Tax Cut 6: Retreat of High Income Tax Philosophy

One important indicator of how socialist or (forced) collectivist leaning a country is, is the level of tax rate that citizens are forced to surrender their income to the state. Economies that emphasize forced collectivism and coerced contribution to social welfare have high income tax rates, say more than 40 percent. At this rate, the hard-working, high-earning, and performance-driven citizens are left with less than 60 percent of the fruits of their hard work, unless they learn to cheat their income tax payment and the tax system is easy to be manipulated, or the tax administrators and collectors are corrupt and easy to bribe.

The decades after WW2 saw many countries, especially their politicians, hugging socialist thinking. That is, in order to hasten the development of their societies, a big portion of the income and savings of the rich and high-earning people should be confiscated through high income tax rates, and the money be distributed to the poor and the weak, including the lazy and irresponsible, so that there will be more equality and more social progress. This thinking has pervaded until the early 80s, so that by 1980, the vast majority of countries have top marginal income tax rate of 50 percent or more. Exceptions were HK in Asia, Switzerland in Europe, and Argentina in South America, among others. A lot of tax cheating also happened in many countries where income tax rates are very high, resulting in lower tax collection by governments.

The wave of globalization in the 80s made many politicians and their respective technocrats realize that they need to relax a bit their level of income confiscation as there was an emerging “income tax competition” among countries. A number of their people and businesses are moving elsewhere where income taxes are lower or easier to comply. So that by 1990, more than half of Asia-Pacific countries have top marginal income tax rate of less than 50 percent. The same pattern was observable in South and North America. Europe remained enamored with social democratic and other variants of “limited socialism” ideology, except Switzerland and the UK. For African countries, there was tax rate reduction but still high, except in Jamaica.

The continued wave of globalization, especially the formation of GATT-WTO in the mid-90s, compelled more governments to further slash their income tax rates. By 2000, until 2005, only Japan and some European countries, have marginal income tax rate of 50 percent or higher. The philosophy and practice of high income tax rates, for both personal and corporate incomes, have retreated.

In addition, the new trend now for some countries in income taxation, is low, flat (or single rate) tax. This is particularly true for many formerly Eastern European countries. Russia is one of those countries that have recently embraced the flat tax philosophy and subsequently implemented it. This is after a realization by many governments that high income taxes not only push many of their productive and entrepreneurial citizens to migrate to other countries, but high and multiple-rate taxes encourage cheating, of lowering the declared income so that the corresponding tax rate will also be lower.

The tax burden for the citizens can be computed as:

Tax burden = tax rate + cost of compliance.

Regulations on tax exemptions for dependents, expenditures that are tax-deductible, plus the multiple tax rates or tax brackets, can be confusing, so that people have to spend extra time studying these things, or have to hire tax consultants to make their compliance easier. Hence, the attractiveness of low, single rate income tax.

But while it is true that many governments were compelled by new circumstances to reduce their income tax rates, this did not mean that they have fully abandoned socialist-leaning philosophy. Almost coinciding with the reduction of income tax rates, they introduced new, or hiked the existing, consumption-based tax rates, like value-added tax (VAT), sales tax, excise tax, vehicle tax, property tax, amusement or entertainment tax, travel tax. In addition, they also introduced new or hiked existing government fees and charges, like passport fee, visa fee, driver’s license fee, airport/seaport terminal fee, business permit fee, mining/quarrying fee, and so on.

This is a new ballgame for the citizens aspiring to have bigger leeway and freedom how they should spend their earning and savings given their household-specific needs and priorities. Meanwhile, the fight for even lower income tax rates compared to existing levels, if not the abolition of income tax, is a pressing challenge for the citizens, the free market-oriented NGOs and research institutes in particular. A zero income tax with high consumption-based taxes like those mentioned above, should be a good compromise and advocacy.


On another note, a friend with MGM, James Miraflow, wrote a short paper, "Debt and Taxes". It was a good paper, short and focused, and lots of good and updated data. In his closing paragraph, James asked, "Will this go forever (debt & taxes)? Will the public forever pay for debt of an ill-managed government?"

Sadly, I think the answer to his questions are YES to both. Government indebtedness started with Marcos government in mid-60s, perhaps even with earlier Presidents, and it's been the trend until now, until 2 or more Presidents from now. Government, especially big government, is a system of treachery and lies. Promise people of "subsidy here, welfare there". But just keep silent on "taxes here, fees & charges there, borrowings over there."

In order to break the cycle of debt and taxes, some people propose the abolition of the Automatic appropriation law (PD 1177) for public debts, agrarian reform, and a few other areas. I think that law is correct. If I lend someone money and I have no guarantee that he will pay me back, say automatic deduction from his monthly salary, or automatic forfeiture of his car or appliance/s, why would I lend him in the first place?

What is wrong is the need to perpetually borrow in the first place. If one cannot raise this income and revenue, why spend that much so that he will go on borrowing endlessly?

Increasing revenue through more or higher taxation is definitely a No-No. One reason, look at the WB and IFC's "Doing Business" annual studies. Number of business-related taxes for medium-size companies around the world, the Philippines has among the most number of taxes in the whole of Asia, even beating socialist China and Vietnam in having the most number of business-related taxes.

Increasing revenue through privatization, this I fully support. Large-scale privatization, even at a big bargain, get the money, and use it mainly if not entirely, to retire public debts, both domestic and foreign debts. Don't use privatization proceeds to increase budget for public education, military modernization, agri modernization, etc. Let the savings from lower interest payment and principal amortization be used for public basic education, etc.

Privatization without deregulation is bad, of course. It only transfers state monopoly corporation to private monopoly corporation. The economy should be deregulated, with or without existing government enterprise/s in certain sectors.

Government corporation always live on unfair playing field. First, they use tax money (money we could have used to buy additional milk for our babies, additional room for our house for our expanding family, additional food, etc.) for their capitalization. Second, they use tax money for their continued existence as they often live off on continued subsidies. Third, they almost always occupy monopoly position in whatever sector they were situated. So the twin evils of over-regulation and monopolization is the hallmark of most govt. enterprises.

Liberalization, deregulation and privatization ("LDP"). These are among the important policy tools if we want an economy that can harness unlimited entrepreneurial energy from the citizens. Liberalize, have 1,000+ hotels/food chains/pharma companies, etc. doing business in the country. Have 10 or more telecomms companies do business here. Singapore has only 4 M people, but has 5 or more competing telecomms companies. The Philippines has 88 M people, about 26M subscribers, being served by only 3 telecomms players.

Deregulate and abolish (at least downgrade) many regulatory government bodies. These bureaucracies decide who can enter bus line business and who cannot. They decide who can put up new airlines or shipping lines or telecomms or cable tv operators, etc., and who cannot. The amount of arbitary powers in their hands are big, so that if they decide to limit the number of players per sector to only 2 or 3, then us consumers have to endure the lack of choices and options.

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See also: 

Tax Cut 1: Australia, May 10, 2006

Tax Cut 2: Ireland, Turkey, November 16, 2006

Tax Cut 3: Flat Tax Countries in the World, 2006, December 06, 2006

Tax Cut 4: Tax Competition Among US States, the Laffer Curve, March 19, 2007

Tax Cut 5: Tax Imperialism, Privatization (PRPX 2007 Hawaii), June 12, 2007

Pol. Ideology 8: Ideas on Liberty

Three years ago, I attended my second international conference about free market, the 1st Asian Resource Bank Meeting in Hong Kong, September 15, 2004. It was jointly sponsored by the Atlas Economic Research Foundation (USA), Unirule Institute of Economics (China) and the Friedrich Naumann Foundation (Germany).

Below are some papers discussed there.
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(1) Lunch Speaker, Dr. James Dorn, the China specialist of Cato Institute (www.cato.org). He talked about "Why Freedom Matters". In his presentation, he showed graphs, charts, tables, showing that stronger property rights enforcement and greater economic freedom results in greater wealth and faster poverty alleviation. Also the pattern of China's economic liberalization and growth. Below are the 5 Lessons/summary of his presentation. Also a quote from Havel...

Five Lessons

1. Private property, freedom, and justice are inseparable.

2. Justice requires limiting government to the protection of persons and property.

3. Minimizing the use of force to defend life, liberty, and property will maximize freedom and create a spontaneous market-liberal order.

4. Private free markets are not only moral; they create wealth by providing incentives to discover new ways of doing things and increase the range of alternatives.

5. Governments rule best when they follow the rule of law and the principle of non-interference (wu wei).

The market economy is "the only natural economy, the only kind that makes sense, the only one that can lead to prosperity, because it is the only one that reflects the nature of life itself."

-- Vaclav Havel

"Summer Meditations"

(2) Speech by Joe Lehman, Executive VP of the Mackinac Center for Public Policy in Midlands, Michigan, USA. April 2004, I attended the Mackinac Leadership Conference in their office, I have met Joe there, as well as Mackinac President Larry Reed.

Translating Ideas Into Success

(On Sept. 15 in Hong Kong, Joseph Lehman delivered the following speech to open the inaugural Asian Resource Bank, a meeting of Asian free-market think tank leaders sponsored by the Virginia-based Atlas Economic Research Foundation and the Beijing-based Unirule Institute of Economics. The remarks are a condensation of ideas presented at the Mackinac Center’s semiannual Leadership Conference, which has trained more than 300 national and international think tank executives in management, communications and fundraising. Contact Kendra Shrode for information on the next Leadership Conference.)

It’s a great privilege to address the very first Asian Resource Bank meeting this morning, make new friends, and reunite with familiar ones. Mackinac Center President Larry Reed asked me to express his warmest greetings to you. He told me he was so grateful that I could stand in for him today that he doesn’t mind if I borrow liberally from his material!

If you’ve been around think tank people very long, you’ve probably realized that not many of us can tell a good joke. In a lot of professions, that would be a real setback, but it doesn’t hold us back. We don’t have to come up with our own funny stories: We’ve got the whole government doing ridiculous things all the time for us to talk about.

We can even retell other people’s jokes; Will Rogers told that one more than 70 years ago. Telling jokes about the government helped make Will Rogers the best-known American humorist of his time. But government is not just funny – it’s a deadly serious enterprise. Some of you doubtless can testify first-hand to government abuse of the ugliest sort. Figuring out how to limit government – to make it the servant of the people and not the other way around – is a necessary work and a noble calling.

So how do we translate our ideas into success? How can we actually shape public policy with a mere notion – that freedom and free markets are the best way to organize society?

The Power of Ideas

We start by realizing that ideas are the most powerful force in the world. Power can be found in politicians, armies, activists and institutions. But the reason for their power is ideas, because ideas explain why people do the things they do.

What people believe determines how they behave, for whom they vote, the laws and rules they accept or reject and what kind of society they will work to adopt. Ideas determine whether a culture embraces free markets or socialism, democracy or dictatorship. Change ideas, and you change the world.

Political leaders may enact public policy, but they seldom generate the ideas that drive policy. Politicians usually act within a fairly narrow range of politically acceptable options. And they cannot operate outside that range without jeopardizing their political standing.

The range of credible ideas circulating in the intellectual marketplace determines the range of politically acceptable options. So if you have a think tank that changes the intellectual landscape, that think tank actually shifts the range of politically acceptable ideas. And that’s how think tank ideas have impact.

To take a simple example, if the generally acceptable income tax rate is 60 percent, it is very hard for a politician to say it should be 15 percent. A 15 percent tax is outside the window of political possibility. But if the tax is at 60 percent already, then 50 percent is easy to propose. Forty percent may be easy to propose if think tanks or others have done the research and shifted the intellectual climate of opinion. The 40 percent tax rate may not be enacted right away, but a politician can propose it without seeming crazy if intellectuals have paved the way.

Milton Friedman has said think tanks are at their best when they change what is politically possible.

We must remember we are engaged in a battle of ideas. In spite of political obstacles, we are not battling against personalities or people. We can win by promoting ideas that shift the very ground of battle.

Optimism

But even the very best ideas are apt to go nowhere without optimism. I have the privilege of working for probably the world’s most optimistic man. Larry Reed likes to tell the story of how he once lost control of his car on an icy road. As he was rolling over and over down an embankment, he swears the thought going through his head was this one: "At least I’m going to get a new car out of this!" Now that’s optimism!

Well, we don’t have to be pathological optimists to have every reason for optimism ourselves. We are winning the war of ideas.

We have watched the ideas of Soviet communism become discredited around the globe. The world’s most aggressive exporter of communism has crumbled. Liberalism is taking hold and gaining respect in dozens of former socialist strongholds. In my own country, about the only place you can find someone who still believes Marx was right is on college campuses!

Another reason for optimism is that the drift of ideas is in our direction. I don’t know about you, but I run into a lot more former socialists than former free-marketers. I can’t remember the last time someone said to me, "You know, I used to believe in free markets and individual liberty, but I’ve looked at the evidence, and now I think central planning is the way to go."

The final reason to be optimistic is simply that pessimism is self-fulfilling. What band of revolutionaries ever said, "It’s hopeless; we’re fighting a lost cause; but let’s spill our blood anyway?" An optimist is not blind to obstacles and setbacks, but he views them as momentary and finds ways to overcome them.

Entrepreneurship

The next ingredient for translating ideas into success is entrepreneurship. I don’t mean just talking and writing about it. I mean being an entrepreneur.

To really shift the window of political possibility, we have to get out of the purely academic mindset, where the goal is writing reports and studies. Our success is not measured by how much paper we push out the door. We succeed only if we actually shift policy in the right direction, and to do so requires an entrepreneurial approach.

Successful entrepreneurs are focused. They have lots of ideas, but they figure out their comparative advantage and spend their energy there. They don’t run in all directions trying anything that seems interesting.

This means that entrepreneurs are planners, but not in the sense of stifling creativity and flexibility. A good entrepreneur makes plans that avoid both rigid bureaucracy and unfocused, free-wheeling frenzies of activity.

Entrepreneurs are problem-solvers. They don’t just try to copy what works in other countries — they become the experts at applying freedom ideas and overcoming obstacles in their own countries.

Studies and seminars will always be staple products for a think tank. But sometimes you have to get creative.

The most powerful labor union of teachers in my state — the Michigan Education Association — routinely thwarted schools that wanted to save money by privatizing nonteaching jobs such as food, janitorial and bus services. Taking union dues from all the teachers was not enough. The teachers union wanted to force the school to hire only dues-paying cooks, janitors and bus drivers, too.

At the Mackinac Center, we had already published studies showing how much money the schools could save by privatizing, but the union was too powerful. We had to do something to weaken the union’s influence.

We brainstormed, and it occurred to us that the union had its own massive headquarters building with 500 employees. Surely the union did not employ their own unionized cooks, janitors and mail clerks. We decided to find out.

So, one of our policy analysts simply parked his car outside union headquarters and counted the various contractors’ trucks that entered the premises.

We learned that this union – the one that opposed it when schools privatized to save money – contracted with four outside firms for food service, custodial service, mail service and security. And in three of the four cases, the contract firms were nonunion!

We contacted the newspapers and state lawmakers and exposed the union’s hypocrisy. Schools were suddenly emboldened to oppose the union on privatization, and within a few months legislators gave schools explicit authority to privatize without the union’s approval.

If there were a think tank entrepreneur’s hall of fame, we would make that story our nomination!

Entrepreneurs are creative, but they build on the success of others. Don’t waste time comparing yourself to other think tanks or criticizing others in the movement. Learn what you can from them and apply it to your country’s unique marketplace of ideas.

Perseverance

The final ingredient is perseverance. Never giving up. Perseverance is the backstop of success.

Freedom is never won in an unbroken string of victories. It’s more like three steps forward and two steps back. We persevere by simply refusing to ever give up. There will be discouraging turns of events, unexpected setbacks and even seemingly overwhelming daily pressures.

But those are precisely the times to remember that we are on the front lines of a battle that is infinitely more important than any of our day-to-day struggles, disappointments, deadlines and duties. We can’t ever let those things distract us and divert our eyes from the prize.

In our office hangs a photograph that just screams "perseverance." I’m sure you’ve all seen the snapshot of a lone man in Tiananmen Square who is apparently stopping four Chinese tanks from advancing. That single image of perseverance has probably inspired more freedom fighting around the world than four tanks could ever hope to vanquish.

Let me close with the story of a man who personified perseverance. Some of you already know about William Wilberforce and the abolition of slavery.

Wilberforce was elected to the British Parliament in 1780. Seven years later, he decided to work to end British slavery.

At the time, slavery in the British Empire had broad political support and even intellectual defenders. People turned a blind eye to the cruelty of African slavery, which was considered essential to British military and economic success. Wilberforce was that rarest of politicians who stood virtually alone on principle.

He spoke against slavery in the House of Commons for the first time in 1789. Every single year for 18 years he introduced an abolition measure, and for 18 years they went nowhere.

He was ridiculed and called a traitor and a rabble-rouser. Once, even his friends deserted him when the opposition supplied his allies in Parliament with free theater tickets during a crucial vote. Through it all, Wilberforce worked tirelessly to turn the intellectual tide and public opinion against slavery.

Finally, on February 23, 1807, Parliament overwhelmingly approved a measure ending the slave trade in the empire.

This stunning achievement would have secured his place in history, but Wilberforce had not yet reached his ultimate goal of ending the practice, not just the trade, of slavery.

With his first victory taking 18 years to achieve, Wilberforce labored another 26 years, even after leaving Parliament, to end slavery. The prize was finally grasped on July 26, 1833, when Britain became the first major power to completely abolish the trade and practice of slavery everywhere in its dominion. Acclaimed as a victorious hero, Wilberforce died three days later.

We can transform policy with the power of ideas, optimism, entrepreneurship and perseverance. We must keep our eye on the prize – not better government, but less of it – and work with a persistence and passion worthy of our cause.

(3) A new friend then, Dr. Chatib "Dede" Basri, also presented a paper, I like the two quotes he used for his opening slides:

“People who intend only to seek their own benefit are led by invisible hand to serve public interest which was no part of their intention."

--Adam Smith


"People who intend only to serve public interest are led by invisible hand to serve private interest which was no part of their intention"

--Milton Friedman

Proof of Smith's statement are aplenty: the rice farmers, the carinderia owners, tiangge-tiangge operators, millions of other entrepreneurs and professionals...

Proof of Friedman's statement are also aplenty: hundreds of them in Malacanang, the Senate, House of Reps; thousands actually if you include many LGU leaders, the guys at the BIR, BOC, DPWH, DND, ...

A friend, Bruce Hall, made a commentary to my brief note above, he wrote:

I don't think that it is just the corrupt officials that are a problem. Even those who are uncorrupted end up serving private interests because there is no way they can ever see the entire big picture. Everyone has blinders on, has a particular perspective on events, that by necessity cuts out other people and perspective.


Do you remember the blackout that happened last year in huge chunks of the Northeast and Midwest US? All the coverage was about NYC while Ohio was basically ignored. Why? Because the journalists all live in NYC.


In the US a few years back, some Republican leaders tried to end funding for the Public Broadcasting System (the non-profit US network partially funded by government). It did not go very far largely because the Congressmenan and Senators were of the socio-economic group that watched PBS and therefore thought it valuable. Their votes on keeping the funding wasn't against the public spirit. They thought that EVERYONE supported PBS funding because EVERYONE that they knew did. Since they found PBS valuable, it must be objectively valuable to the entire public.


There are numerous other cases where good-hearted people make bad decisions because they take their necesarily limited particular experience and universalize it.


This is the problem with large bureaucracies, including large governments -- no matter how honest and dedicated the public servants, they are going to be biased towards their lifestyle and their lifestyle choices. At the very least, the first problems that they are going to address will be the problems they see in their daily lives. Problems where out in the boondocks will be unseen and unaddressed.

Thanks Bruce.

* See also:
Pol. Ideology 6: Quotes from Adam Smith, February 04, 2007
Pol. Ideology 7: Individualism, Entitlement and Freedom, April 30, 2007

ASEAN 2: Regional Meetings, Indonesia's Military Businessmen

The Association of South East Asian Nations (ASEAN) is turning 40 years old this year. From a military alliance of some SEA countries, it has morphed and evolved into a dynamic economic bloc in this part of the world.

I think that without the persistent inclusion of their 3 rich neighbors in the north-east, namely China, S. Korea and Japan (what used to be "ASEAN + 3"), many heads of states of ASEAN-member countries could be dragging their butts on the issue of trade and investment liberalization. Our "rich confucian neighbors" have a very strong confucian ethic of hard work and entrepreneurship, values that somehow infect the businessmen and some politicians/bureaucrats of the laggard ASEAN member countries.

Of course a number of member-countries of ASEAN have their own dynamism themselves, their own ethic of hard work and entrepreneurship, like the Thais, Malaysians and Singaporeans.

Now, ASEAN has attracted more countries to become its "regular observers" in its annual summit meeting of its heads of state. It's now "ASEAN + 6" (China, Japan, S. Korea, India, Australia and NZ). Outliers like Myanmar and possibly Laos, should be dragged upwards economically along the way.

ASEAN meetings are plentiful. For instance, this year, the Philippines hosted at least 3 important ASEAN meetings: (a) ASEAN summit last January in Cebu, (b) ASEAN Ministerial meeting last July in Manila, and (c) ASEAN Economic Minsters Meeting last August in Makati.

Us Filipino taxpayers do not know how much from the money confiscated from our monthly earnings and from the taxes on the goods and services that we buy, were spent on all those expensive meetings. In addition, when these officials and bureaucrats come, we're like 3rd class citizens and motorists in our own country, judging from the way our local policemen and traffic "enforcers" edge or wipe us away from the roads when the cars and convoys of these bureaucrats would pass by.

Government bureaucrats -- national, regional, multilateral -- they think we owe the world to them. They suck.
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I wrote this last June 21, 2006:

Indonesia's Military Businessmen

Can soldiers be good businessmen? And that they can own or control more than a thousand companies in a poor country?

Well, the Indonesia military think they can, and so they own until today more than 1,500 companies in Jakarta, of which only about 6 of them are profitable. A story from the Financial Times today, June 21, "Indonesian military to divest some businesses" (By Shawn Donnan in Jakarta), says that

"Indonesia is scaling back plans to force its military to unload its business interests... Indonesia’s parliament in 2004 passed a bill requiring the powerful military, known as the TNI, to unload all the businesses it controlled within five years. Advocates of reform have long accused the TNI’s network of legal and illegal businesses of contributing to corruption, illegal logging and other crimes and of complicating life for foreign companies looking to invest in south-east Asia’s biggest economy.

"But in an interview with the Financial Times, Juwono Sudarsono, Indonesia’s defence minister, said Jakarta now expected to be able to force the military to divest just “six or seven” profitable businesses of the 1,500 it controls.

"The main reason for that, he said, was the 'meagre resources' of Indonesia’s defence budget with the civilian government providing just 48 per cent – or $2.8bn – of the 'minimum budget required' by the military."

This is the issue: soldiers are trained to fight wars, to control and defeat armed enemies of the state, both domestic and foreign. They are not trained in the detailed art of cost-minimization, revenue-maximization, and profit-optimization of business in a competitive environment. Very likely, military generals can make profit for their companies not in a competitive environment; they only make profit because they get all forms of subsidies from taxpayers, and various forms of protection from competition that deprive taxpayers of other choices.

In this case, the Indonesian (or other countries') "military-businessmen" are only moving in a dirty and vicious cycle: business through protectionism and endless subsidies results in a bad business environment, that discourages more private entrepreneurship, that shrinks potential tax revenues, that shrinks potential budget for various government services including defense, that makes them retain "military-businesses" that just live off on protection and endless subsidies...

The sooner that "military businessmen" (a contradiction in terms in the first place) realize this, the better for itself and the Indonesian economy. But the more they procrastinate in letting go of military business interests, the more inefficiencies and wastes they will inflict upon their countrymen.

Marathon, Education and Volunteerism

I have never run a marathon (42.2 kms.) in my life. I twice participated in a 5-k race, but I didn’t dare try the 10-k race. At my current physical condition, maybe I can finish a 42-k run-walk in maybe 8 hours or more. That is why I consider those winners of international marathons among the “supermen” in this planet because they can run 42-k in something like 2 hours and 10 minutes only, or an average speed of around 20 kph!

One of my good Filipino friends, Ramon “Monchit” Arellano, now an American citizen and residing in Bay Area, California, joined the San Francisco Marathon last July 29, 2007. I used to live in Monchit’s house here in Manila, along with other male friends, for a few months in the late 80s. That’s how I befriended him.

Monchit has been supporting the Books for the Barrios (BftB, www.booksforthebarrios.com) program in Bay Area for a few years. This is a voluntary organization with one important goal: to bring excess books of school children in the US (particularly in California) to less-privileged students in the Philippines, especially those living in rural areas. BftB started in 1981, and for the past two and a half decades, has helped tens of thousands of students, many of whom should have finished college already.

Words got into Monchit that “Due to dwindling financial support in the wake of many natural disasters (Katrina, tsunami, etc.), BftB may be forced to close its operations this summer if it does not generate enough funds… after more than 25 years of providing quality education materials to remote schools in the Philippines.”

So what he did, he registered for the SF Marathon, opened up a website, First Giving (www.firstgiving.com/SaveBftB) with just a single purpose: he will run to raise awareness among his friends and other people, get donations for BftB program so that it will continue its mission and operations. Monchit targeted a modest goal of raising $3,833. So far, he has received $3,525, and the names, amount given, plus their comments, are all posted in his website.

Today, I got an email from him saying that he finished the SF Marathon in a time of 5 hours and 3 minutes. That shows that he’s more physically fit than me J. His story was published by the Philippine Consulate General Office in San Francisco (www.philippineconsulate-sf.org/news07_107.htm). ABS-CBN was also at the finish line to interview him and the news was aired at Balitang America!

I write this to salute my friend not so much for his stamina, but for his kind heart and his innovativeness in raising money for a very legitimate and specific cause – to help poorer children in the Philippines have access to free books that would otherwise end up in landfills. I write this to showcase another example of volunteerism – by BftB, by Monchit, by their donors, and other people who help in such kind of endeavor, that support for less privileged people can be done by private individuals, that ultimately we do not need big government that confiscates big money from our pockets to do welfare and charity function to poorer people through big bureaucracy.

One issue that can be raised when tens of thousands of those used but free books from the US will land in Philippine soil, is that will this not displace, even on a small scale, the local publishers, the local bookstores, and the people employed by them? Possible, yes. But local publishers and local bookstores have to grapple with higher prices of their books (which turn off some potential buyers, especially poorer ones) because of the various taxes that government imposes on them and the books that they print and sell.

And we go back to the subject of volunteerism. Many citizens distrust their governments, that is why their “contribution” to society have to be done by force and coercion, through taxation. While the same citizens trust their friends, or friend of their friends, and they can give on their free will, without coercion and force. In addition, they can choose which kind of charity they will support. Some guys support students from poorer countries and communities, some guys support poorer athletes from poorer countries and communities, and so on. And this is the essence of civil society – voluntary support for fellowmen, self-reliance, and no coercion to attain certain social objectives.

Foreign Aid 8: Abolish the IMF

Prof. Christopher Lingle of Center for Civil Society India, published an article in the Financial Express in India entitled "Shut down the IMF"
http://www.financia lexpress. com/news/ Shut-down- the-IMF/208206/.

He wrote,

By claiming that the International Monetary Fund (IMF) promotes free enterprise capitalism, Left-wing commentators are on record for closing it down. Considering the IMF's record, though, one has to be hooked on hallucinogenic drugs to believe it holds a corporate view in support of economic fundamentalism. As it is, governments seeking financial support from the IMF with large budget deficits are instructed to increase the tax burden to reduce shortfalls in public revenues. It defies logic to suppose that giving the government more control over the economy, thus, promotes free markets. But then, Leftist critics are not always responsive to facts.

"Having said that, there are good reasons to shut down the IMF. On the basis of current circumstances and its ongoing operations, global financial flows would almost certainly be no worse off if the IMF were abolished. Indeed, it is more likely that global markets would work better without it. Founded in 1945, the IMF was charged with fostering economic stability by providing emergency loans to members having trouble financing their balance of payments. But the financial system it was designed for began vanishing in 1971 when the gold standard ceased to exist....

Yes, I also believe the IMF should be abolished. Last week or 2 weeks ago, IMF Managing Director (and former Spanish Finance Minister) Rodrigo de Rato came here in the Philippines. He talked mainly, as expected, "more government revenues, fix your fiscal deficit, improve tax collection,..."

Well, what else can you expect from international bureaucrats who live off on taxes? Without high taxes, those international bureaucracies like IMF, UN, WB, ADB, OECD, will have little or zero resources to sustain them.

In fairness to Mr. de Rato, he did not push for "new or higher taxes" for the Philippines. He only urged "better tax administration", meaning improved collection from existing tax laws and tax rates. Of course he's aware that the Philippines has among the most number of business taxes in the whole of Asia, in the whole world. He knows the existence of WB-IFC joint annual study, "Doing Business".

Last week, or perhaps weeks before, the Office of the President, through the Bureau of Internal Revenue (BIR) and possibly, along with the Dept. of Transportation and Communication (DOTC), publicized their plans to hike the "common carriers' tax" for public transportation by something like 2,600%(!). I do not know if this was related to Mr. de Rato's visit, or to plug in additional revenues from the never-say-die budget deficit of the country. Naturally the public transport sector players raised howl, and immediately filed a petition for fare increase for commuters of public transportation (jeepneys and buses, taxis). Seems that public opposition was stronger than the national bureaucrats' thirst for more blood and sweat from the citizens, the proposal was tentatively shelved. Until the vigilance recedes later perhaps, and the government will just suddenly ram up those new tax hikes.

International bureaucracies like the IMF, along with annual and bi-annual meetings of clubs of governments, like ASEAN + 6 summit, ASEAN ministerial meetings, APEC summit, etc., are very costly to taxpayers. That is why the Office of the President and the Department of Foreign Affairs (DFA) do not reveal to the public how much those meetings where the country hosted, cost us taxpayers.

The lesser we have of those international bureaucracies and summit, the better for us. Until governments will just create new clubs and regular meetings among themselves. Ewwww!
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See also:
Foreign Aid 4: Easterly vs. Sachs, May 01, 2006
Foreign Aid 5: Failure in East Timor, May 31, 2006
Foreign Aid 6: IMF is Engineerable and Abolishable, September 05, 2006
Foreign Aid 7: Wolfowitzoellickation of the WB, May 30, 2007

Many "public goods" are now privately-produced

Almost all so-called "public goods" can now be done or provided by the private sector. Why?

Consider many of those gated, private villages. So-called public goods like streetlight traffic, garbage collection, road & drainage construction/maintenance, street lighting, peace and order, school, church, primary health care, fire fighting equipment, multipurpose hall, basketball court, open garden, children's playground, etc., are produced by the private sector. Residents and homeowners pay an annual association dues (based on per sq.m. lot area), plus many other fees (car sticker, IDs for househelpers and drivers, rental of village clubhouse, basketball court, etc.), which are essentially like taxes. The only difference is that the residents pay this "tax" to the homeowner association, their "local government" for the village. That is why, LGUs' collection of real property tax (RPT) for residents of those gated villages for zero service within the village can be considered as plain extortion.

Ok, how about services outside the gates of those villages? The Ayalas in the Philippines built underground passes for people; or elevated walkways for people in makati's CBD, at zero cost to people, whether in taxes or "pay upon entry" like tollroads. The Ayalas make money to compensate for the expenses of those "positive externalities" to people including the "free riders" by earning revenues from ads posted on those elevated walkways or underground passes/tunnels for people.

Or SM Malls (other malls) build free pedestrian overpasses for people to cross the streets up to their malls. They'd also deputize their private security guards to conduct traffic -- at zero cost to taxpayers -- in public roads near their malls.

Other examples often cited that should remain in government hands -- broadcasting TV, street lights, peace and order, etc. Privately-owned TV networks are more efficient, more informative, to people than government-owned TV stations. The former costs zero from taxpayers, the latter cost them a lot from endless subsidies and contracts.

What about enforcement of contracts and fulfilment of promises between/among people? All referees in basketball and soccer, also baseball umpires, the guys who impose the rules of the game, are private individuals. They are not employees of the city hall or of the national government's sports commission or olympic committee. Conflct among neighbors in a village are first resolved by the village association. Like when a neighbor complains about loud parties or barking of dogs by his neighbor.

It is only when people will not respect those private referees, private settlers of dispute, that people elevate their case/s to government justice bodies like the courts, the barangay, etc. In which case, judicial courts can remain in government.

I have argued earlier why education should be "parental responsibility", not "government responsibility". Poverty alleviation should also be "personal responsibility", not "government responsibility." For instance, after working for 5 years straight abroad and bringin home P3M or more in cash, one can be expected to be well-off already. But personal irresponsibility can easily turn that money into ashes and nothing with mindless spending and getting into trouble.
Drink and party everyday, have mistresses left and right, go into casinos, buy expensive appliances, harm or shoot someone when he got drunk. All those money can evaporate in a short while, while leading oneself into prison, all for acts of personal irresponsibility.

So, what's left for government's "public goods"? Very little in fact. And so, government's confiscation of money and savings have very little justification, if at all. But many guys who are "poverty fighters" like government personnel and foreign aid institutions, will never fail to remind us how lousy a society can be if we leave people to be responsible for themselves. That is why we have to fork out money from our pockets to pay them and their travels and they will fight poverty "in our behalf".

Decentralization 1: It's Still More Government

I am no fan of so-called "decentralization" or "devolution" from national to local government units (LGUs). Both in principle and practice. Whether centralization or decentralization, it's the same bottom lineof MORE government and bureaucracies. The only difference is that in centralization, it's the national politicians and bureaucrats who make and implement the rules, while in decentralization, it's the local politicians and bureaucrats who do.

Below is from a friend, also from UP. He was a 3-termer councilor in a town in Pampanga, now a municipal administrator. He's got lots of insights on local govt. administration, governance, taxation, etc. For instance, he noted the wastage of our taxes on barangay leaders. The barangay chairman in pangasinan where our farm is located also narrated to me that many of his fellow brgy chairmen really enjoy being treated to red-lights entertainment (DOM style) when they go out for seminars in the cities:

Nonoy, I've been reading the essays you've been sending me. Kaya lang I don't have the time to comment on them dahil I'm loaded with a lot of work and I'm usually preoccupied with meetings, trainings and workshops.

I feel mas marami akong trabaho ngayon compared to when I was in the legislature. As municipal administrator, I'm the one who practically runs our LGU. Oh boy, it's a stressful job.

And I've been the object of relentless attacks by people who're getting hurt by the reforms and changes that I've been introducing. I have received numerous hate mails through SMS and the regular postal service. Nasty notes have been pasted on to my windshield and other stuffs lke that. It's the price I continue to pay because I got rid of excess fat and overlapping of functions,because I said "Enough of patronage hiring!" Can you blame me then if I move around with my favorite hand gun?

It is seldom noticed, Nonoy, na malaki ang waste of taxpayers' money sa mga local governments. Halimbawa, taun-taon na lang ang daming seminars and workshops ang nilulunsad ng DILG sa buong kapuluan. Ang funding ng mga iyan ay nanggagaling sa general fund ng mga municipio. Yet magtataka ka na sa kabila ng mga paulit-ulit na trainings ay di pa rin marunong bumalangkas ng badyet ang mga barangay, maging ang mga bayan. Eh paano sa halip na mag-aral ang mga delegado, they find it more convenient to visit a red light district, a local casino or some other places of amusement. Pag-usapan na lang natin ito when we get to sip a bottle of wine- - pag medyo maluwag-luwag ang sked natin.

Jun

Another friend, Bruce, made this reaction to Jun's comments:

What more proof do you need that you are doing something? Those politicians and bureaucrats that are HATED are the ones that are doing something. Those that are loved by everyone, or at least those that do not generate strong feelings, are not doing squat.

Enough of this talk of "unity" or trying to get along. Politics is about getting things done. Winners and losers. Pissing off the criminals and the corrupt officials and making great enemies. If you are a politician without great enemies, you are a politician who has done nothing of note.

Reagan, Thatcher, Bush 43 are all hated because they all had tremendous impact upon people and the world. People don't hate Pres. Jerry Ford because he did little (and for good reason - Watergate).

Will GMA be hated or will she be inconsequential?

By the way, only with strong enemies will you have strong supporters. Again, witness Reagan and Thatcher. By his enemies, you can judge him. I don't trust anyone who is not hated by the Marcoses and the Estradas.

Below is a personal testimony by an American of his experience in just renewing his car's registration in Fairfax, Virginia, can beastounding for some guys in poorer countries who thought that American bureaucracy is among the most efficient and least interventionist inthe world.

Car registration in the Philippines is not decentralized or devolved to LGUs. It's done by a national bureaucracy called the Land Transportation Office (LTO). The process is not as bureaucratic as the one in Virginia as narrated by the author, Mr. Daniel Mitchell. One difference here is that there's a regulation that amounts to a new tax. All vehicles, before they can be registered annually, have to go through a "smoke emission test" and show that it "passes". The fee for this is P300 (US$6.7 at P45/$ exchange rate). Even if your car is newly-purchased, you still have to go through this test and pay the fee. "Failure" rate in this test is very very small, but the government is still doing it anyway.

The fangs of LGU bureaucracy in the Philippines can be felt inbusiness registration, not in car registration. Read this testimony here, http://www.cato.%20org/pub_display.%20php?pub_id=,
and understand why the author considers himself alibertarian.

Below is a portion of his personal testimony
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Great Moments in Local Government
by Daniel J. Mitchell

I became a libertarian in high school and college thanks to Ronald Reagan's eloquent commentary against big government. I remain a libertarian because of Virginia's Department of Motor Vehicles.

... I went online to find out about renewing the registration, and was horrified to discover that I had to make a visit to DMV because my registration had lapsed... I woke up early so that I could avoid a three-hour line at the DMV office and managed to see someone after a wait of just 15 minutes. But when I attempted to register, I was told that Fairfax County had placed a hold on my registration because of unpaid taxes. I would like to claim that I was being a principled tax protester, but I meekly pay my car taxes...at leastwhen I'm aware that a bill is due. I don't know whether to blame the Post Office or the vehicle bureaucracy, but there are no letters from Fairfax County in my inbox.

... there is no coordination between Fairfax County and the state government. So I had to surrender my spot at the counter and go look at a sign with numbers for various local tax offices. I called Fairfax County's automated system, filled with naive thoughts about making an automated payment and then taking care of my registration.

I was surprised to learn that Fairfax County thinks I have four cars. Unfortunately, the system does not tell you the cars you ostensibly own, or which car has the unpaid tax bill. But the amount was not very large, so I was willing to pay it - even if it was for a car I didn't own. Like any sensible person, my top goal was to avoid having to make a repeat visit to the DMV.... I opted out of the automated system and eventually got to speak to live bureaucrat. For reasons that I will never understand, though,the bureaucrats can only process payments if you have a Discover card.

... I will now have to visit the Fairfax County tax office and then make a secondvisit to the DMV. And if that is all that I have to do, I willconsider myself lucky. But there is a silver lining to this dark cloud. I now am fullyre-energized in my disdain for government....
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A friend asked me why I don't agree with decentralization, and If I believe there is still a need to elect local government officials. I have clearly stated from the paper above, devolution or decentralization just retains big government. There was also nothing that I mentionioned there that I am in favor of a monolithic central or national government.

I still believe there is a role for LGUs, particularly in maintaining peace and order. I believe that there should be more barangay tanods and less policemen. I've seen the effectivity of barangay tanods in maintaining peace and order in many barangays. The tanods know most if not all residents in their barangay. The policemen, their central command coming from the national government, are often lazy, busy mostly in "anti-terrorism" campaigns and in defending the President from street demonstrators.

There should still be provincial governors, city/municipal mayors, and barangay chairmen, and their respective coteries of councilors. But the powers of these LGUs should be limited, particularly on imposing many regulations and restrictions in business and entrepreneurship. Just observe how the city government of Makati behaves for instance.

You want to rent a space in a building for your office. Before you can start anything, get barangay clearance, location clearance, MACEA clearance, then various permits in city hall (fire dept. permit, electrical permit, mechanical permit, sanitary permit, pay real property tax, etc.) before the mayor's business permit can be granted.

Once you have the business permit, you need "renovation permit" before you touch anything on the space on that building, and I heard another MACEA permit. And before you bring your office furnitures and supplies, you need a "permit to occupy" again from city hall. I am not a contractor or building/interior designer, so I don't have the details of various permits and regulations required by the local government bureaucracies.

Is this a desirable set up of "decentralized government"?
No way man. My concept of "decentralized" government is minimal government.
Very little if not zero government role in business regulation.
Regulate criminals and robbers and rapists, Yes.
But regulate, even over-regulate, entrepreneurs, No.

And if we think changing this bureaucratic procedures in local governments is easy, think twice. Or think a hundred times. Once LGUs or any other government entity have tasted power, especially the power to regulate other people's lives, the hunger for more power can only increase, not decrease. The power to tinker with even minute details of our lives, like how much we can keep from our monthly income, how much one can renovate his house and how soon he can start it, makes bureaucrats desire for more power.

Free Trade 5: Business, Rock Music and Cycling Globalization

In a news report today in the Financial Times, two very big business lobby groups in the US and Europe, voiced out their impatience at various regulatory barriers by their respective governments that hinder business and entrepreneurship. The report below:

http://www.ft.com/cms/s/10d4f960-33f0-11dc-9887-0000779fd2ac.html

Business lobby groups move to reduce barriers
By Jeremy Grant in Washington
Published: July 17 2007 03:48

The world’s two largest business lobby groups, the US Chamber of Commerce and Business Europe, will announce on July 17 a “strategic partnership” aimed at reducing regulatory barriers amid frustration at what they say is slow progress by governments on the issue...

Tuesday’s initiative, known as the Global Regulatory Co-operation Project, is a sign that business believes that government efforts should be “held to account” and progress measured by the businesses to be affected, according to Stanton Anderson, special counsel to the US president and the project’s chairman.

“There are increasingly around the world regulatory barriers being established and trade negotiations are becoming increasingly problematic both at the bilateral and multilateral level and we think this regulatory co-operation effort is a way around that problem, and that progress could be made in eliminating these barriers with regulator talking to regulator.”

Mr. Anderson's (the project chairman) adjective is "increasing" regulatory barriers around the world. The continuing failure in the Doha trade liberalization negotiations is actually one proof of this increasing market barriers posted by most governments around the world, whether rich country or poor country governments. Each failure in trade liberalization talks is an opportunity of one camp to blame the other.

I do not know how far these 2 big business lobby groups of the US and Europe will go in demanding reduction in business and trade barriers, at least of their respective governments. But I will not be surprised if someday they will go for drastic income tax cut and import tax cut advocacies. Taxes always distort prices upwards, whether domestic or imported prices.

Of course, businessmen, like ordinary producers and consumers, want double-standards. They want their products and services be protected by government barriers from more competition, but they also want their various consumption goods, their production raw materials and capital goods, to be liberalized so that they can bring down their production costs. But if you ask them if they have to drop one sentiment, which will they favor -- liberalization or protectionism -- it's clear in their consumption pattern that majority favor the former. At the end of the day, even the most protectionist farmers will want to have access to cheaper toys and shoes for their kids, cheaper clothes and jewelries for their wives or girlfriends, and cheaper tractors and spare parts for their farms. And only free trade can give them this opportunity, not protectionism, not so-called "fair trade".
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A related paper I wrote last April 11, 2007:

From Led Zep to Lance Armstrong: Street Globalization

The British rock band of the 60s to 70s, the Led Zeppelin, is considered among the pioneers of metal rock music with class. Among their famous songs, "stairway to heaven", "rock n roll", "black dog", these are still being played in Philippine radio from time to time; performed by a few Pinoy rockers, their DVDs of live concerts can be found in Quiapo and elsewhere. The band's "Led Zeppelin: BBC Sessions" live songs are in my Ipod too.

The American cycling hero, Lance Armstrong, is the greatest road racer of all time. He won the Tour de France for 7 years (1999-2005) consecutive! He was also considered "dead man winning" because he wasa survivor of testicular cancer. His feat is known not only in Europe and the US and other developed countries in the world, but also in thePhilippines. You will not meet a single serious racer cyclist in this country, even among recreational cyclists, who do not know Lance. His previous teams' (Motorola, USPS, Discovery) jerseys are worn by localc yclists, and so on.

These 2 guys/group are among the famous symbols of globalization –along with Michael Jordan, Tiger Woods, Mike Schumacher, Bryan Adams, Bruce Springsteen, Eminem, Coca Cola, Nike, Samsung, Ericsson, and so on. Their presence are felt and seen in the streets.

With the globalization of rock music (and jazz, classical, rap, othertypes), comes along the hardwares and paraphernalias that accompany such music: stereos, tv, CD/DVD players, computers, Ipod, MP3, sound systems, home theaters, etc. These goods – imported from the US, Taiwan, Europe, China, Japan, Korea, India, and many other countries –enable the people, the ordinary Filipinos especially, to enjoy such famous music and musicians. In the process, world-class Filipino rockbands were inspired and born, bands like Eraserheads, Bamboo, 6 cycleminds, Cueshe, etc.

With the globalization of cycling (and soccer, F1, beach volleyball, basketball, golf, etc.), cycling shoes, jerseys, bicycles, bike parts and tires, speedometer, heart monitors, and the goods and services provided by commercial teams competing in big international races like the Tour de France, are made available in our malls, shops and streets. And a lot of world-class Filipino racers were inspired and born – guys like Victor Espiritu, Ryan Tanguilig, Lloyd Reynante, Warren Davadilla, etc.

Seems that the only guys who do not like the full enjoyment of more and more people of those international music, sports, adventure, technology, and the competitive spirit that go with these, are the politicians, government bureaucrats, and vested, anti-free trade sectors and producers in the local market. For the latter, all sorts of excuses and alibis are recited when all they want are (a) more taxes to feed a growing bureaucracy and pork barrels, (b) more monopolization of local markets and slam-dunk local consumers with higher prices and often low-quality goods and services.

The competitive-minded among local producers love free trade. Not onlythat free trade will give them an opportunity to penetrate other foreign markets, but they will also be able to find cheaper raw materials and intermediate goods, cheaper technologies, already available abroad, to make them more efficient in their productionp rocesses.

So one important thing that globalization offers, is that it helps expose the pretentious and lazy among us, the "more taxes for more subsidies and bureaucracies please" people among us.

Ultimately,

GLOBALIZATION = MOBILITY = FREEDOM.
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See also:
Free Trade 1: Estonia's Free Market, Globalization, May 09, 2006
Free Trade 2: Unilateral Trade Liberalization, May 17, 2006
Free Trade 3: Protectionism Perpetuate Poverty, September 05, 2006
Free Trade 4: FTA in APEC, July 09, 2007