Fat-Free Econ 38: Jobless Growth vs. Jobless Non-Growth

* This is my article today in TV5's news portal.

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One of the never-ending criticisms of the country's recent economic performance is that it was a “jobless growth” or “elitist growth." The people who say this refer to the lack of sufficient jobs created in the economy and hence point to further social inequality.

Last week's column has attracted similar skeptical comments in social network sites, such as “growth for the rich”, “what growth, growth of the urban slums,” “gobbledygook growth,” and so on. Perhaps it is a case of people being too mired with slow growth in the past, that faster-than-expected economic expansion has become unfamiliar and even uncomfortable for them.

There are valid and invalid reasons and premises for such statements. But before we enumerate these premises, let us review some of the latest GDP growth figures for key economies. This is from The Economist magazine, which conducts a quarterly pool of some of the world’s biggest investment banks and rating companies about their GDP and other macroeconomic forecasts, tabulate those forecasts and get the average.

 

Source: The Economist, February 2, 2013

The Philippines’ full year 2012 growth of 6.6 percent is nearly a percentage point higher than the 5.9 percent projection. A week before that and prior to the announcement of the fourth-quarter 2012 GDP growth, the average forecast for full-year 2012 by The Economist was only 5.5 percent. This is a bit unusual because in most cases and in many countries, actual numbers are about +/- 0.5 percent maximum divergence from projections, the Philippines’ is 0.7-1.1 percent higher than the average forecast.

If the Philippine economy grew slow, like Hong Kong and Singapore’s 1-1.3 percent third-quarter growth, or even contracted to -1.5 to -6.9 percent like what happened to the Netherlands, Italy, Greece and Spain, the complaints of “jobless growth” may have turned into a remark like “jobless non-growth” -- a not-so gratifying situation. See this graph for instance, showing the big disconnect between expectations of stock market growth and GDP growth this year.

  

Source: Zero Hedge, Europe’s WTF Chart, February 5, 2013.

The European Central Bank simply threw money at almost everything while the fundamentals remained gloomy. Expectations like these in such a big continent like Europe can drive some if not many businesses there to head out for other more promising economies. The Philippines should be one of those emerging markets where their financial radars are currently directed.

So, can “jobless growth” really happen and is it theoretically possible?

Yes, it is a theoretical possibility and can happen if the number of the employed people has remained the same while the output of enterprises has increased due to higher productivity (more automation, improvement in production processes, more personal motivation) and the number of people in the active labor force has increased. There were no net job losses that occurred, it is just that the new entrants to the labor force were not absorbed and hired mainly by the formal sector.

The next question will be thus: Is this happening in the Philippines now?

There are mixed signals based on the latest labor force survey (LFS) data as of October 2012. Compared to October 2011, the unemployment rate was higher at 6.8 percent last year compared with 6.4 percent in 2011, and the number of unemployed people was 2.76 million in 2012 compared with 2.64 million the previous year.

If compared two years ago in October 2010, unemployment in 2012 was tame and lower: 6.8 percent unemployment rate compared with 7.1 percent in 2010, and 2.76 million unemployed compared with 2.80 million in 2010. A rise in unemployment also does not always mean that many job applicants are rejected.

An improving overall economic condition also produces job seekers with rising “reservation wage” For instance, they are offered a monthly pay of P20,000 but they did not grab it because they are waiting for a possible job call that will give them a P25,000 monthly pay. So when the LFS was conducted during that period, they were still unemployed, as argued in an earlier column.

There are valid and invalid criticisms of a “jobless growth” phenomenon, actual or imaginary. Perhaps the quickest way to dispel this is for the government to encourage more self-employment or entrepreneurship among the people. If some people harbor a high reservation wage for long, the rational thing to do is for them to employ themselves.

This will require that government must reduce certain procedures, permits, taxes and fees for people to start and maintain a business. Credit is relatively easy these days with interest rates at very low levels. The 91-day Treasury bill rate -- the benchmark for loans -- is down from about 4 percent just three years ago to the current 0.05 percent.

There is a need to sustain the overall economic optimism in the country. People abroad are beginning to see it, but Filipinos have yet to feel it.

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See also:
Fat-Free Econ 34: Rise in Unemployment Rate Not Exactly Bad, December 20, 2012

Fat-Free Econ 35: World's 25 Largest Economies in 2012, January 02, 2013

Fat-Free Econ 36: Peso Appreciation, Growth and Less Government, January 06, 2013

Fat-Free Econ 37: PH GDP Growth 2012, February 02, 2013

Healthcare Competition 10: Alternatives to Government Health Monopoly

* This is my article today in thelobbyist.biz 

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Attaining universal health care (UHC) for all Filipinos is among the key social reform programs of the government. The recent passage of the Sin Tax law as well as the huge hike in the budget of the Department of Health (DOH) are  linked to covering as many poor people as possible in health insurance and hence, attain UHC.

I am in favor of achieving UHC based on two important premises.

One, everyone -- from newly born babies to the oldies in this country, employed or unemployed, married or unmarried -- should  have a health insurance. And that everyone should have his/her individual health card, not just the heads of family as currently practiced by the Philippine Health Insurance Corporation (PHIC or PhilHealth).

Two, UHC does not mean government monopoly of healthcare like PhilHealth. Competition among various healthcare providers – corporate health insurance firms, health NGOs, health cooperative, barangay or village health insurance, municipal or city health insurance, and so on – is possible and feasible.

In the few remaining days of Congress in session, many civil society organizations are pushing the passage of a bill expanding the powers of PhilHealth. I saw the signature campaign and I was not impressed by this bill, Senate Committee Report No. 49 or SB# 2849. It does not seem to have major value added to existing and recent developments.

First, the DOH budget has been rising by an average of P10 billion annually in recent years: P24.65 billion in 2010, P31.83 billion in 2011, P42.08 billion in 2012, P53.06 billion in 2013.

Second, the new Sin tax law is estimated to provide P31.35 billion for UHC this year alone, and about P154.56 billion by 2016 or P39 billion a year on average.  This is on top of regular appropriations for DOH allotted for UHC.

Third, there are increases in mandatory contributions to PhilHealth: (a) those in the formal sector, from 2.5 percent to 3.0 percent of salary; (b) the sponsored program and non-poor informal sector, from P1,200 to P2,400 per annum; and (c) for OFWs, from P900 to P1,200 per annum.

These three measures mean only one thing: more money for UHC every year and they are already in place and implemented even without a new law from Congress. So there is little, if any, value added by  proposed bills on PhilHealth.

Now, there are certain PhilHealth policies that limit or restrict the attainment of UHC itself. Among them are the following.

One, while immediate family members are supposedly automatic dependents of the head of family, there are several restrictions. Among those who can NOT be declared as dependents are:

a. unmarried non-working spouse, or working in the informal sector,

b. children who are above 18 years old, even if they are still studying, and

c. parents who are below 60 years old, even if they are jobless and just taking care of the grandchildren or a sick child. 

The above mentioned groups of people must get or pay their own PHIC membership.

Two, even if members have been religiously paying for many years, but they suddenly forgot or became unable to pay one or two months and thus have not fulfilled the "9 months straight payment" prior to hospitalization, they and their dependents immediately become ineligible for PHIC hospital reimbursement if suddenly one family member is hospitalized.

These technicalities partially defeat PhilHealth's goal of 'UHC for all". In statistics, PhilHealth reports  that they have covered as many Filipinos as possible, that they have covered 85 percent of the total Philippine population. But in reality,  PhilHealth wants to exclude as many people and hence, pay as few members as possible. 

If PhilHealth is serious in covering as many Filipinos as possible, it should remove those exclusions. How can they serve many people if they also exclude as many as possible from the benefit or hospitalization reimbursement system? It is somewhat puzzling why the PhilHealth Board and administrators have not thought of bridging that  service gap. They did not remedy this even though this problem did not happen yesterday or last year, but since PhilHealth was created in 1995 or 18 years ago.

It is also not true that PhilHealth has attained "85 percent UHC coverage” of the Philippine population, What they did in coming up with such conclusion is that they assume that all members have one or two dependents, so they made a two or three multiplier for each PHIC member.  This is wrong and not feasible as many members are young and unmarried, or married but have no kids yet, the older ones may have kids but already 18 years or older. See a longer discussion here, PhilHealth Watch 14: Not Yet 85 Percent Coverage.

Instead of healthcare nationalization and monopolization, we should have healthcare competition. One way to do this is for the DOH to issue a healthcare voucher for all people, say P5,000 per person per year. Thus, a household of four members, couple plus two kids regardless of age, will get a P20,000 per year healthcare voucher.

Let the households and the people choose where to get their health insurance. To private health insurance firm A or firm B, or to health NGO C or D, or to company insurance E or F, or to Barangay or village insurance G or H, or to municipal/city health insurance I or J, or remain with PhilHealth, and so on. 

In the food sector, there is no government restaurant or carinderia corporation, no government supermarket or talipapa, all such shops are private, and people are eating. People have options where to eat or buy cooked and uncooked food.

The same policy can apply in healthcare while government does not let go of its big role in public healthcare. Different healthcare providers, private or civil society or local governments or PhilHealth, are competing with each other to attract the public. The opportunists and greedy will lose clients, the efficient and service-oriented will attract lots of clients.

There are issues raised against private health insurance, that they promise high hospitalization coverage when in fact they pay only after the PhilHealth hospitalization coverage. This is true as these private firms charge lower premium to people who are PhilHealth members.

What the private health insurance providers usually give that PhilHealth does not give, are: (a) annual medical check up, a form of preventive healthcare, (b) dental services, (c) unlimited physician consultation for outpatient services, (d) free diagnostic tests for basic services when necessary, like chest X-ray, blood test, urine/stool lab test, and so on. In case of hospitalization, (e) additional payment after PhilHealth deduction in the total bill.

Where there is healthcare monopoly, options for the public is limited if not zero. Even if PhilHealth  services and health coverage are not good, people have to contribute to it monthly by force and coercion.

Certainly, competition among different healthcare providers is the way to ensure efficiency and non-costly healthcare delivery to the public.

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See also:
Healthcare Competition 6: United States, May 05, 2011
Healthcare Competition 7: Moral Hazards in Healthcare Subsidies, May 24, 2011
Healthcare Competition 8: Centralization vs. Deregulation of Healthcare, December 31, 2011
Healthcare Competition 9: Deregulate Further the Supply of Healthcare, August 25, 2012
Healthcare Monopoly 6: Cuba Socialism, January 14, 2013

Inequality 16: Oxfam and the Politics of Envy

Egalitarianism is very definitely not a feeling but an intellectual construction. I don't think the people at large really believe in egalitarianism; egalitarianism seems to be entirely a product of the intellectuals. -- Hayek, Interview with Bork (1978).

Social inequality is a result of diverse ability, efficiency and motivation of people. Those who are more creative and innovative in producing more output from limited resources will earn more than the others.  And those who are more motivated, more ambitious in producing something that is so innovative and revolutionary, and they later become successful, will also become more wealthy than the rest of society.

So the wider the gap of efficiency and motivation among people, the wider the inequality becomes. Forcing equality among people in society as is done in socialist countries tend to produce more poverty than wealth. This happens because by penalizing creativity and efficiency and subsidizing irresponsibility and inefficiency, the system of economic rewards and punishment is corrupted. If people can eat even if they do not work, why should they work hard, or even work at all.

Free people are not equal and equal people are not free. If people are free to dream high, to work as hard and as efficiently as possible, and some people are free to bum around, to sleep and party as often as possible, then inequality among people will widen. Forcing equality means putting a gun on some people’s head that they should not excel compared to the rest of society.

There was a long article by Oxfam last January 22, 2013, After extreme poverty, let’s look at extreme wealth arguing that extreme inequality is “economically inefficient, politically corrosive, socially divisive, environmentally destructive, unethical, not inevitable.” So they propose to “end extreme wealth by 2025, return inequality to 1990 level.”

To realize their goal, Oxfam is proposing more “regulation and taxation… Limits to bonuses, or to how much people can earn as a multiple of the earnings of the lowest paid, limits to interest rates, limits to capital accumulation… progressive taxation, cracking down on tax avoidance and tax evasion... Closing tax havens…  a globally agreed minimum rate of corporation tax.”

The politics of envy implicitly embedded in these advocacies does not recognize the benefits to humanity produced by the super rich. Among such people are Microsoft founder Bill Gates, facebook founder Mark Zucerberg,  google founders Larry Page, Sergy Brin and Eric Schmidt,  and youtube founders Chad Hurley, Steve Chen and Jawed Karim.

Have these people helped create economic inefficiency, political corrosion, social divisiveness and environmental destruction in the process of their giving us facebook, google, youtube and Microsoft? So that their excess wealth and privileges should be subjected to extra taxes and regulations by governments? This is a doubtful if not mistaken assertion.

Here in the Philippines, multi-billionaires Henry Sy, Gokongwei, Lucio Tan, the Ayalas and many others have become super rich not only because they founded or developed businesses that were patronized and deemed useful by millions of Filipinos like SM, Robinsons, PAL, Ayala Land, Globe, Smart, and other big businesses.  In addition, they do not have enough competitors because of Constitutional limitations and prohibitions on foreign equity ownership on certain sectors of the economy.

There is nothing wrong with being a multi-billionaire if this is achieved through useful invention that benefits humanity. Actual examples are the discovery of facebook, google and youtube.  Take also this hypothetical example.

Supposing a bunch of science geeks and nerds make a grand ambition to create or invent a rice or potato variety that is packed with certain nutrients and vitamins that will improve or boost its consumers' immune system against certain infectious diseases. It is like an indirect vaccine against certain diseases minus the injections. Various laboratory and clinical trials prove that their invention was successful -- safe, effective, no negative side effects, etc. Their rice and potato variety has become a worldwide hit, the geek inventors are selling their rice at P100 per kilo equivalent, and millions and millions of people worldwide are buying their rice, the geeks became super-super rich, they became multi-billionaires.

By simply inventing products and services that are proven to be useful to people, rich and poor alike, these businessmen have already done their part in helping humanity.

It is presumptuous to say that all the super rich only amass their wealth only for their personal and selfish needs, that they are incapable of donating their wealth to the poor, so governments must confiscate a big portion of their wealth and government politicians, officials and bureaucrats, and favored NGOs will redistribute such wealth to the poor.

This is wrong. There are many examples that very rich people voluntarily give away their wealth to the poor, at their chosen projects, programs and terms, not as dictated and prioritized by government politicians and officials.

The Bill and Melinda Gates Foundation (BMGF) gives away $4B a year on average, perhaps in perpetuity, for health charity alone. If  Bill Gates' money was confiscated early on by the US government due to envy or simply because it is a "sin" to amass too much wealth, that foundation's money and global health initiative would not have been possible.

There is also this interesting story of a “nomad billionaire”, Nicolas Berggruen, who as of mid-2012 has a £1.5 billion fortune but plans to give away half of his wealth. He has bought £881m stake in Burger King but he owns no house, no car, not even a watch and carries things in paper bag when he travels.

Class envy and resentment should be curtailed and people should not be penalized for their success. When some people become very rich, their wealth pale in comparison to the greater wealth enjoyed by humanity as a whole through the higher standard of living that the inventions and production of the rich have enabled.

Profit from successful businesses are not hidden in cabinets or idly parked in banks for long. Those profits are reinvested and plowed back into the national and global economy either by expanding the business and hiring more people, or by buying and consuming various products and services, which support other businesses that also hire other people.

If we want prosperity for as many people as possible, allow the producers to produce more, the innovators to invent more, the job creators to hire more. Make things easy for them, do not allow the politics of envy via more regulations and taxation to expand endlessly.

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See also::
Inequality 12: Billionaires and the UN Politics of Envy, July 11, 2012

Inequality 13: Nomad Billionaire, Burger King and Pretty Women, July 17, 2012

Inequality 14: 99 Percent to Support the 1 Percent, October 20, 2012

Inequality 15: SM, Henry Sy and Class Envy, October 31, 2012

EFN Asia 15: Distortions of Welfare Populism, January 17, 2013

Rule of Law 18: Damaso and Carlos Celdran Conviction

Private property, property rights and their protection are the cornerstone of a free and economically dynamic society. If trust and sanctity of private property is assured, people can conduct businesses easily and peacefully. And the economy can grow rather fast as sources of economic instability are reduced if not eliminated.

 

If, however, other people can say, “his car is also my car; his house is also our house” and comes to use other people’s car by force, or enter other people’s house by force and take away anything that he likes, then society can easily degenerate into chaos and unrest.

Private occasion is an event for selected and invited guests by the host and event organizer. Strangers and uninvited people are not supposed to join that event unless they were given belated explicit permission by the host. Otherwise they can be shooed away or be forcibly dragged outside if they persist on staying.

The conviction of Carlos Celdran by a Manila Court of “offending religious feelings” can be analyzed taking the perspective of protecting private property. A lawyer friend explained that “the central element of guilt or crime is location and occasion.”

The immediate reaction by many "netizens" to the lower court's decision, Celdran camp, was rather OA. The hashtag #freecarlosceldran was quickly used. Celdran was not imprisoned, since the decision was issued last January 27 or 28 until now. So how does one free a freely walking, freely moving person? 

 

In a facebook wall of a friend Jim Libiran, who is also a friend of Carlos Celdran, Jim posted last January 30 about the latter’s case. I saw that Carlos himself joined the exchanges, so I posted this comment:

Hi Carlos, I have a question. Pwede naman gawin yan, hurl posters like DAMASO, Bishop Satanas, Obispo bobo, whatever. It's part of freedom of expression, so it's not being debated. The debate centered on what my lawyer friend called "location or occasion" in establishing guilt or crime. If you did it in Liwasan, Luneta, Plaza Miranda, Edsa, facebook, etc., I think there would be no legal debates. But you chose a specific location and occasion, the cathedral with an on-going religious activity. I assume you already knew you were courting some trouble by choosing such location and occasion, and you exactly got it. Don't you think you just got what you were asking for?

Carlos was kind enough to reply after a few minutes. He said that what he did was not just for fun, but to bring attention to the RH bill then and the CBCP power abuse. When the bill was passed into a law, he said that he exactly got what he wanted.

I followed this up with another comment:

I was referring to the legal case filed against you that was upheld by a Manila court, not the RH law. The issue now is about your conviction by that court, not the RH bill passed by Congress. From your reply, it is clear that you justify, no remorse, of what you did -- entering a private location (it's not a public place like Luneta or Quiapo Plaza) with private occasion (it's not a rally or street demo) uninvited in pursuit of your political advocacy. Some individuals, I think it was not the CBCP itself who filed the case, also thought it is their freedom of expression to haul you to court. The judge is the referee to decide whether the case filed by those individuals should be upheld or thrown away, and the judge ruled in favor of upholding it and hence, your conviction. This is what I meant -- you asked for trouble that day, you got it. Don't you think you deserve it? 

Carlos replied that he and nobody in the Philippines deserves that law nor the hypocritical religion. So I posted another comment:

So you can enter a private location with a private occasion uninvited and make a scene, the people attending that activity in Manila Cathedral deserve it. But when some of the people there think they have the freedom of expression to bring you to court for your action, it is not justified? I see double standard and absence of fairness in that statement. Earlier, I commented also in Jim's wall posting when he said that "If Celdran did the protest OUTSIDE of the Church, say in Plaza Roma, the whole symbolic action will miss the point. It was bringing politics into a church to protest, symbolically, Church meddling in politics." 

Let me restate my reply to him and address this to you now. Is it okey with you if someone will enter your office or your house (both are private properties, not public place), hold a placard denouncing you or your work, because it is their freedom of expression anyway. And you are not supposed to drag that person outside your office or house, and neither you are supposed to sue him. Is that Okey with you?

Asking that question because it is not ok with me, Thanks again.

He did not directly reply to it, only posted an article about him from a local online news. While I also did not support the RH bill then, now a law, I did not use or support the Church arguments as I have my own. My main opposition to the RH bill was that it is another legislation to further expand government, expand public spending, the various bureaucracies and the public debt. More RH services can be done via more private sector and civil society volunteerism, on top of the regular activities and spending of the Department of Health and various local government units.

So my support of the conviction ruling by the Manila Court is not exactly a sympathy with the CBCP and the Catholic Church. It is more of upholding private property and the privacy of individuals in a private occasion.

Manila Cathedral is private property of the church, not by the government or by any corporation,  NGO or individual. Although Celdran did not say anything while holding the placard “DAMASO” it was still an intrusion as it was an uninvited or unsolicited action. And when he was forcibly escorted outside so he can stop his drama, he started shouting and hence, created further unnecessary scene and disturbance to the church goers.

There were reports that he already apologized earlier for his action that day. It was not clear to whom he apologized. If he apologized to the judge, then it was the wrong audience as the judge is only hearing the merits or demerits of the case. If he apologized to the CBCP, then the latter should have forgiven him. But then it was not the CBCP that filed the case, it was some private individuals not part of the bishops’ hierarchy.

There are several lessons that we can learn from this case.

One, tolerance means respect for other people's belief, biases and dogma -- Catholic dogma, Islamic dogma, Buddhist dogma, cultural minorities’ dogma, etc. Do not smear their practices in their private places and private events. Bold and daring people may do it but they should face the consequences later.

Two, dragging other issues and complaints against the Church like pedophile priests and corrupt church leaders are immaterial to the current debate. The issue is whether the Court’s conviction of Celdran for his action that day is justified or not.

Three, bold and daring guys like Celdran are supposed to be ready for bold consequences of their actions. They should not argue that only them have the freedom of expression while those who felt offended by their actions have no freedom of expression to bring them to the court.  

Four, freedom comes with responsibility. As the famous Austrian economist and legal philosopher, Friedrich Hayek said, “People who are afraid of responsibility are afraid of freedom itself.”

Five, the rule of law must prevail. If Celdran and his supporters are not happy with the lower court’s decision, they can go to the Supreme Court. He must go to jail once his the bail-out period expires while his supporters wait for fast decision by the Supreme Court.

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See also:
Rule of Law 14: Appointing the New CJ of the Supreme Court, June 17, 2012
Rule of Law 15: RoL and Government Failure, August 16, 2012
Rule of Law 16: On the New SC Chief Justice Ma. Lourdes Sereno, August 25, 2012
Rule of Law 17: Justice Without Discrimination, October 18, 2012

Senior Citizens Discount 4: Distortion in Consumers' Perception of Drug Prices

(Note: The original title of this paper was "Health Transparency, More on Senior Citizens Drug Price Discount".)

There will be another meeting, the 16th meeting of the DOH Advisory Council on the Implementation of RA 9502 (Cheaper Medicines Law of 2008) next week, February 13 at the DOH. I have told the Secretariat that I will join the meeting.

I think the new Department Order regarding the sharing of burden of the mandatory 20 percent discount for medicines of senior citizens will be shown to us members of the Council. Or has it been officially issued already, I don't know.

In my blog post last December on this subject, there were two comments there, one from Leonie Ocampo, the President of the Philippine Pharmacists Association (PPhA) and from an anonymous individual who owns a small drugstore in the province. See below:

(1) ... Drug price regulation or expanding he MDRP list, as had always been my personal and the PPhA POSITION, THIS WILL NOT HELP. The first list did not give the expected result; no increase in the number of users which means only the regular users of the SKUs in the list benefits from the initiative and those who have NOT used said medicines continue not to avail of them even at 50 or 70% price reduction because in the first place, these people do not have the money to buy the medicines. Other ways to improve medicine access must be explored BUT THIS MUST BE DONE WITHOUT JEOPARDIZING THE MEDICINES QUALITY. We are open to help how this will be done.

-Leonie Ocampo

(2)  As a small independent drugstore in the province, I would like to add that the senior citizens law is being EFFECTIVELY USED by the giant chain drugstores as a LOYALTY and PREDATORY pricing program. Since they have the advantage of the “economies of scale”, they can easily “force and coerce” the drug distributors to subsidize this “expense discount” or else they will not buy. Because of this reason, the giant chain drugstores capture more or less 100% of the sales from senior citizens, without spending a penny! Unfortunately (also) for the small independent botikas… this not only means LOST SALES from the seniors, but they also loss the LOYALTY and PATRONAGE of the very influential sector in the local community! A double whammy!

-Anonymous

I developed this new graph below showing what happens when the smaller drugstores in small municipalities in the provinces will stop selling some drugs at a loss, particularly those medicines often demanded by the senior citizens. The mandatory discount under RA 9994 or Expanded Senior Citizens Act is 32 percent (20 percent original discount + 12 percent VAT) and only a small portion will be shouldered by the drug manufacturers, the bulk of the burden will be shouldered by the small drugstores. Government takes little or no burden as such loss is not tax-credited. 

In graph A, before the expanded mandatory price discounts to senior citizens is implemented, there are four sellers of a particular drug often demanded by senior citizens. Mercury Drugstore (they control about 60 percent of the total drug retail business in the country) and three small, town-specific drugstores. They may have slightly different prices for the same drug with the smaller ones selling lower than the dominant player Mercury. These are represented by points A, B, C and M.

After the expanded mandatory price discounts, the three local drugstores are still around but they have stopped selling some medicines often demanded by senior citizens to prevent losses. Only price M by Mercury is left, still at the same level as chain stores keep only one price for each product for all their branches nationwide. But the quantity has expanded from Q1 to Q2. 

What the anonymous commenter above argued is that they may prevent losses by not selling certain medicines often demanded by the senior citizens, but they suffer further lower revenues as the senior citizens who may be buying other medicines, say vitamins for their grandchildren, will purchase these in the same store, ie, Mercury or other big chain drugstores (Watsons, Rose, etc.).

The above graph is hypothetical but it shows another negative effect of government price intervention on small businesses. The other negative effect is the inconvenience to senior citizens themselves. If drugstore A selling at price A is just a few blocks away but it has stopped selling the medicine that they need, then they will have to travel to farther, perhaps in the neighboring town or city where there is a Mercury or other big chain drugstores.


I hope that this law will be amended in the next Congress. The main goal of that law is to help the poorer senior citizens purchase their needed medicines, fine. But the law did not make a distinction between the richer senior citizens with their poorer cohorts. Many senior citizens are rich or have ample savings, have PhilHealth and private health insurance, they do not need that discount much. The ones who need a discount are the poorer ones, those who worked at the informal sector. 

There are actually many government programs towards this end. Like the rising budget of the DOH, additional funding for PhilHealth from the new Sin tax law and higher monthly contributions from those working in the formal sector, and higher budget for local healthcare by the local government units. Forcing the private players (drug manufacturers, drugstores, drug importers, hospital pharmacies, etc.) to give that discount otherwise the government will go after them and cancel their license to operate (LTO) or business permit is wrong.

So a new legislation to correct this mistake is needed. I am not sure though how ready the major players and stakeholders can be in deflecting legislators' grandstanding and political harassment. Finding less costly alternative schemes to protect the poorer senior citizens will make this work more palatable to the legislators.

For the meeting next week, we were asked what topics we wish to be included in the agenda. I suggested that requests for price hike for some drug molecules that were put under the mandatory 50 percent price cut through the "voluntary price reduction" or politically twisted as  GMAP, should be be considered and granted. Why? 

So long as cheaper generic products for the same molecule are available for the consumers and patients, meaning they have the option to buy other drugs, let the innovator drugs be priced high if they want.

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See also:
On Senior Citizens Discount, August 10, 2009 
Senior Citizens Discount, Part 2, November 03, 2010 
Drug price control 5: Mandatory discounts and acronym politics, March 21, 2011 
Senior Citizens Discount 3: Sharing of Mandatory Discounts on Medicines of Senior Citizens, December 14, 2012

Fat-Free Econ 37: PH GDP Growth 2012

* This is my article yesterday in TV5's news portal.

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In November 30, 2012, this column made a rather bold statement about the economy for the fourth quarter of that year.

The National Statistical Coordination Board (NSCB) yesterday announced that fourth-quarter growth came in at 6.8 percent, or just 0.2 percent shy of the forecast.

It was not an “ambitious” figure to target for the fourth quarter. For one, the growth momentum for the first three quarters of the year was already there: 6.3 percent in the first quarter, 6 percent in the second, and 7.1 percent in the third (later revised upwards to 7.2 percent). Second, the growth momentum in Asia’s emerging economies is still there. For instance, growth rates in the third-quarter were 7.7 percent in China, 6.2 percent in Indonesia, 5.3 percent in India, 5.2 percent in Malaysia, 4.7 percent in Vietnam and 3.3 percent in Thailand.

This is one advantage of being a neighbor to faster growing economies. Even if political and economic governance in the home country is not that good, overall economic activity will be pulled up by the more dynamic neighbors through regional trade, investments and tourism. In the case of the Philippines and its neighbors in North and Southeast Asia, they seem to be pulling each other up.

The phenomenal economic expansion of the planet’s two most populous countries -- China and India, with a combined 2.5 billion population -- is a good example of how they have helped expand demand for goods and services exported by their neighbors in the region. Below are two tables showing the phenomenal economic expansion of many Asian emerging economies in just two decades. Purchasing power parity (PPP) valuation of gross domestic product (GDP) is used instead of the usual nominal GDP to correct for hyper valuation of goods and services in many rich countries.

Source: IMF, World Economic Outlook, October 2012 Database 

In just two decades, China’s economy has expanded 10.3 times from its 1992 level, while India has expanded 5.6 times over the same period. In contrast, the rich European and US economies have expanded only between 2-2.5 times.

The table below shows the expansion of a bigger set of Asian emerging economies:

There are several important implications of the above numbers.

One, many Asian economies increasingly are becoming the “growth anchor” for the rest of the world economy. Expanding wealth and consumer purchasing capacity in Asia creates additional demand for other economies' goods and services exports that may balance between anemic growth and stagnation, if not contraction.

Two, big population is generally an asset as the economy has more consumers, more workers and more entrepreneurs. This is clear in the cases of Japan Indonesia, India and China, countries with populations of 127 million, almost 250 million, 1.2 billion and 1.3 billion, respectively. Among the reasons often cited by investors who put their money here is that the Philippines has a big and young population that can easily be trained with new and changing skills. 

Three, intra-Asian merchandise trade and people mobility greatly help integrate their economies and in the process, pull each other up economically.

So in the absence of really globally or regionally disruptive events like war or huge fiscal collapse of the major European economies, the “default mode” is continued expansion of many Asian emerging economies like the Philippines.

More business-friendly government policies and bureaucracies will help the country sustain and even surpass current economic performance.

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See also:
Fat-Free Econ 33: Institutions and Why Governments Fail, December 09, 2012

Fat-Free Econ 34: Rise in Unemployment Rate Not Exactly Bad, December 20, 2012

Fat-Free Econ 35: World's 25 Largest Economies in 2012, January 02, 2013

Fat-Free Econ 36: Peso Appreciation, Growth and Less Government, January 06, 2013

Business Bureaucracy 7: Penalizing Small Businesses

Last January 10 this year, a friend and a young entrepreneur, Lemuel Goltiao, posted this note in his facebook wall. He gave me permission to blog these things. 

WTF higher business tax assessment for this year! I REALLY FEEL THE GOVERNMENT'S ADDED VALUE TO MY BUSINESS! RAMDAM NA RAMDAM ANG KAUNLARAN! 7% GDP GROWTH!

7% GDP GROWTH AT THE COST OF 20% HIGHER BUSINESS TAX! RAMDAM NA RAMDAM ANG KAUNLARAN!

I commented that LGUs are often worse than the national government in business bureaucracy. That is why I am no fan of decentralization really. It should be degovernmentization.

Lem replied, "I realize that LGUs could be more tyrannical than the national government. They can arbitrarily increase business tax rates year after year without hearing the people most affected: the entrepreneurs. My gross revenue for 2012 is lower than that of 2011 but I have to pay 30% more for the renewal of my business permit. Yes, my business is registered in Quezon City, or the Philippine City of Asia according to its LGU, whatever that means."

Another friend of mine lives in one of the 8- or 10-doors townhouse in Quezon City, and the structure is owned by an official of the QC Hall business permit division. Those who can not afford the ever rising LGU fees will have to negotiate with these guys. And that's how they become rich.

In another posting last December 10, 2013, Lem also wrote this:

A few nights ago my business partner invited me to his birthday celebration and I was able to talk to his pastor who I have already met a couple of times. While waiting for the food, we discussed about our families and then our occupation. When I asked him about his work, he complained that the government has new guidelines for religious leaders who officiate weddings. The government is now asking for more paperwork, credentials, and is somewhat imposing geographical limits on officiating ministers: they can't officiate a wedding far from their church. He also complains that it's becoming harder for couples to get a marriage license (license!) due to stricter enforcement of requirements like the couple's attendance in marriage seminars and counseling. I told him that the government is making life harder for everyone and that started my "libertarian evangelism". It turns out that he's receptive to the ideas of individualism and I related it to the Christian (Protestant) faith. Before we separated that night, he somewhat acknowledged that a lot of "social problems" that we're having right now are mainly caused by government intervention on every aspect of our lives.

I shook my head when I read this. The government bureaucracies even extend their grubby fingers to how spiritual leaders and ministers would officiate weddings and other religious activities? Horrible.

Meanwhile, before I gave that talk on "Growth Amidst Bureaucracies" last night, see Presentation at Rotary Club of Manila Bay, I also gave a similar talk to my club a week earlier. Below are some slides that I showed in my talk to my club that I did not include in my presentation at the RC Manila Bay. Likewise, there were several slides there that I did not include in my talk to my club.  Just filling some gaps in the presentation here.

 

Thanks to our club leader, Peace President Rose Antonio, for the nice Certificate of Recognition. Some photos below. Many club members were not able to come that night.

See also:
Business Bureaucracy 3: Their Rules and Life,July 15, 2011

Business Bureaucracy 4: How to Reduce It, January 27, 2012

Business Bureaucracy 5: Doing Business 2012 Report, August 28, 2012

Business Bureaucracy 6: Presentation at Rotary Club of Manila Bay, February 01, 2013

Business Bureaucracy 6: Presentation at Rotary Club of Manila Bay

Last night, I was the guest speaker of the Rotary Club of Manila Bay, RI District 3810, held at Astoria Plaza in Ortigas. Thanks to a friend way back in UP, Bobby Galvez, who is the club President-Elect (PE), for inviting me.

Below is my 24-slides presentation.












I introduced the second topic, Bureaucracies, with this note: In a free society, everything is allowed except a few things like killing, stealing, rape, abductions, etc. In an unfree society, it's the reverse: everything is not allowed unless given permits, usually by the government.

So many government units have taken the habit of declaring, "Do not move, do not start anything, unless you get permits from us." And the "us" range from the barangay captain, city health and sanitation office, city building official, city mayor, etc., all the way up to the SSS, BIR, DTI, SEC bureaucracies.

Thank also to Club Pres. Francis "Pankoy" Santaromana for the warm welcome and nice Certificate of Appreciation. Later in the evening, Sen. Koko Pimentel, one of their active club members, came. 

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See also:
Business Bureaucracy 1: Avoiding government: Egyptian experience, March 12, 2007
Business Bureaucracy 2: We don't need a new DICT bureaucracy, July 13, 2010
Business Bureaucracy 3: Their Rules and Life,July 15, 2011

Business Bureaucracy 4: How to Reduce It, January 27, 2012

Business Bureaucracy 5: Doing Business 2012 Report, August 28, 2012