idea that it should mainly be the political party, like a corporation, and not the politicians, that will be directly accountable to the people and voters. The politicians will be accountable to their party. The party will discipline its politicians, apply severe disciplinary and even criminal charges to their erring members, so that the party can show and retain its reputation to the public. The same way that a big restaurant with hundreds of food chains across the country cannot afford to have even a single case of food poisoning in any of its food outlets in the country.
I hope that more civil society leaders will take up this topic and hopefully, support it.
The same can be said when we buy a car (brand new or second hand), a cell phone, a tv, a computer, gasoline, etc. We do not ask who are the Presidents, major owners and Board of Directors of those companies, we buy their products based on the brand and corporate integrity that they have built which the public has accepted and respected.
The same cannot be said of politics though. People do not look at the brand or integrity of a political party; people look at the politicians that represent their parties. And in the case of the Philippines, politicians who are intent on running for a political position, if they cannot be the standard bearer of a political party that they originally belong to, they create and register a new political party (or resurrect an old and dying one) with them as the standard bearer, and such political party has little or no track record of good governance to speak of.
This situation largely explains the weak party-system in the country. The existence and institutionalization of the “party-list” system further exacerbated this situation. In the last May 2010 elections for instance, nearly 500 different party-lists – on top of existing dozens of national and provincial political parties – registered with the Commission on Elections (Comelec) and 187 were accredited.
The multitude of thousands of politicians from hundreds of political parties promising the moon and the stars only succeeded in confusing the voters and exacerbating the personality-oriented politics in the country, never in developing principle- and philosophy-based politics.
In the recent post-election forum organized by the Ateneo School of Government (ASoG) entitled “Leaning Lessons, consolidating gains: the 2010 national elections” last June 18, 2010, I raised some of those issues during the open forum and during the workshop.
.jpg)
It was a good forum. Among the speakers were Atty. Rene Sarmiento of Comelec, Dr. Mahar Mangahas of the Social Weather Stations, Mr. Ramon Casiple of the Institute for Political and Electoral Reforms (IPER), Atty. Eduardo Nuque of the Legal Network for Truthful Elections (LENTE), and Police CS Ager Ontog of the Philippine National Police (PNP).
.jpg)
During the open forum, I argued that the party-list system is wrong even in theory, and much more wrong in practice. Thus, the system should be abolished, there are no marginalized sectors, only marginalized individuals. I also suggested that ASoG should consider having a special forum on the party-list system alone.
I also commended the PNP – one of the few instances that I do so – for having a generally peaceful elections. Here is the PNP data for the decline in election-related violent incidents (ERVIs): from 249 incidents in the 2004 elections to 229 in the 2007 elections and only 180 in the recent 2010 elections.
.jpg)
Prior to the recent elections, the PNP was among the most distrustful agencies in the government. It has improved its image, I think, after the elections last month. It took a long time for the PNP to destroy and continue destroying its reputation. It will take also a long time to regain that reputation. It will need a series of confidence-building measures and proof to achieve this. The recent elections has contributed to that confidence-building.
I like the idea that the PNP also accosted and arrested some of its own personnel who violated the Comelec gun ban. Out of the 3,182 people who were arrested, 108 of them were PNP personnel (those carrying their firearms while off-duty and wearing civilian clothes). Some military personnel were likewise arrested for the same offense.
In one of the simultaneous workshops in the afternoon session, I argued that civil society groups should push for a change in the electoral system – via legislation – where voters will only vote the political party, never the name of politicians. Voters will judge and select the principles and political philosophies of political parties including their track records, not so much the politicians that represent those parties. This way, political parties will be forced to really define their party principles and stick to them, and not just blabber with generalities like “anti-corruption” where hundreds of political parties and party-lists in the country, all of them without exception, were campaigning against.
Picture below during the workshop discussions. Beside me is Byron Abadeza of the Transparency and Accountability Network (TAN).
.jpg)
A number of participants in the workshop group like the idea that it should mainly be the political party, like a corporation, and not the politicians, that will be directly accountable to the people and voters. The politicians will be accountable to their party. The party will discipline its politicians, apply severe disciplinary and even criminal charges to their erring members, so that the party can show and retain its reputation to the public. The same way that a big restaurant with hundreds of food chains across the country cannot afford to have even a single case of food poisoning in any of its food outlets in the country.
I hope that more civil society leaders will take up this topic and hopefully, support it.
WSJ article on drug price control
About 2 weeks ago, I got a call from James Hookway of WSJ in my cp. He said he read my papers and presentation materials on drug price control from the MG website. Below is his news report, I was quoted in one paragraph there.
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http://online.wsj.com/article/SB10001424052748703340904575284061202593520.html
Wall Street Journal
JUNE 18, 2010
Philippine Price Controls Hamper Rise of Generics
By JAMES HOOKWAY
MANILA—The Philippines recent embrace of drug-price controls to lower the cost of life-saving medications is creating some unexpected problems—including crimping the supply of inexpensive generic drugs.
The country's president, Gloria Macapagal Arroyo, was eager to reduce the cost of pharmaceuticals in a nation where a third of its 95 million citizens live on around $2 a day. Last August, she used new regulations to cut the cost of five widely used medications, including Pfizer Inc.'s Norvasc hypertension drug and GlaxoSmithKline PLC's Augmentin antibiotic.
Facing mandatory price cuts, drug companies in the Philippines cut the prices of an additional 16 drugs, and in February agreed to slash the prices of frequently prescribed medicines.
A pharmacy customer in Manila.
Industry analysts and executives said the price caps have unintentionally knocked the wind out of a nascent generic-drugs industry that had sprung up here. Lower-priced brand- name drugs are pressuring these low-cost producers, and creating a policy challenge for President-elect Benigno Aquino III, who takes over at the end of June.
Edward Isaac, executive director of the Philippine Chamber of the Pharmaceutical Industry, said price controls and the threat of more caps have lowered the cost of some brand-name drugs to near those of generic competitors. Pfizer's Norvasc was cut to about 22 pesos, or 47 cents, for a five milligram tablet, from over 44 pesos.
"What's happening now is that when the price of Norvasc, for example, is cut, the generics have to slash their own prices," Mr. Isaac said.
Declining profits have some drug retailers putting expansion plans on hold. "We've not opened any new stores since the price controls were introduced," said Leonila Ocampo, vice president of Manila-based MedExpress. The drugstore chain has seen sales volumes drop since the price controls were introduced. "Our margins are under pressure, and if there's no profit, I don't know what will happen," said Ms. Ocampo.
Another drug store operator, Florecita Intal of Stardust Drugs & Medical Supplies Corp., said lower revenues from the branded-drug price caps restricts her ability to expand and offer less expensive generics. She fears smaller retailers might not survive.
While brand-name drugs still account for a large proportion of the drugs market here, generic competitors were beginning to gain in popularity, driven by the spread in recent years of generics-based chain stores up and down this densely populated country.
Data collected by Mr. Isaac's organization indicate, however, that the value of all drugs sold dropped 15% from August 2009 to February 2010, while the volume of pharmaceutical sold here held steady.
Bienvenido Oplas, head of the Manila-based Minimal Government Thinkers Inc. think-tank and a member of the consultative panel advising the Philippines' Department of Health, said this means the price controls policy just isn't working. "It hasn't fulfilled its objective of making more drugs available to more people," he said....
--------
http://online.wsj.com/article/SB10001424052748703340904575284061202593520.html
Wall Street Journal
JUNE 18, 2010
Philippine Price Controls Hamper Rise of Generics
By JAMES HOOKWAY
MANILA—The Philippines recent embrace of drug-price controls to lower the cost of life-saving medications is creating some unexpected problems—including crimping the supply of inexpensive generic drugs.
The country's president, Gloria Macapagal Arroyo, was eager to reduce the cost of pharmaceuticals in a nation where a third of its 95 million citizens live on around $2 a day. Last August, she used new regulations to cut the cost of five widely used medications, including Pfizer Inc.'s Norvasc hypertension drug and GlaxoSmithKline PLC's Augmentin antibiotic.
Facing mandatory price cuts, drug companies in the Philippines cut the prices of an additional 16 drugs, and in February agreed to slash the prices of frequently prescribed medicines.
A pharmacy customer in Manila.
Industry analysts and executives said the price caps have unintentionally knocked the wind out of a nascent generic-drugs industry that had sprung up here. Lower-priced brand- name drugs are pressuring these low-cost producers, and creating a policy challenge for President-elect Benigno Aquino III, who takes over at the end of June.
Edward Isaac, executive director of the Philippine Chamber of the Pharmaceutical Industry, said price controls and the threat of more caps have lowered the cost of some brand-name drugs to near those of generic competitors. Pfizer's Norvasc was cut to about 22 pesos, or 47 cents, for a five milligram tablet, from over 44 pesos.
"What's happening now is that when the price of Norvasc, for example, is cut, the generics have to slash their own prices," Mr. Isaac said.
Declining profits have some drug retailers putting expansion plans on hold. "We've not opened any new stores since the price controls were introduced," said Leonila Ocampo, vice president of Manila-based MedExpress. The drugstore chain has seen sales volumes drop since the price controls were introduced. "Our margins are under pressure, and if there's no profit, I don't know what will happen," said Ms. Ocampo.
Another drug store operator, Florecita Intal of Stardust Drugs & Medical Supplies Corp., said lower revenues from the branded-drug price caps restricts her ability to expand and offer less expensive generics. She fears smaller retailers might not survive.
While brand-name drugs still account for a large proportion of the drugs market here, generic competitors were beginning to gain in popularity, driven by the spread in recent years of generics-based chain stores up and down this densely populated country.
Data collected by Mr. Isaac's organization indicate, however, that the value of all drugs sold dropped 15% from August 2009 to February 2010, while the volume of pharmaceutical sold here held steady.
Bienvenido Oplas, head of the Manila-based Minimal Government Thinkers Inc. think-tank and a member of the consultative panel advising the Philippines' Department of Health, said this means the price controls policy just isn't working. "It hasn't fulfilled its objective of making more drugs available to more people," he said....
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