A German political scientist, Dr. Monika Ballin, wrote a short paper entitled “Local Government and Civil Society.” That paper is mainly for the participants of an online seminar of the same title, sponsored by the Friedrich Naumann Foundation for Liberty. The seminar started last week, running for two more weeks, and I was lucky to be selected among the 68 participants from many countries, mostly from Asia, Latin America, Africa, and a few from Europe.
I like a number of definitions and points raised by Dr. Ballin in her paper. Among these are the following:
One, local government is a local, non-national authority, with local responsibility and limited autonomy and is part of the organizational structure of the State. But local government with a high degree of autonomy is always in strong opposition to centralistic political movements and authoritarian structures.
Two, the principle of subsidiarity applies: responsibilities as much as possible should be done at the lowest level, and only when a responsibility exceeds the capacity of one level that the next higher level should be entrusted.
Three, decentralization and privatization: responsibilities need to be shifted from the top down, and responsibilities which are not in the national or local sphere have to be privatized. Local authorities must have their own sources of funding to assert their fiscal autonomy.
And Four, civil society is the final stage of a functioning local government. If all means of decentralization, deregulation and privatization have been implemented and citizens have been involved as comprehensively as possible, civil society has emerged. There will be a “Lean State” where State structure exists only where it is absolutely necessary, and the State at any level is not carrying out any task and duty which private businesses or citizens themselves can do for society.
I say “Amen” to all four points, especially the last one. The four core advocacies of our think tank, MG Thinkers, Inc. – small government, small taxes, free market, individual responsibility – unsurprisingly fit in these ideals and goals of civil society. Less government responsibility (and less taxes and bureaucracies), more individual, parental and enterprise responsibilities.
The purpose of political decentralization and devolution is to shift some responsibilities from the national to local governments. Unfortunately, for many countries, this did not result in greater individual freedom and citizen empowerment and self-administration, but greater power, regulation and intervention by local governments. I do not think this is consistent with liberalism philosophy.
In a number of economic competitiveness studies done by various institutions, like “Economic Freedom of the World” (EFW) by Fraser Institute, or “Doing Business” annual reports by the World Bank and International Finance Corporation (IFC), or “Paying Taxes” annual reports by the WB and Price Waterhouse Coopers (PWC), it’s those small economies with small local governments units (LGUs) that have the fewest taxes and business regulations, like Hong Kong, Singapore and Maldives. While some countries with plenty of LGUs, even though they have decentralization or devolution law like the Philippines, have the most number of taxes and business regulations (eg. http://www.doingbusiness.org/documents/Paying_Taxes_2008.pdf).
This is because of duplicating business requirements, taxes and fees being collected, by both the national government and LGUs (provinces, cities or municipalities, and barangays or villages). The devolution of certain social services from the central government to LGUs like public health care, basic education and agricultural extension has emboldened many LGUs to create new taxes and fees, new rules and regulations – on top of taxes and fees, rules and regulations created and collected by national government agencies.
From the discussion by Dr. Ballin, to which I fully agree, the spirit of attaining a condition of civil society is not decentralization per se, but “degovernmentization” of many social functions, of ridding government and State intervention when individuals are free and responsible enough to be fully accountable and answerable for their actions and inactions. This is consistent with Friedrich Hayek’s observation that freedom and responsibility are closely intertwined, that a person cannot enjoy freedom unless he is ready to take responsibility for his life, his family and his community. That fear of responsibility is fear of freedom itself.
When I first mentioned the term “degovernmentization” to some friends here in Manila, their immediate reaction and question was “Are you proposing abolishing government?” No.
“Decentralization” does not mean abolition of the central government, but merely the transfer of some functions from the central to local government. “Deregulation” does not mean abolition of all regulations by government, but reduction of too many regulations, liberalizing the economy to facilitate entry of new economic players. “Demonopolization” does not mean abolition of the incumbent monopoly corporation, but allowing other players and competitors so that the previous monopolist becomes one of the many players. So “Degovernmentization” does not mean abolition of the government, but reduction of many functions and responsibilities currently handled by national or central government, and local governments, and giving such responsibilities back to the citizens, as individual and parental responsibilities.
There will always be a role for the State, a function that individuals and small communities cannot perform effectively. In its most basic and limited role, the State has the function to protect the citizens’ right to life, right to private property, and right to liberty. There will always be bullies, lazy and irresponsible people who will attempt to sustain their existence and that of people close to them by robbing other people their three rights mentioned above. These are the terrorists and murderers, robbers and hold-uppers, carnappers and pirates, rapists and kidnappers, and so on. Thus the State exists to become a “bigger bully,” better armed and equipped, than this group of people. The State also needs to maintain a credible and independent justice system that can render impartial and quick judgment on cases that involve critical disputes between and among the citizens.
The concept of “civil society” though is among those most misunderstood in the world today. Many people who regard themselves as belonging to civil society are actually in the forefront of advocating for more government regulations, trade protectionism, and higher taxation (the usual slogan, “tax the rich!”). In their hearts and mind, there is deep hatred of markets and big corporations, deep suspicion of assigning individual and parental responsibility, deep disrespect of inequality and diversity among people. So what those “civil society leaders” want is an even bigger government, and prevent the emergence of real civil society where citizens’ self-administration of their own lives, households, communities and workplaces, are respected and encouraged.
On another note, the ongoing renewed military conflict between the secessionist Islamic army and the government armed forces in southern Philippines, is mainly a result of never-ending claims by the former for political and economic control of many provinces and cities that they claim to be their “ancestral domain.” Political decentralization under the Local Government Code (1991) did not work to solve this problem. Another law and political structure, creating the Autonomous Region in Muslim Mindanao (ARMM) was enacted and implemented, but after more than a decade, the same problems resurface.
The ultimate goal of the rebel Islamic army in the south is a separate State, an Islamic State with its own geographical area of control. It does not want decentralization or a stronger and “autonomous” local government because it will still be part of the administrative apparatus of the Philippine State.
Asserting a “civil society agenda” at this time in the current conflict in the south is a secondary issue. Because the main issue is the assertion of the Islamic rebels to have their own central government, while the central government of the existing Philippine State is ambivalent at least, or opposed to this move at most.
Civil society by nature relies on the voluntary acts of citizens for self-administration. Even the financial backbone to sustain voluntary organizations (from corporations to cooperatives, labor federations, student councils, neighborhood or village associations, churches, sports clubs, civic clubs, etc.) comes from voluntary contribution. Civil society therefore, is pacifist and non-coercive. And it is this non-coercive nature that directly and explicitly separates it from organs of government, where almost all of them were created and sustained by non-voluntary means through taxation.
Both sides in the south, the Islamic rebels and the Philippine State, though fighting, have a common trait: to foster or expand the coercive nature of their respective governments, and in the process, kill or stop the emergence of civil society.
Saturday, August 30, 2008
WHO’s advancing modern health socialism?
Socialism as a system of government has lost its attractiveness to many people who have seen and personally experienced it for several decades. That is why socialism collapsed in the early 90s in the former USSR, former East Germany and other Eastern European countries. Here in Asia, the two biggest socialist economies, China and Vietnam, are socialist only in the sense that they still have a one-party state, the Communist Party, but economically, they are mostly market-oriented.
The main defect of socialism lies on the fact that “a government that’s big enough to give you everything you want is also big enough to take everything you’ve got”, and “free people are not equal, and equal people are not free”. See Lawrence Reed’s Seven principles of sound public policy.
Individual and parental responsibility do not count much under socialism. It's all "government responsibility". Thus, one can have a dozen children and drink every night, and when he becomes poor and miserable, the State is supposed to provide quality education, quality health care, quality housing, quality employment, quality social protection, etc. for him and his family, for free! The state gets money by confiscating a big portion of the income and savings of the productive and responsible people, especially those “greedy rich people who expropriate the surplus value of the workers”.
And if one’s liver and intestines are punctured by too much alcohol, or his lung is blackened and mutilated by too much smoke, he still has the right to demand "quality healthcare" regardless of his incapacity to pay. That is why socialism is appealing to the irresponsible and free-riders; they find it a very humane social system because it cares for everyone and ensures that everyone is equal. Equally miserable, with the exception of the leaders and friends of the socialist state.
But it’s not only the irresponsible, free-riders and dictators who are attracted to socialism. Some of the world’s bright minds working in tax-funded institutions also love the ideology, although they are not explicitly advocating it. And while they may call people who advocate free market and more individual responsibility as “neo-liberal”, maybe they can be called as “neo-socialist” or “neo-communist”. But I hate labels such as neo-neo, so I will call them as plain socialists, although they may not admit it.
The other day, the World Health Organization (WHO) through its Commission on Social Determinants of Health, released its new report, “Closing the Gap in a Generation: Health Equity through Action on the Social Determinants of Health", and it boldly declared that “inequities are killing people on a ‘grand scale’”. And as such, the Commission is proposing “health equity” on a grand scale through more government intervention and subsidies, an implicit call for advocating health socialism. You can read the Executive Summary (40 pages long) or the Press Release here.
Why did I say the Commission is implicitly calling for health socialism? Consider its recommendations on having “Equity from the start” alone, the first of 3 over-arching recommendations:
One, make sure that all children, mothers, and other caregivers are covered by a comprehensive package of quality early child development programs and services, regardless of ability to pay.
Two, provide quality compulsory primary and secondary education for all boys and girls, regardless of ability to pay; abolish user fees for primary school.
Three, manage urban development to ensure greater availability of affordable housing; invest in urban slum upgrading including, as a priority, provision of water and sanitation, electricity, and paved streets for all households regardless of ability to pay.
Four, ensure full and fair employment and decent work for all; strengthened representation of workers in the creation of policy, legislation, and programs relating to employment. Quality work with a living wage that takes into account the real and current cost of healthy living.
Five, progressively increase the generosity of social protection systems to a level sufficient for healthy living for all; social protection systems include those normally excluded: those in informal sector and household or care work.
Six, build quality health-care services with universal coverage, focusing on Primary Health Care. Strengthen public sector leadership in equitable healthcare systems financing, ensuring universal access to care regardless of ability to pay.
Notice the repeated use of “regardless of ability to pay”. That means that if people are poor, they are still entitled to quality child care development programs, quality primary and secondary education, quality housing and sanitation, quality health care, and so on. If a household is poor because of natural calamity (their farms and villages were wiped out by a strong typhoon or tsunami or earthquake, etc.) or because of some emergencies (say the breadwinner perished or became physically and mentally invalid for productive work after an accident), it will be understandable. But what if a household became poor because of personal and parental laziness and irresponsibility? What if thousands, if not millions, of households became poor because of government corruption, high taxation and bureaucratic regulations that kill entrepreneurship and job creation?
Unfortunately, the bright guys who live off on taxes and propose more and higher taxes (where else will they get the money for more government subsidies and welfare?) do not make any distinction about causes of poverty. Perhaps one can say that these people implicitly favor more personal and parental irresponsibility, more government wastes and irresponsibility, because these two factors are the biggest determinants and causes of poverty. More poverty, more “role” for WHO, the various health ministries and departments of governments around the world, more subsidies, more taxes, more salaries and perks for people working on those national and international agencies and bureaucracies.
Responsible individuals and parents do not wait for dole-outs and subsidies. They work hard to give their family and children good education, good housing and sanitation, good health care, good personal protection, and so on. They do their work well as employees, or they get out and become employers and create jobs for other people. Such employers are forced by circumstances to give high “living wage” and other benefits to ambitious and skilled workers; otherwise, the latter will leave them and move somewhere else. But said employers are also forced by circumstances to give low “living wage” to less ambitious and unskilled workers. If they will be compelled by the State to give high wages, said employers will not hire less ambitious and unskilled workers, and the latter will remain unemployed and poor indefinitely.
Now the document is out and disseminated to all member-states of the WHO. It is not automatic that all member-states will adopt the recommendations of the Commission. But the more socialist-leaning governments will be more than eager to follow and implement the recommendations of the Commission. The report will be an additional ammunition for them to retain existing high and multiple taxes and fees, if not create new taxes and fees, new regulations and orders. The report will also be a good excuse to retain, if not expand existing public bureaucracies and subsidies in health, education, housing, employment, social security, and in virtually all other social and economic sectors of the State, both at the national and local government levels.
Citizens who value their individual freedom, who value personal and parental responsibility, should watch their governments. While governments who are not enamored by socialist ideology and its forced equality dreams should keep their economies free. So that hard-working people who cannot stand the re-birth of socialism in their countries can move out and go to the free market economies to pursue their dreams and aspirations as free individuals, and as responsible parents.
The main defect of socialism lies on the fact that “a government that’s big enough to give you everything you want is also big enough to take everything you’ve got”, and “free people are not equal, and equal people are not free”. See Lawrence Reed’s Seven principles of sound public policy.
Individual and parental responsibility do not count much under socialism. It's all "government responsibility". Thus, one can have a dozen children and drink every night, and when he becomes poor and miserable, the State is supposed to provide quality education, quality health care, quality housing, quality employment, quality social protection, etc. for him and his family, for free! The state gets money by confiscating a big portion of the income and savings of the productive and responsible people, especially those “greedy rich people who expropriate the surplus value of the workers”.
And if one’s liver and intestines are punctured by too much alcohol, or his lung is blackened and mutilated by too much smoke, he still has the right to demand "quality healthcare" regardless of his incapacity to pay. That is why socialism is appealing to the irresponsible and free-riders; they find it a very humane social system because it cares for everyone and ensures that everyone is equal. Equally miserable, with the exception of the leaders and friends of the socialist state.
But it’s not only the irresponsible, free-riders and dictators who are attracted to socialism. Some of the world’s bright minds working in tax-funded institutions also love the ideology, although they are not explicitly advocating it. And while they may call people who advocate free market and more individual responsibility as “neo-liberal”, maybe they can be called as “neo-socialist” or “neo-communist”. But I hate labels such as neo-neo, so I will call them as plain socialists, although they may not admit it.
The other day, the World Health Organization (WHO) through its Commission on Social Determinants of Health, released its new report, “Closing the Gap in a Generation: Health Equity through Action on the Social Determinants of Health", and it boldly declared that “inequities are killing people on a ‘grand scale’”. And as such, the Commission is proposing “health equity” on a grand scale through more government intervention and subsidies, an implicit call for advocating health socialism. You can read the Executive Summary (40 pages long) or the Press Release here.
Why did I say the Commission is implicitly calling for health socialism? Consider its recommendations on having “Equity from the start” alone, the first of 3 over-arching recommendations:
One, make sure that all children, mothers, and other caregivers are covered by a comprehensive package of quality early child development programs and services, regardless of ability to pay.
Two, provide quality compulsory primary and secondary education for all boys and girls, regardless of ability to pay; abolish user fees for primary school.
Three, manage urban development to ensure greater availability of affordable housing; invest in urban slum upgrading including, as a priority, provision of water and sanitation, electricity, and paved streets for all households regardless of ability to pay.
Four, ensure full and fair employment and decent work for all; strengthened representation of workers in the creation of policy, legislation, and programs relating to employment. Quality work with a living wage that takes into account the real and current cost of healthy living.
Five, progressively increase the generosity of social protection systems to a level sufficient for healthy living for all; social protection systems include those normally excluded: those in informal sector and household or care work.
Six, build quality health-care services with universal coverage, focusing on Primary Health Care. Strengthen public sector leadership in equitable healthcare systems financing, ensuring universal access to care regardless of ability to pay.
Notice the repeated use of “regardless of ability to pay”. That means that if people are poor, they are still entitled to quality child care development programs, quality primary and secondary education, quality housing and sanitation, quality health care, and so on. If a household is poor because of natural calamity (their farms and villages were wiped out by a strong typhoon or tsunami or earthquake, etc.) or because of some emergencies (say the breadwinner perished or became physically and mentally invalid for productive work after an accident), it will be understandable. But what if a household became poor because of personal and parental laziness and irresponsibility? What if thousands, if not millions, of households became poor because of government corruption, high taxation and bureaucratic regulations that kill entrepreneurship and job creation?
Unfortunately, the bright guys who live off on taxes and propose more and higher taxes (where else will they get the money for more government subsidies and welfare?) do not make any distinction about causes of poverty. Perhaps one can say that these people implicitly favor more personal and parental irresponsibility, more government wastes and irresponsibility, because these two factors are the biggest determinants and causes of poverty. More poverty, more “role” for WHO, the various health ministries and departments of governments around the world, more subsidies, more taxes, more salaries and perks for people working on those national and international agencies and bureaucracies.
Responsible individuals and parents do not wait for dole-outs and subsidies. They work hard to give their family and children good education, good housing and sanitation, good health care, good personal protection, and so on. They do their work well as employees, or they get out and become employers and create jobs for other people. Such employers are forced by circumstances to give high “living wage” and other benefits to ambitious and skilled workers; otherwise, the latter will leave them and move somewhere else. But said employers are also forced by circumstances to give low “living wage” to less ambitious and unskilled workers. If they will be compelled by the State to give high wages, said employers will not hire less ambitious and unskilled workers, and the latter will remain unemployed and poor indefinitely.
Now the document is out and disseminated to all member-states of the WHO. It is not automatic that all member-states will adopt the recommendations of the Commission. But the more socialist-leaning governments will be more than eager to follow and implement the recommendations of the Commission. The report will be an additional ammunition for them to retain existing high and multiple taxes and fees, if not create new taxes and fees, new regulations and orders. The report will also be a good excuse to retain, if not expand existing public bureaucracies and subsidies in health, education, housing, employment, social security, and in virtually all other social and economic sectors of the State, both at the national and local government levels.
Citizens who value their individual freedom, who value personal and parental responsibility, should watch their governments. While governments who are not enamored by socialist ideology and its forced equality dreams should keep their economies free. So that hard-working people who cannot stand the re-birth of socialism in their countries can move out and go to the free market economies to pursue their dreams and aspirations as free individuals, and as responsible parents.
Tuesday, August 12, 2008
CSOs and State 4: Local Government and Civil Society
A German political scientist, Dr. Monika Ballin, wrote a short paper entitled “Local Government and Civil Society”. That paper is mainly for the participants of an online seminar of the same title, sponsored by the Friedrich Naumann Foundation for Liberty (FNF). The seminar started this week, running for 3 weeks more, and I was lucky to be selected among the 68 participants from many countries, mostly from Asia, Latin America and Africa, a few from Europe.
I like a number of definitions and points raised by Dr. Ballin in her paper. Among these are the following:
One, local government is a local, non-national authority, with local responsibility and limited autonomy and is part of the organizational structure of the State. But local government with a high degree of autonomy is always in strong opposition to centralistic political movements and authoritarian structures.
Two, the principle of subsidiarity applies: responsibilities as much as possible should be done at the lowest level, and only when a responsibility exceeds the capacity of one level that the next higher level should be entrusted.
Three, decentralization and privatization: responsibilities need to be shifted from the top down, and responsibilities which are not in the national or local sphere have to be privatized. Local authorities must have their own sources of funding to assert their fiscal autonomy.
And Four, civil society is the final stage of a functioning local government. If all means of decentralization, deregulation and privatization have been implemented and citizens have been involved as comprehensively as possible, civil society has emerged. There will be a “Lean State” where State structure exists only where it is absolutely necessary, and the State at any level is not carrying out any task and duty which private businesses or citizens themselves can do for society.
I say “Amen” to all 4 points, especially the last one, by Dr. Ballin. The four core advocacies of our think tank, MG Thinkers, Inc. – small government, small taxes, free market, individual responsibility – unsurprisingly fit in these ideals and goals of civil society. Less government responsibility (and less taxes and bureaucracies), but more individual and parental responsibility.
The purpose of political decentralization and devolution is to shift some responsibilities from national to local governments. Unfortunately, for many countries, this did not result in greater individual freedom and citizen empowerment and self-administration, but greater power, regulation and intervention by local governments. I do not think this is consistent with liberalism philosophy.
In a number of economic competitiveness studies done by various institutions, like “Economic Freedom of the World” (EFW) by Fraser Institute, or “Doing Business” annual reports by the World Bank and International Finance Corporation (IFC), or “Paying Taxes” annual reports by the WB and Price Waterhouse Coopers (PWC), it’s those small economies with small local governments units (LGUs) that have the fewest taxes and business regulations, like Hong Kong, Singapore and Maldives. While some countries with plenty of LGUs, even though they have decentralization or devolution law like the Philippines, have the plentiest number of taxes and business regulations (see for instance, http://www.doingbusiness.org/documents/Paying_Taxes_2008.pdf).
This is because of duplicating business requirements, taxes and fees being collected, by both national and LGUs (provinces, cities or municipalities, and barangays or villages). The devolution of certain social services from the central government to LGUs like public health care, basic education and agricultural extension has emboldened many LGUs to create new taxes and fees, new rules and regulations, on top of taxes and fees, rules and regulations created and collected by national government agencies.
From the discussion by Dr. Ballin, to which I fully agree, the spirit of attaining a condition of civil society is not decentralization per se, but “degovernmentization” of many social functions, of ridding government and State intervention when individuals are free and responsible enough to be fully accountable and answerable for their actions and inactions. This is consistent with Friedrich Hayek’s observation that freedom and responsibility are closely intertwined, that a person cannot enjoy freedom unless he is ready to take responsibility for his life, his family and his community. That fear of responsibility is fear of freedom itself.
When I first mentioned the term “degovernmentization” to some friends here in Manila, their immediate reaction and question was “Are you proposing to abolish the government?” No.
“Decentralization” does not mean abolition of the central government, but merely the transfer of some functions from the central to local government. “Deregulaton” does not mean abolition of all regulations by government, but reduction of too many regulations, liberalizing the economy to facilitate entry of new economic players. “Demonopolization” does not mean abolition of the incumbent monopoly corporation, but allowing other players and competitors so that the previous monopolist becomes one of the many players. So “Degovernmentization” does not mean abolition of the government, but reduction of many functions and responsibilities currently handled by national or central government, and local governments, and such responsibilities were brought back to the citizens, as individual and parental responsibilities, through various civil society organizations (CSOs).
There will always be a role for the State, a function that individuals and small communities cannot perform effectively. In its most basic and limited role, the State has the function to protect the citizens’ right to life, right to private property, and right to liberty. There will always be bullies, lazy and irresponsible people who will attempt to sustain their existence and that of people close to them by robbing other people their 3 rights mentioned above. These are the terrorists and murderers, robbers and hold-uppers, carnappers and pirates, rapists and kidnappers, and so on. Thus the State exists to become a “bigger bully”, better armed and equipped, than this group of people. The State also needs to maintain a credible and independent justice system that can render impartial and quick judgment on cases that involve critical disputes between and among the citizens.
The concept of “civil society” though is among those most misunderstood in the world today. Many people who regard themselves as belonging to civil society are actually in the forefront of advocating for more government regulations, trade protectionism, and higher taxation (the usual slogan, “tax the rich!”). In their hearts and mind, there is deep hatred of markets and big corporations, deep suspicion of assigning individual and parental responsibility, deep disrespect of inequality and diversity among people. So what those “civil society leaders” want is an even bigger government, and prevent the emergence of real civil society where citizens’ self-administration of their own lives, households, communities and workplaces, are respected and encouraged.
On another note, the on-going renewed military conflict between the secessionist Islamic army and the government armed forces in southern Philippines, is mainly a result of never-ending claims by the former for political and economic control of many provinces and cities that they claim to be their “ancestral domain”. Political decentralization under the Local Government Code (1991) did not work to solve this problem. Another law and political structure, creating an Autonomous Region for Muslim Mindanao (ARMM) was enacted and implemented, but after more than a decade, the same problems resurface.
The ultimate goal of the rebel Islamic army in the south is a separate State, an Islamic State with its own geographical area of control. They do not want decentralization or a stronger and “autonomous” local government because they will still be part of the administrative apparatus of the Philippine State.
Asserting a “civil society agenda” at this time in the current conflict in the south is a secondary issue. Because the main issue is the assertion of the Islamic rebels to have their own central government, while the central government of the existing Philippine State is ambivalent at least, or opposed to this move at most, since this will reduce its scope of power and geographical area that it currently controls.
Both sides in the south, the Islamic rebels and the Philippine State, though fighting, actually have a common trait: to foster or expand the coercive nature of their respective governments, and in the process, kill or stop the emergence of civil society.
Civil society by nature relies on the voluntary acts of citizens for self-administration. Even the financial backbone to sustain voluntary organizations (from corporations to cooperatives, foundations, professional associations, labor federations, student councils, neighborhood or village associations, churches, academic clubs, sports clubs, civic clubs, etc.) comes from voluntary contribution. Civil society therefore, is pacifist and non-coercive. And it is this non-coercive nature that directly and explicitly separates it from organs of government, where almost all of them were created and sustained by non-voluntary means through taxation.
For believers of civil society in the classical liberal tradition, local government should be a transition stage from central government to civil society. It is to be expected though, that many local government officials and personnel will object to this philosophy. For them, local government is an “end” by itself, and not just a “means” to an end. Only a few of the current local government leaders, in the Philippines or elsewhere, are open-minded enough to entertain the final emergence of civil society. In this case, therefore, it will be a situation of “local government vs. civil society”.
The principle of subsidiarity does not automatically mean that local government is the “lowest” level of citizen administration and empowerment. On the contrary, the “lowest” but most practical level of citizen administration is the family, not a government-run village (“barangay” in the Philippines) or municipality or county. Responsible parents produce responsible children who will become responsible adults someday, accountable for their actions and inactions, people who understand the corresponding reward or punishment in society.
Below is the paper of Dr. Monika Ballin.
--------
* See also CSOs and State 3: Poverty and Public Education, February 12, 2008
I like a number of definitions and points raised by Dr. Ballin in her paper. Among these are the following:
One, local government is a local, non-national authority, with local responsibility and limited autonomy and is part of the organizational structure of the State. But local government with a high degree of autonomy is always in strong opposition to centralistic political movements and authoritarian structures.
Two, the principle of subsidiarity applies: responsibilities as much as possible should be done at the lowest level, and only when a responsibility exceeds the capacity of one level that the next higher level should be entrusted.
Three, decentralization and privatization: responsibilities need to be shifted from the top down, and responsibilities which are not in the national or local sphere have to be privatized. Local authorities must have their own sources of funding to assert their fiscal autonomy.
And Four, civil society is the final stage of a functioning local government. If all means of decentralization, deregulation and privatization have been implemented and citizens have been involved as comprehensively as possible, civil society has emerged. There will be a “Lean State” where State structure exists only where it is absolutely necessary, and the State at any level is not carrying out any task and duty which private businesses or citizens themselves can do for society.
I say “Amen” to all 4 points, especially the last one, by Dr. Ballin. The four core advocacies of our think tank, MG Thinkers, Inc. – small government, small taxes, free market, individual responsibility – unsurprisingly fit in these ideals and goals of civil society. Less government responsibility (and less taxes and bureaucracies), but more individual and parental responsibility.
The purpose of political decentralization and devolution is to shift some responsibilities from national to local governments. Unfortunately, for many countries, this did not result in greater individual freedom and citizen empowerment and self-administration, but greater power, regulation and intervention by local governments. I do not think this is consistent with liberalism philosophy.
In a number of economic competitiveness studies done by various institutions, like “Economic Freedom of the World” (EFW) by Fraser Institute, or “Doing Business” annual reports by the World Bank and International Finance Corporation (IFC), or “Paying Taxes” annual reports by the WB and Price Waterhouse Coopers (PWC), it’s those small economies with small local governments units (LGUs) that have the fewest taxes and business regulations, like Hong Kong, Singapore and Maldives. While some countries with plenty of LGUs, even though they have decentralization or devolution law like the Philippines, have the plentiest number of taxes and business regulations (see for instance, http://www.doingbusiness.org/documents/Paying_Taxes_2008.pdf).
This is because of duplicating business requirements, taxes and fees being collected, by both national and LGUs (provinces, cities or municipalities, and barangays or villages). The devolution of certain social services from the central government to LGUs like public health care, basic education and agricultural extension has emboldened many LGUs to create new taxes and fees, new rules and regulations, on top of taxes and fees, rules and regulations created and collected by national government agencies.
From the discussion by Dr. Ballin, to which I fully agree, the spirit of attaining a condition of civil society is not decentralization per se, but “degovernmentization” of many social functions, of ridding government and State intervention when individuals are free and responsible enough to be fully accountable and answerable for their actions and inactions. This is consistent with Friedrich Hayek’s observation that freedom and responsibility are closely intertwined, that a person cannot enjoy freedom unless he is ready to take responsibility for his life, his family and his community. That fear of responsibility is fear of freedom itself.
When I first mentioned the term “degovernmentization” to some friends here in Manila, their immediate reaction and question was “Are you proposing to abolish the government?” No.
“Decentralization” does not mean abolition of the central government, but merely the transfer of some functions from the central to local government. “Deregulaton” does not mean abolition of all regulations by government, but reduction of too many regulations, liberalizing the economy to facilitate entry of new economic players. “Demonopolization” does not mean abolition of the incumbent monopoly corporation, but allowing other players and competitors so that the previous monopolist becomes one of the many players. So “Degovernmentization” does not mean abolition of the government, but reduction of many functions and responsibilities currently handled by national or central government, and local governments, and such responsibilities were brought back to the citizens, as individual and parental responsibilities, through various civil society organizations (CSOs).
There will always be a role for the State, a function that individuals and small communities cannot perform effectively. In its most basic and limited role, the State has the function to protect the citizens’ right to life, right to private property, and right to liberty. There will always be bullies, lazy and irresponsible people who will attempt to sustain their existence and that of people close to them by robbing other people their 3 rights mentioned above. These are the terrorists and murderers, robbers and hold-uppers, carnappers and pirates, rapists and kidnappers, and so on. Thus the State exists to become a “bigger bully”, better armed and equipped, than this group of people. The State also needs to maintain a credible and independent justice system that can render impartial and quick judgment on cases that involve critical disputes between and among the citizens.
The concept of “civil society” though is among those most misunderstood in the world today. Many people who regard themselves as belonging to civil society are actually in the forefront of advocating for more government regulations, trade protectionism, and higher taxation (the usual slogan, “tax the rich!”). In their hearts and mind, there is deep hatred of markets and big corporations, deep suspicion of assigning individual and parental responsibility, deep disrespect of inequality and diversity among people. So what those “civil society leaders” want is an even bigger government, and prevent the emergence of real civil society where citizens’ self-administration of their own lives, households, communities and workplaces, are respected and encouraged.
On another note, the on-going renewed military conflict between the secessionist Islamic army and the government armed forces in southern Philippines, is mainly a result of never-ending claims by the former for political and economic control of many provinces and cities that they claim to be their “ancestral domain”. Political decentralization under the Local Government Code (1991) did not work to solve this problem. Another law and political structure, creating an Autonomous Region for Muslim Mindanao (ARMM) was enacted and implemented, but after more than a decade, the same problems resurface.
The ultimate goal of the rebel Islamic army in the south is a separate State, an Islamic State with its own geographical area of control. They do not want decentralization or a stronger and “autonomous” local government because they will still be part of the administrative apparatus of the Philippine State.
Asserting a “civil society agenda” at this time in the current conflict in the south is a secondary issue. Because the main issue is the assertion of the Islamic rebels to have their own central government, while the central government of the existing Philippine State is ambivalent at least, or opposed to this move at most, since this will reduce its scope of power and geographical area that it currently controls.
Both sides in the south, the Islamic rebels and the Philippine State, though fighting, actually have a common trait: to foster or expand the coercive nature of their respective governments, and in the process, kill or stop the emergence of civil society.
Civil society by nature relies on the voluntary acts of citizens for self-administration. Even the financial backbone to sustain voluntary organizations (from corporations to cooperatives, foundations, professional associations, labor federations, student councils, neighborhood or village associations, churches, academic clubs, sports clubs, civic clubs, etc.) comes from voluntary contribution. Civil society therefore, is pacifist and non-coercive. And it is this non-coercive nature that directly and explicitly separates it from organs of government, where almost all of them were created and sustained by non-voluntary means through taxation.
For believers of civil society in the classical liberal tradition, local government should be a transition stage from central government to civil society. It is to be expected though, that many local government officials and personnel will object to this philosophy. For them, local government is an “end” by itself, and not just a “means” to an end. Only a few of the current local government leaders, in the Philippines or elsewhere, are open-minded enough to entertain the final emergence of civil society. In this case, therefore, it will be a situation of “local government vs. civil society”.
The principle of subsidiarity does not automatically mean that local government is the “lowest” level of citizen administration and empowerment. On the contrary, the “lowest” but most practical level of citizen administration is the family, not a government-run village (“barangay” in the Philippines) or municipality or county. Responsible parents produce responsible children who will become responsible adults someday, accountable for their actions and inactions, people who understand the corresponding reward or punishment in society.
Below is the paper of Dr. Monika Ballin.
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Local Government and Civil Society
By Dr. Monika Ballin
August 15, 2008
Local government and civil society - What's that?
Local government is political action with respect to public affairs at a local level. In different countries, the meaning of the term "local level" varies greatly. It may mean a village or borough, a city, a district or county and sometimes even a province. It all depends on the organisational structure of a country and also of the density of the population.
What is important for the definition of local government is that at a lower, non-national level, there should be a local authority which acts self-responsible with limited autonomy and is part of the organisational structure of the state.
The development of local government
Local government developed on the basis of city privileges which already existed in antiquity and on the basis of subsequent self-administration privileges. Elements of local authority freedom have survived in Switzerland to the present day. Citizens' assemblies and referenda up to the cantonal level ensure the direct involvement of citizens in political decisions.
The state-formulated principle of self-administration as applied in Prussia in the 19th century by involving citizens in municipal affairs on a voluntary basis also introduced some local government elements. In England, local government produced strong local independence during a long historical period in very small steps, first concentrating on social duties. And up to the present, the English local authorities are highly dependent on financial supply by the central state government. France, Spain and Italy however provided little scope for local decisions because of their centralistic mentality.
Local government was constantly influenced in all countries by political developments which either increased or decreased centralisation related to political constraints and crises. The political element of local self-administration was overridden in Europe by increasing state legislation not least in the context of wars and crises. Dictatorial regimes removed any vestige of political independence on a local level.
But in Germany, for instance, after WWII the main political authority lay on the local level, because the state structure had been destroyed and the political personnel on the state level was not trusted in because of their Nazi-background. This situation empowered the federal structure of the German governmental system with a strong local authority.
Prerequisites for a functioning local level
a. Trust the people
Local government with a high degree of autonomy is always in strong opposition to centralistic political movements and authoritarian structures. National government can only accept local government if it has trust in the citizens' abilities, sense of responsibility and willingness to achieve political development and preserve a political system of freedom. It is this trust that forms part of liberalism since liberalism is based on the idea that a local decision will benefit most from widely distributed knowledge and competition of different ideas. The decision which is best for and best understood by the citizen is taken locally because it is close to the people.
b. Ability to take decisions
Therefore, liberalism calls for local decision-making. This requires the state to provide a framework of forms and procedures in the shape of local constitutions. Further, it must be ensured that inhabitants and citizens have a choice and a chance to co-decide. This can be done by elections and other forms of direct involvement in decisions.
c. Clear definition of responsibilities and subsidiarity
In order to function, local government responsibilities must be clearly defined. Here, the principle of subsidiarity applies. This means that as much as possible should be done at the lowest level. It is only when a responsibility exceeds the capacity of one level that the nexthigher level should be entrusted with it. The result is that, a priori, the local level is in charge of everything. If it turns out that this level cannot cope with the job, it is shifted to a higher level.
d. Decentralisation and privatization
However, reality today is different. In the course of time, the state level has usurped many responsibilities which could easily be delegated to the local level and perhaps even to private players - often even carried out in higher quality. Therefore, responsibilities need to be shifted from the top down, i.e. decentralisation is necessary. Responsibilities which are not in the national or local sphere have to be privatised. However, along with decentralisation, the ability to decide freely must also be devolved. This is the only way to delegate responsibility. In fact, this happens in many countries of the world during the last two decades, but not because of reason but because of lack of state finances.
e. Sufficient finances
This leads to another important aspect of a functioning local government. It requires that those elected to office decide freely on issues in their area. But often they can only decide if there is sufficient funding. Financial resources must not only derive from transfers from the national level; instead, local authorities must have their own sources of funding and - within limits - they should decide themselves on the size of funding by allocating own taxes and fees.
f. No overburdening by the state
It is necessary and useful to shift certain duties from the state to local authorities in order to be close to the citizen. But, along with this, there must be some cost reimbursement for that. In addition, local authorities must have enough scope for their own activities. If all the staff is busy doing state work, local government as defined above is no longer possible.
Civil society - the final stage of a functioning local government
If all means of decentralisation, deregulation and privatisation have been implemented and citizens have been involved as comprehensively as possible, there is nothing to stop the definitive self-administration of citizens. A civil society has emerged.
It would also mean that the governmental system reaches the status of a Lean state, which by definition is, that there is only a state structure left where it is absolutely necessary, the state on any level is not carrying out any tasks and duties which private businesses or the citizen themselves can do for the society.
A full stage of a civil society certainly is a vision since part of the responsibilities must remain in the state's hands because they cannot be discharged in small units. But the vision of the civil society must be the ultimate goal in defining and shaping liberal local policies.
* See also CSOs and State 3: Poverty and Public Education, February 12, 2008
Thursday, August 07, 2008
Inflation and CBs 4: Subsidies and Money Printing
The Philippines last month experienced its highest inflation rate over the past 17 years. The Filipinos had to grapple with the 12.2% average increase of commodity prices in July 2008 compared to their year ago price levels. Double-digit inflation rate always hurts.
High commodity prices mean there are a lot more consumers of those commodities than producers. Another way of looking at this is that the capacity of producers to produce more is lower than the capacity of the consumers to consume more. High commodity prices therefore favor producers and penalize consumers.
Why this thing happened – and will continue in the years to come – is a problem that is created mainly by the incentives and disincentives system in society. If there are lots of subsidies to consume more, then more consumption will happen. Or if people experience increases in income, whether from their own effort or bonanza from remitted income from abroad by their kins, more consumption can happen. If there are lots of taxes, regulations and bureaucracies in producing more, then less production will happen. And a worst-case situation can happen when "demand-pull" inflation (consumers are spending a lot) and "cost-push" inflation (cost of production and cost of bureaucracies are soaring) occur at the same time.
The solution therefore is to remove disincentives in more production, remove subsidies in more consumption, and let some of the consumers become producers themselves.
Some people argue that "inflation is caused solely by printing more money." The argument is that too much money chasing too few goods and services is causing high inflation. This is wrong. There are dozens of causes why prices rise, or why inflation happens. For instance:
1. A supertyphoon wipes out all potential agricultural harvests in one province or region. This abrupt cut in food supply will cause food prices to rise in that province or region and the neighboring places.
2. Mr. Warren Buffet and Bill Gates suddenly decided to give away $30 billion of their savings to all poor people in Delhi, Jakarta, Hanoi, Pnom Penh and Manila. Tens of millions of poor people suddenly awash with cash, will go on spending splurge say within one week. The price of most products and services that the poor will consume will rise, at least temporarily, if there is no corresponding increase in the supply of the commodities that they buy.
3. Government over-spends in a fiscal year, borrows money left and right to finance the budget deficit (revenue is lower than expenditures) . This raises interest rates since government competes with private borrowers, both individuals and corporations. High interest rates cause high cost of capital, that investors will pass on to the consumers. Or high interest rates discourage some potential investors – lack of new investment and production results in higher prices since the supply is not increased.
4. High world oil prices due to geopolitical instabilities (a war in the Middle East, imposition of economic sanction on a major oil exporting country, etc.) push retail oil prices to increase, fares will increase, transportation cost of bringing food products from the province to the cities will increase, etc.
There are many other instances and cases why inflation can occur. Over-supply of money due to huge printing of money by a central bank or monetary authority is only one of those reasons.
Fight inflation with more government subsidies.
This is among the "standard" policies adopted by many governments around the world. It pays to remain poor sometimes because dole-outs and subsidies are coming your way. But subsidies seldom, if ever, contribute to increasing an economy's productive capacity. Subsidies are money confiscated by the State from some productive and hard-working citizens, then it turns around to distribute that money first to its own personnel (politicians and bureaucrats) and second to the intended beneficiaries – the poor. In a sense, subsidies perpetuate the retention, if not expansion, of a group of people who are neither producers nor traders, not even scientists or technologists who help producers improve their productivity or reduce crop losses.
The bigger the number of people who administer the subsidies (those in government) and receive the subsidies (the poor, especially the lazy and irresponsible) , the heavier it is for the productive and hard-working people to sustain them. That is why taxes and government fees remain high and plenty, and taxes are among the biggest inflation-generator s in an economy. More subsidies, more taxes, more inflation. And a vicious cycle is created and perpetuated.
Global inflation: is globalization in a rut?
Not a bit. The current growth meltdown experienced by the US and its major trade and investment partners in the industrialized world is a necessity. It should happen, and I'm glad it is happening. Irresponsible investors and individuals should suffer and go bankrupt, they should become poor. Before, they got saved, their irresponsibility was rewarded with subsidies and huge bail-outs. As one CATO scholar noted, capitalism without failure and bankruptcy is like religion without sins.
What we are seeing are adjustments and adaptation. The irresponsible get punished; the responsible survive, if not thrive. But there is one big entity that is both irresponsible and yet does not go bankrupt: government.
* See also: Inflation and CBs 3: "Bank of Last Resort", March 18, 2008
High commodity prices mean there are a lot more consumers of those commodities than producers. Another way of looking at this is that the capacity of producers to produce more is lower than the capacity of the consumers to consume more. High commodity prices therefore favor producers and penalize consumers.
Why this thing happened – and will continue in the years to come – is a problem that is created mainly by the incentives and disincentives system in society. If there are lots of subsidies to consume more, then more consumption will happen. Or if people experience increases in income, whether from their own effort or bonanza from remitted income from abroad by their kins, more consumption can happen. If there are lots of taxes, regulations and bureaucracies in producing more, then less production will happen. And a worst-case situation can happen when "demand-pull" inflation (consumers are spending a lot) and "cost-push" inflation (cost of production and cost of bureaucracies are soaring) occur at the same time.
The solution therefore is to remove disincentives in more production, remove subsidies in more consumption, and let some of the consumers become producers themselves.
Some people argue that "inflation is caused solely by printing more money." The argument is that too much money chasing too few goods and services is causing high inflation. This is wrong. There are dozens of causes why prices rise, or why inflation happens. For instance:
1. A supertyphoon wipes out all potential agricultural harvests in one province or region. This abrupt cut in food supply will cause food prices to rise in that province or region and the neighboring places.
2. Mr. Warren Buffet and Bill Gates suddenly decided to give away $30 billion of their savings to all poor people in Delhi, Jakarta, Hanoi, Pnom Penh and Manila. Tens of millions of poor people suddenly awash with cash, will go on spending splurge say within one week. The price of most products and services that the poor will consume will rise, at least temporarily, if there is no corresponding increase in the supply of the commodities that they buy.
3. Government over-spends in a fiscal year, borrows money left and right to finance the budget deficit (revenue is lower than expenditures) . This raises interest rates since government competes with private borrowers, both individuals and corporations. High interest rates cause high cost of capital, that investors will pass on to the consumers. Or high interest rates discourage some potential investors – lack of new investment and production results in higher prices since the supply is not increased.
4. High world oil prices due to geopolitical instabilities (a war in the Middle East, imposition of economic sanction on a major oil exporting country, etc.) push retail oil prices to increase, fares will increase, transportation cost of bringing food products from the province to the cities will increase, etc.
There are many other instances and cases why inflation can occur. Over-supply of money due to huge printing of money by a central bank or monetary authority is only one of those reasons.
Fight inflation with more government subsidies.
This is among the "standard" policies adopted by many governments around the world. It pays to remain poor sometimes because dole-outs and subsidies are coming your way. But subsidies seldom, if ever, contribute to increasing an economy's productive capacity. Subsidies are money confiscated by the State from some productive and hard-working citizens, then it turns around to distribute that money first to its own personnel (politicians and bureaucrats) and second to the intended beneficiaries – the poor. In a sense, subsidies perpetuate the retention, if not expansion, of a group of people who are neither producers nor traders, not even scientists or technologists who help producers improve their productivity or reduce crop losses.
The bigger the number of people who administer the subsidies (those in government) and receive the subsidies (the poor, especially the lazy and irresponsible) , the heavier it is for the productive and hard-working people to sustain them. That is why taxes and government fees remain high and plenty, and taxes are among the biggest inflation-generator s in an economy. More subsidies, more taxes, more inflation. And a vicious cycle is created and perpetuated.
Global inflation: is globalization in a rut?
Not a bit. The current growth meltdown experienced by the US and its major trade and investment partners in the industrialized world is a necessity. It should happen, and I'm glad it is happening. Irresponsible investors and individuals should suffer and go bankrupt, they should become poor. Before, they got saved, their irresponsibility was rewarded with subsidies and huge bail-outs. As one CATO scholar noted, capitalism without failure and bankruptcy is like religion without sins.
What we are seeing are adjustments and adaptation. The irresponsible get punished; the responsible survive, if not thrive. But there is one big entity that is both irresponsible and yet does not go bankrupt: government.
* See also: Inflation and CBs 3: "Bank of Last Resort", March 18, 2008
Friday, August 01, 2008
Abolish Income Tax 2: VAT and tax extortion
As the price of petroleum products remain high, the call for the lifting or abolition of value added tax (VAT) on these products remain loud. While the goal of such measure -- help reduce the price of oil products -- is laudable, the policy tool being proposed is wrong.
The single most important element of the "rule of law" concept is that the law applies to everyone and exempts no one. Any exemption to the rule immediately invalidates the "rule of law" and automatically becomes "rule of men". When applied to commodities, the law should apply to all sectors or products and exempt not a single sector or product.
In the crafting of the current VAT law that was enacted in 2005, a few products were exempted from the coverage of VAT. These include agricultural and fishery products in their original forms, meaning raw vegetables, meat, fish, fruits, etc. Once they are processed, like dried mangoes or canned sardines, the processed product is covered by VAT.
The exemption of these products, and the attempts by many other producers that the products or services they produce be exempted from VAT, was both a proof and indicator that the 12% VAT rate was high, so that almost everyone wanted exemption from the tax law.
Now that it is a law, the spirit of "apply to everything and exempt nothing" should be retained. In this sense, I am not in favor of lifting or abolishing VAT on oil products. Or any other products and services.
There are other alternatives to lifting or abolishing the VAT on oil products and/or other commodities or services.
One is to reduce the VAT rate from 12% back to 10% or even lower, but the spirit of the tax law that applies to everything and exempts nothing should stay.
Two, abolish excise tax on gasoline products, if it's not abolished yet. Current excise tax is about P5.60 per liter.
Three, a lower, flat income tax, especially on personal income tax. Any income tax cut is equivalent to "salary increase". Such de facto "pay hike" especially for fixed income earners, will enable many people to have higher take-home pay and they can better adapt to higher oil prices since it is a global phenomenon anyway, and other commodities with higher prices.
How "low" should the flat tax be to have a maximum positive result to the people? Zero income tax is the best. But the best is not always the most practical and feasible. A 10% flat income tax, to my mind, is the second-best alternative. At this rate, many people, from public school teachers and policemen to private sector ordinary employees to struggling small entrepreneurs, will benefit. And the State will still collect taxes at a much broader tax base as more people will be encouraged to pay income tax because the rate is lower and complying with it is simpler.
Commodities' prices are "high" mainly because many households have low take-home pay because of high personal income tax, even after the recent "tax relief" law. Companies also have lower pay for their workers, lower shares for their stock owners, and high price for their consumers, because the cost of corporate income tax, both the actual payment and cost of compliance (hiring accountants, lawyers, etc.) are high, and all those costs are ultimately passed on to the 3 groups of people – company employees, stockholders, and consumers.
Four, reduce the number of various taxes and fees that citizens are forced to pay to the State. Consolidate and/or abolish some of those taxes and fees. Here in the Philippines, below are the major taxes slapped on the people, rammed down on their pockets, savings and investments, directly or indirectly:
1. tax on income and salaries -- personal income tax
2. tax on profit – corporate income tax, capital gains tax
3. tax on consumption – value added tax
4. tax on inheritance – inheritance tax, donor's tax
5. tax on savings -- final withholding tax
6. tax on oil, tobacco, alcohol products -- excise tax
7. tax on various documents -- documentary stamp tax
8. tax on owning a car -- vehicle registration tax (plus emission test fee, CTPL)
9. tax on public transport business – franchise tax, common carriers tax
10. tax on various businesses and investment -- business permit tax, franchise tax, percentage tax
11. tax on imported commodities -- import tax, VAT on imports
12. tax on travel and amusement -- travel tax, amusement tax
13. social security tax -- SSS or GSIS "contribution"
14. housing tax -- Pag-IBIG "contribution"
15. health tax -- PhilHealth "contribution"
16. tax on owning a house, condo, building -- real property tax (RPT), special education fund (SEF) tax
17. tax on owning land – RPT, SEF, ad valorem tax on idle land
18. other local taxes – community residence tax, barangay clearance tax (for business)
what else...
Then there are dozens of other fees: driver's license fee, passport fee, terminal fee, NBI clearance fee, PNP clearance fee, birth and death certificate fees, marriage and annulment certificate fees, garbage collection fee, etc.
I call these multiple taxes as tax extortion. Their real goal is not so much to raise revenues for the State since this can be achieved by higher tax rate on a few tax laws, but to complicate things and that will open up opportunities for extortion and corruption.
I have discussed the need to reduce the number of taxes and fees that businesses have to pay to the government, both national and local in another article last December here,
http://www.thelobbyist.biz/column_detail.php?id_article=559&id_category=25.
During the VAT hike debate in 2004 to early 2005, our group, Minimal Government, opposed the proposed VAT hike in Congress unless the government would compensate for cutting taxes somewhere, especially income tax. Personally I would have supported the VAT hike from 10% to even 14% or 15%, provided that income tax be cut to a 10% flat rate. But the State as always only wants tax and tax, spend and spend.
People are more transparent on their consumption than on their income source/s. Even those with no legitimate income sources like criminals and extortionists, corrupt government officials, and dependents of remitted income from abroad, flaunt their new house, expensive car/s, jewelries, cell phones, alcoholic products, travels, and so on. They are evasive where they get the money to buy those things but nonetheless, they brag and flaunt their purchase and consumption of those goods and services. This is one important reason why taxing consumption is much easier to administer than taxing income. There is less hassle and less corruption here.
Government's tax revenue increases as the suffering of the public increases. That is one aspect of "public service" that those who work for the State enjoy, funded by those who work in the private sector.
Nonetheless, the windfall VAT revenue from higher prices of petroleum and other commodities is already there. While none of the four above-mentioned alternatives (or other tax cut options) are in place, the State can minimize the pain of the public if the entire windfall revenue from higher VAT collections will be used to retire public debt, then reduce current and succeeding years' borrowing, and later cut some current taxes and fees that are earmarked to pay those public debts.
The country's politicians and legislators can serve the people who pay for their salaries, travels, pork barrel funds, future pension and other perks better, if they will shift their attention away from selective removal of VAT application to certain commodities. They should focus their attention in possibly lowering the VAT rate that applies to all commodities, or reducing income tax, or reducing the number of many other taxes and fees that opens the gate for tax extortion. Any or a combination of these fiscal policies will greatly enable the public to cope with high oil and other commodity prices.
The single most important element of the "rule of law" concept is that the law applies to everyone and exempts no one. Any exemption to the rule immediately invalidates the "rule of law" and automatically becomes "rule of men". When applied to commodities, the law should apply to all sectors or products and exempt not a single sector or product.
In the crafting of the current VAT law that was enacted in 2005, a few products were exempted from the coverage of VAT. These include agricultural and fishery products in their original forms, meaning raw vegetables, meat, fish, fruits, etc. Once they are processed, like dried mangoes or canned sardines, the processed product is covered by VAT.
The exemption of these products, and the attempts by many other producers that the products or services they produce be exempted from VAT, was both a proof and indicator that the 12% VAT rate was high, so that almost everyone wanted exemption from the tax law.
Now that it is a law, the spirit of "apply to everything and exempt nothing" should be retained. In this sense, I am not in favor of lifting or abolishing VAT on oil products. Or any other products and services.
There are other alternatives to lifting or abolishing the VAT on oil products and/or other commodities or services.
One is to reduce the VAT rate from 12% back to 10% or even lower, but the spirit of the tax law that applies to everything and exempts nothing should stay.
Two, abolish excise tax on gasoline products, if it's not abolished yet. Current excise tax is about P5.60 per liter.
Three, a lower, flat income tax, especially on personal income tax. Any income tax cut is equivalent to "salary increase". Such de facto "pay hike" especially for fixed income earners, will enable many people to have higher take-home pay and they can better adapt to higher oil prices since it is a global phenomenon anyway, and other commodities with higher prices.
How "low" should the flat tax be to have a maximum positive result to the people? Zero income tax is the best. But the best is not always the most practical and feasible. A 10% flat income tax, to my mind, is the second-best alternative. At this rate, many people, from public school teachers and policemen to private sector ordinary employees to struggling small entrepreneurs, will benefit. And the State will still collect taxes at a much broader tax base as more people will be encouraged to pay income tax because the rate is lower and complying with it is simpler.
Commodities' prices are "high" mainly because many households have low take-home pay because of high personal income tax, even after the recent "tax relief" law. Companies also have lower pay for their workers, lower shares for their stock owners, and high price for their consumers, because the cost of corporate income tax, both the actual payment and cost of compliance (hiring accountants, lawyers, etc.) are high, and all those costs are ultimately passed on to the 3 groups of people – company employees, stockholders, and consumers.
Four, reduce the number of various taxes and fees that citizens are forced to pay to the State. Consolidate and/or abolish some of those taxes and fees. Here in the Philippines, below are the major taxes slapped on the people, rammed down on their pockets, savings and investments, directly or indirectly:
1. tax on income and salaries -- personal income tax
2. tax on profit – corporate income tax, capital gains tax
3. tax on consumption – value added tax
4. tax on inheritance – inheritance tax, donor's tax
5. tax on savings -- final withholding tax
6. tax on oil, tobacco, alcohol products -- excise tax
7. tax on various documents -- documentary stamp tax
8. tax on owning a car -- vehicle registration tax (plus emission test fee, CTPL)
9. tax on public transport business – franchise tax, common carriers tax
10. tax on various businesses and investment -- business permit tax, franchise tax, percentage tax
11. tax on imported commodities -- import tax, VAT on imports
12. tax on travel and amusement -- travel tax, amusement tax
13. social security tax -- SSS or GSIS "contribution"
14. housing tax -- Pag-IBIG "contribution"
15. health tax -- PhilHealth "contribution"
16. tax on owning a house, condo, building -- real property tax (RPT), special education fund (SEF) tax
17. tax on owning land – RPT, SEF, ad valorem tax on idle land
18. other local taxes – community residence tax, barangay clearance tax (for business)
what else...
Then there are dozens of other fees: driver's license fee, passport fee, terminal fee, NBI clearance fee, PNP clearance fee, birth and death certificate fees, marriage and annulment certificate fees, garbage collection fee, etc.
I call these multiple taxes as tax extortion. Their real goal is not so much to raise revenues for the State since this can be achieved by higher tax rate on a few tax laws, but to complicate things and that will open up opportunities for extortion and corruption.
I have discussed the need to reduce the number of taxes and fees that businesses have to pay to the government, both national and local in another article last December here,
http://www.thelobbyist.biz/column_detail.php?id_article=559&id_category=25.
During the VAT hike debate in 2004 to early 2005, our group, Minimal Government, opposed the proposed VAT hike in Congress unless the government would compensate for cutting taxes somewhere, especially income tax. Personally I would have supported the VAT hike from 10% to even 14% or 15%, provided that income tax be cut to a 10% flat rate. But the State as always only wants tax and tax, spend and spend.
People are more transparent on their consumption than on their income source/s. Even those with no legitimate income sources like criminals and extortionists, corrupt government officials, and dependents of remitted income from abroad, flaunt their new house, expensive car/s, jewelries, cell phones, alcoholic products, travels, and so on. They are evasive where they get the money to buy those things but nonetheless, they brag and flaunt their purchase and consumption of those goods and services. This is one important reason why taxing consumption is much easier to administer than taxing income. There is less hassle and less corruption here.
Government's tax revenue increases as the suffering of the public increases. That is one aspect of "public service" that those who work for the State enjoy, funded by those who work in the private sector.
Nonetheless, the windfall VAT revenue from higher prices of petroleum and other commodities is already there. While none of the four above-mentioned alternatives (or other tax cut options) are in place, the State can minimize the pain of the public if the entire windfall revenue from higher VAT collections will be used to retire public debt, then reduce current and succeeding years' borrowing, and later cut some current taxes and fees that are earmarked to pay those public debts.
The country's politicians and legislators can serve the people who pay for their salaries, travels, pork barrel funds, future pension and other perks better, if they will shift their attention away from selective removal of VAT application to certain commodities. They should focus their attention in possibly lowering the VAT rate that applies to all commodities, or reducing income tax, or reducing the number of many other taxes and fees that opens the gate for tax extortion. Any or a combination of these fiscal policies will greatly enable the public to cope with high oil and other commodity prices.
Thursday, July 24, 2008
Socialized security and socialized robbery
A person has to work for his own personal security and his family’s household security. Securing such security is a personal and parental responsibility, not government responsibility. Thus, savings for the rainy days someday – by how much, for whom, on what services, how long to save and contribute, when to claim, where to claim – should be individually tailored because each individual has different needs and different priorities.
Person A with three or more children will prioritize education and health care for the kids; Person B with the same number of children who plans on home-schooling will prioritize a beautiful house and cars; Person C who is single with old and sick parents will prioritize healthcare for the older folks; Person D who is single with deceased parents will prioritize big pension for his/her foreign travels or lavish lifestyle someday; Person E who is either single or has family but plans to migrate abroad someday will prioritize portability of his savings and the services that he can enjoy with it; Person F who jumps from one job to another wants unemployment allowance and healthcare; and so on.
With increasing globalization and greater mobility of people across national borders and across continents, portability of savings and contribution is becoming more and more important. A person who suddenly feels the need to migrate elsewhere for whatever reason should have the flexibility to bring with him/her the value of his/her accumulated savings and contribution for both personal and household security. When such accumulated savings cannot be portable, then the providers of such security have the parochial assumption that people will not be mobile across countries, and the evil intention of utilizing such savings for their personal interests when the social security contributors have finally migrated and not come back or come back but too impatient to claim the would-be services because of complicated procedures and bureaucracies.
Here in the Philippines, social security is a business monopoly of the State: the Social Security System (SSS) for private sector personnel, and the Government Service Insurance System (GSIS) for the government personnel. Both financial institutions are State-owned and managed, even if all contributions are from private savings of the employed people.
A person employed in the formal sector, whether in private enterprises or government agencies, would see his/her monthly pay significantly shrank due to four different types of automatic deductions: personal income tax, housing tax (PAG-IBIG contribution), health tax (PhilHealth contribution) and social security tax (SSS or GSIS contribution). The government does not call the last three as "tax" but rather as "contributions". Contributions by nature, should be voluntary. Since these are non-voluntary payment and are mandatory collections because all employed person are coerced by various laws to become members of those government financial institutions, they are essentially a form of tax.
Those employed in the informal or “underground” sector are somehow lucky because their monthly income is not subject to those four automatic deductions and hence, they will have their income intact; they will just have to device some scheme to put up their own savings for the rainy days someday. The problem with this is that there will be little or no incentives for them to become bigger entrepreneurs someday because business growth will expose their heads and will attract the eyes and attention, and consequent regulations and bureaucracies, of the various government agencies that make those mandatory membership and collection.
Since private savings and contributions have been made socialized and collectivized, managed and controlled by the administrators of the collective, the State, then there is danger that said savings will be subject to socialized robbery. There is the built-in malady for instance, in the design of private social security: both the fund administrators (the SSS President and other officials) and the person who appointed the chief fund administrator (the President of the Republic) are not even SSS members (they are GSIS members), and yet they have almost full control of where the bulk of the accumulated private savings will go.
Thus, putting private citizens' pension and social security money into direct control by the State is not only risky. It is wrong. The SSS being funded by private sector employees and entrepreneurs should not be a State corporation. The State has already collected a big share of the employed people’s pay check, the personal income tax. So when the State further dips its hands in after-tax savings and contributions, there is a big likelihood that some evil intentions are being designed. Because by virtue of a financial institution being State-controlled, the appointment of such institution’s officials is subject to politics. The decision of where the savings will be invested, who can borrow big amount and who cannot borrow, will be subject to politics. Thus, all heads of SSS are thankful of, and accountable to, the one who put them there -- the President of the Republic, not to the members employed in private enterprises who were coerced by social security laws to contribute to the funds.
In a sense, this somehow explains why all past SSS administrators were not raising the issue of politicized appointments in that state corporation because they themselves were beneficiaries of such politicization of private funds’ pool.
Recently, there was wide public confusion, if not non-acceptance, of the appointment of the new SSS administrator. The incoming administrator who was then occupying another government agency has approved a supposedly government broadband network deal that involved US$300+ million, despite his earlier public admission that there was an attempt at large-scale robbery and corruption in the said project. When the controversy became too hot to handle, the project was shelved by the President. When the Senate conducted an investigation, the incoming administrator shut up and could not be compelled by the Senate to further talk when most of earlier evidences gathered by the Senate pointed to the President as the master-mind of the attempt at large-scale robbery.
What is noteworthy at this turn of events is that public discussion and debate on social security has been focused on a few personalities, namely the incoming SSS administrator and the President of the Republic. Although the issue raised – morality and integrity of the administrators of private savings – is indeed valid, the other issue, a bigger one for me, of State monopoly control of private savings and contributions, was relegated as a secondary issue or non-issue at all.
I personally know the incoming fund administrator because I was one of his staff for several years when I was still working at the House of Representatives in the 90s. And I can say that the said official is not exactly a man of high integrity. But as I have pointed out above, the appointment of whoever as fund administrator is a smaller issue compared to the fact that an institution that was built up by private savings is fully State-managed and controlled. An angel President will likely appoint an angel fund administrator and other government officials. A President who is a thief will likely appoint a thief and politics-loving fund administrator and other government officials.
One indicator or characteristic of a monopolist is lack of transparency. An enterprise that wants to get as many clients and customers as possible will strive to be as transparent as possible because people want to be assured that they get value for their money, that their savings are invested in productive projects that will give them good returns someday.
In the case of the SSS, its website alone is among the most unreliable sites in the world. For a fund with more than 27 million individual members and PhP234 billion (US$5.2 billion at P45/$) of investments, inquiries by phone or personal visits by its millions of members is costly and very inefficient. The maintenance of a reliable website therefore, is a must. But if you visit www.sss.gov.ph, either it is down or it shows only the homepage; and if you click any of its sections, it takes several minutes of “loading”, you wait for several minutes more and… voila! “Page Load Error” will show up. As of this writing, the website is down.
Many ordinary members just want an SSS ID because this is being asked or demanded by other agencies. But getting an ID alone is very time consuming. In my experience, getting an appointment for ID pictorial alone takes several days. Waiting period for the pictorial (digital camera) and e-signature was about two hours, from the time I submitted the ID application form to the time I finished everything. And waiting period for the ID to be delivered to my place was supposed to be two months, they said. But my ID came after four months!
Other SSS members though were more unlucky. Some waited six or eight months before their IDs were delivered to them. Others are worse off: they have waited 10 or 11 months and still they have not yet received their ID! See those sentiments and experiences on getting an SSS ID and the unreliability of the monopolist’s website here,
http://kulaypinay.com/2007/04/23/sss-id-application-walkthrough/.
A monopoly is often characterized by wastes and inefficiencies. This is because the administrators of a monopoly know that they have no competitors, so that their clients and the public have no other option but to patronize them. Unlike private enterprises like insurance companies who have to be extra courteous and friendly to their clients since the latter have the option of leaving them and go to the other competitors and players in the sector, a monopolist can be callous to the complaints of bad service by their clients. They can even arrogantly brush aside such complaints and demand for better service. That is why monopoly is bad and we should break all monopolies or oligopolies in the entire economy, including social security monopoly.
The social security sector should be deregulated and demonopolized. SSS and GSIS should be privatized since their funds come from private savings and the State has lots of money already from various taxes, charges and fees, mandatory contributions, and sale of its other non-performing assets. If privatization of these two financial institutions is not possible in the short-run, so that they remain as government-controlled corporations, the sector should be deregulated nonetheless.
Deregulation and demonopolization will allow the entry of new players and competitors, and membership to the SSS and GSIS should not be made mandatory. When these two institutions wake up to the reality that the public has other options, then their inefficiencies and wasteful habits, if not arrogance, will be tempered. Of course anyone can retain his/her arrogance, fine. So long as the public can retain their power to choose, then the arrogant and wasteful will slowly find themselves out of jobs, out of relevance in society.
And leadership and Presidency of both SSS and GSIS will become a secondary issue to the public. The President of the Republic can appoint an angel or hoodlum, it’s up to him or her. What is important is that the public have a choice whether to entrust their savings for their future personal and household security or not to political appointees.
Person A with three or more children will prioritize education and health care for the kids; Person B with the same number of children who plans on home-schooling will prioritize a beautiful house and cars; Person C who is single with old and sick parents will prioritize healthcare for the older folks; Person D who is single with deceased parents will prioritize big pension for his/her foreign travels or lavish lifestyle someday; Person E who is either single or has family but plans to migrate abroad someday will prioritize portability of his savings and the services that he can enjoy with it; Person F who jumps from one job to another wants unemployment allowance and healthcare; and so on.
With increasing globalization and greater mobility of people across national borders and across continents, portability of savings and contribution is becoming more and more important. A person who suddenly feels the need to migrate elsewhere for whatever reason should have the flexibility to bring with him/her the value of his/her accumulated savings and contribution for both personal and household security. When such accumulated savings cannot be portable, then the providers of such security have the parochial assumption that people will not be mobile across countries, and the evil intention of utilizing such savings for their personal interests when the social security contributors have finally migrated and not come back or come back but too impatient to claim the would-be services because of complicated procedures and bureaucracies.
Here in the Philippines, social security is a business monopoly of the State: the Social Security System (SSS) for private sector personnel, and the Government Service Insurance System (GSIS) for the government personnel. Both financial institutions are State-owned and managed, even if all contributions are from private savings of the employed people.
A person employed in the formal sector, whether in private enterprises or government agencies, would see his/her monthly pay significantly shrank due to four different types of automatic deductions: personal income tax, housing tax (PAG-IBIG contribution), health tax (PhilHealth contribution) and social security tax (SSS or GSIS contribution). The government does not call the last three as "tax" but rather as "contributions". Contributions by nature, should be voluntary. Since these are non-voluntary payment and are mandatory collections because all employed person are coerced by various laws to become members of those government financial institutions, they are essentially a form of tax.
Those employed in the informal or “underground” sector are somehow lucky because their monthly income is not subject to those four automatic deductions and hence, they will have their income intact; they will just have to device some scheme to put up their own savings for the rainy days someday. The problem with this is that there will be little or no incentives for them to become bigger entrepreneurs someday because business growth will expose their heads and will attract the eyes and attention, and consequent regulations and bureaucracies, of the various government agencies that make those mandatory membership and collection.
Since private savings and contributions have been made socialized and collectivized, managed and controlled by the administrators of the collective, the State, then there is danger that said savings will be subject to socialized robbery. There is the built-in malady for instance, in the design of private social security: both the fund administrators (the SSS President and other officials) and the person who appointed the chief fund administrator (the President of the Republic) are not even SSS members (they are GSIS members), and yet they have almost full control of where the bulk of the accumulated private savings will go.
Thus, putting private citizens' pension and social security money into direct control by the State is not only risky. It is wrong. The SSS being funded by private sector employees and entrepreneurs should not be a State corporation. The State has already collected a big share of the employed people’s pay check, the personal income tax. So when the State further dips its hands in after-tax savings and contributions, there is a big likelihood that some evil intentions are being designed. Because by virtue of a financial institution being State-controlled, the appointment of such institution’s officials is subject to politics. The decision of where the savings will be invested, who can borrow big amount and who cannot borrow, will be subject to politics. Thus, all heads of SSS are thankful of, and accountable to, the one who put them there -- the President of the Republic, not to the members employed in private enterprises who were coerced by social security laws to contribute to the funds.
In a sense, this somehow explains why all past SSS administrators were not raising the issue of politicized appointments in that state corporation because they themselves were beneficiaries of such politicization of private funds’ pool.
Recently, there was wide public confusion, if not non-acceptance, of the appointment of the new SSS administrator. The incoming administrator who was then occupying another government agency has approved a supposedly government broadband network deal that involved US$300+ million, despite his earlier public admission that there was an attempt at large-scale robbery and corruption in the said project. When the controversy became too hot to handle, the project was shelved by the President. When the Senate conducted an investigation, the incoming administrator shut up and could not be compelled by the Senate to further talk when most of earlier evidences gathered by the Senate pointed to the President as the master-mind of the attempt at large-scale robbery.
What is noteworthy at this turn of events is that public discussion and debate on social security has been focused on a few personalities, namely the incoming SSS administrator and the President of the Republic. Although the issue raised – morality and integrity of the administrators of private savings – is indeed valid, the other issue, a bigger one for me, of State monopoly control of private savings and contributions, was relegated as a secondary issue or non-issue at all.
I personally know the incoming fund administrator because I was one of his staff for several years when I was still working at the House of Representatives in the 90s. And I can say that the said official is not exactly a man of high integrity. But as I have pointed out above, the appointment of whoever as fund administrator is a smaller issue compared to the fact that an institution that was built up by private savings is fully State-managed and controlled. An angel President will likely appoint an angel fund administrator and other government officials. A President who is a thief will likely appoint a thief and politics-loving fund administrator and other government officials.
One indicator or characteristic of a monopolist is lack of transparency. An enterprise that wants to get as many clients and customers as possible will strive to be as transparent as possible because people want to be assured that they get value for their money, that their savings are invested in productive projects that will give them good returns someday.
In the case of the SSS, its website alone is among the most unreliable sites in the world. For a fund with more than 27 million individual members and PhP234 billion (US$5.2 billion at P45/$) of investments, inquiries by phone or personal visits by its millions of members is costly and very inefficient. The maintenance of a reliable website therefore, is a must. But if you visit www.sss.gov.ph, either it is down or it shows only the homepage; and if you click any of its sections, it takes several minutes of “loading”, you wait for several minutes more and… voila! “Page Load Error” will show up. As of this writing, the website is down.
Many ordinary members just want an SSS ID because this is being asked or demanded by other agencies. But getting an ID alone is very time consuming. In my experience, getting an appointment for ID pictorial alone takes several days. Waiting period for the pictorial (digital camera) and e-signature was about two hours, from the time I submitted the ID application form to the time I finished everything. And waiting period for the ID to be delivered to my place was supposed to be two months, they said. But my ID came after four months!
Other SSS members though were more unlucky. Some waited six or eight months before their IDs were delivered to them. Others are worse off: they have waited 10 or 11 months and still they have not yet received their ID! See those sentiments and experiences on getting an SSS ID and the unreliability of the monopolist’s website here,
http://kulaypinay.com/2007/04/23/sss-id-application-walkthrough/.
A monopoly is often characterized by wastes and inefficiencies. This is because the administrators of a monopoly know that they have no competitors, so that their clients and the public have no other option but to patronize them. Unlike private enterprises like insurance companies who have to be extra courteous and friendly to their clients since the latter have the option of leaving them and go to the other competitors and players in the sector, a monopolist can be callous to the complaints of bad service by their clients. They can even arrogantly brush aside such complaints and demand for better service. That is why monopoly is bad and we should break all monopolies or oligopolies in the entire economy, including social security monopoly.
The social security sector should be deregulated and demonopolized. SSS and GSIS should be privatized since their funds come from private savings and the State has lots of money already from various taxes, charges and fees, mandatory contributions, and sale of its other non-performing assets. If privatization of these two financial institutions is not possible in the short-run, so that they remain as government-controlled corporations, the sector should be deregulated nonetheless.
Deregulation and demonopolization will allow the entry of new players and competitors, and membership to the SSS and GSIS should not be made mandatory. When these two institutions wake up to the reality that the public has other options, then their inefficiencies and wasteful habits, if not arrogance, will be tempered. Of course anyone can retain his/her arrogance, fine. So long as the public can retain their power to choose, then the arrogant and wasteful will slowly find themselves out of jobs, out of relevance in society.
And leadership and Presidency of both SSS and GSIS will become a secondary issue to the public. The President of the Republic can appoint an angel or hoodlum, it’s up to him or her. What is important is that the public have a choice whether to entrust their savings for their future personal and household security or not to political appointees.
Tuesday, July 22, 2008
Anti-trust law is anti-competition
There are a number of legislations in some countries that introduce "anti-trust" regulations. A law has been passed in China and it will be implemented next month. An anti-trust legislation is also being worked in HK, in the Philippines, elsewhere.
The trouble with anti-trust laws and regulations is that they empower the anti-trust bureaucrats with the power to investigate any big firm. Small and medium-sized firms that are very efficient and innovative will ultimately become big. Sometimes even medium-sized firms can be investigated if the owners/managers of such firms are non-friendly to the administration in power.
When a firm lowers its prices relative to its competitors, the anti-trust agency can investigate on grounds of "predatory pricing.
When a firm increases its prices relative to its competitors, it can be investigated and charged with "price gouging".
When all the big firms have the same price, they can be investigated on charges of "price collusion".
Whichever you go, there will always be a ground for investigation -- and harassment and possibly extortion -- by the anti-trust regulators and bureaucrats. And this partly explains why many politicians, even some activist groups and academics, would want to become bureaucrats themselves and become anti-trust regulators.
If people want real competition and protection from monopolistic/oligopolistic system, government regulations like putting up anti-trust bodies are not the answer. Better to drastically cut multiple and bureaucratic business permit procedures, taxes and fees, to only 1 or 2, abolish the rest. Approximate a "contestable market" situation where firm entry and exit (opening up or closing a business) is almost zero, except on sectors and industries with huge "sunk costs".
A friend asked, as corporations grow larger and larger, "who will make them accountable?"
Mega-corporations emerge out of previously small corporations, the same way that some mega-corporations of yesteryears may not even be in the top 500 corporations in the world today. Here in the Philippines, today's mega-corporations SM and Robinsons/JG Summit were non-existent when Henry Sy and John Gokongwei were still teenagers about 6 or 7 decades ago. The same way that big corporations like Pantranco in luzon and Netran (bus companies) in Negros are now dead.
As corporations grow larger and larger, who will make them accountable? Us consumers. If Henry Sy screws up, we can stop going to any SM malls and go instead to Robinsons or Ayala malls or waltermart, wherever. If we think they all suck, we can stop going to any mall and we'll stay alive and kicking, we keep our money, no one will steal it from us.
When corporations become bigger and bigger, fine. They create more jobs, they create more shops, they build more buildings and malls, and they create more jobs in the construction industry. We pay not a single peso for their building or mall madness.
Compare that when government becomes bigger and bigger -- say 15 new departments to be created (dept of fishery, dept of ITC, dept of shipping, dept of climate change, dept. of Asean matters, etc.). And 50 new congressional districts to be created, 50 new partylist groups to be added, 20 new provinces to be created, etc. We'll be dead sure that instead of aspiring for a 10 percent flat income tax, the current 32 percent will be hiked to possibly 42 percent, or 52 percent?
Another way of looking at this would be, is the world better off if Microsoft, Warren Buffet's Berkshire, Intel, Toyota, GM, Shell, Chevron, and other mega-corporations don't exist? My vote is no.
The trouble with anti-trust laws and regulations is that they empower the anti-trust bureaucrats with the power to investigate any big firm. Small and medium-sized firms that are very efficient and innovative will ultimately become big. Sometimes even medium-sized firms can be investigated if the owners/managers of such firms are non-friendly to the administration in power.
When a firm lowers its prices relative to its competitors, the anti-trust agency can investigate on grounds of "predatory pricing.
When a firm increases its prices relative to its competitors, it can be investigated and charged with "price gouging".
When all the big firms have the same price, they can be investigated on charges of "price collusion".
Whichever you go, there will always be a ground for investigation -- and harassment and possibly extortion -- by the anti-trust regulators and bureaucrats. And this partly explains why many politicians, even some activist groups and academics, would want to become bureaucrats themselves and become anti-trust regulators.
If people want real competition and protection from monopolistic/oligopolistic system, government regulations like putting up anti-trust bodies are not the answer. Better to drastically cut multiple and bureaucratic business permit procedures, taxes and fees, to only 1 or 2, abolish the rest. Approximate a "contestable market" situation where firm entry and exit (opening up or closing a business) is almost zero, except on sectors and industries with huge "sunk costs".
A friend asked, as corporations grow larger and larger, "who will make them accountable?"
Mega-corporations emerge out of previously small corporations, the same way that some mega-corporations of yesteryears may not even be in the top 500 corporations in the world today. Here in the Philippines, today's mega-corporations SM and Robinsons/JG Summit were non-existent when Henry Sy and John Gokongwei were still teenagers about 6 or 7 decades ago. The same way that big corporations like Pantranco in luzon and Netran (bus companies) in Negros are now dead.
As corporations grow larger and larger, who will make them accountable? Us consumers. If Henry Sy screws up, we can stop going to any SM malls and go instead to Robinsons or Ayala malls or waltermart, wherever. If we think they all suck, we can stop going to any mall and we'll stay alive and kicking, we keep our money, no one will steal it from us.
When corporations become bigger and bigger, fine. They create more jobs, they create more shops, they build more buildings and malls, and they create more jobs in the construction industry. We pay not a single peso for their building or mall madness.
Compare that when government becomes bigger and bigger -- say 15 new departments to be created (dept of fishery, dept of ITC, dept of shipping, dept of climate change, dept. of Asean matters, etc.). And 50 new congressional districts to be created, 50 new partylist groups to be added, 20 new provinces to be created, etc. We'll be dead sure that instead of aspiring for a 10 percent flat income tax, the current 32 percent will be hiked to possibly 42 percent, or 52 percent?
Another way of looking at this would be, is the world better off if Microsoft, Warren Buffet's Berkshire, Intel, Toyota, GM, Shell, Chevron, and other mega-corporations don't exist? My vote is no.
Tuesday, July 15, 2008
Free Trade 10: More on Unilateral Trade Liberalization
Representatives of member-states of the World Trade Organization (WTO) will hold another "crucial talks" in Geneva starting July 21 this year. The negotiations will focus on agricultural issues (tariffs, domestic support, and other subsidies) and non-agriculture market access (NAMA). These are among the "unfinished agenda" from the Doha Development Round in 2001, and they contain among the most contentious issues.
Some facts here on the two basic documents: the "Revised Draft Modalities for Agriculture" (July 10 draft) is 116 pages long, single spaced, including tables. The "Draft Modalities for Non-Agricultural Market Access" (July 10 draft) is 112 pages, single spaced, including tables. Both documents are not so easy to understand for someone busy producing or trading various goods and services, or for ordinary consumers who only want as many choices as possible. But those documents can be convenient and easy to understand for someone whose job is to put up various regulations and restrictions, then meet and talk how on to slightly reduce those restrictions and schedule endless rounds of global meetings and negotiations.
From time to time, we get to read news stories and opinion articles on how this and that country's trade representatives and negotiators are blaming someone else, or group or bloc of country representatives, why the trade talks collapse. The tone of the blame-game is something like this: "We can't bring down our tariffs and agricultural subsidies because the other parties and countries are not bringing down their tariffs and non-tariff barriers on other sectors." So the current trade protectionism is justified because the other parties are equally protectionist, if not retaining and instituting even more trade restrictions.
One wonders how much money have been paid by taxpayers from the countries concerned, first to pay for the salaries, travels, and perks of their country trade negotiators, including their pool of consultants and secretariat support, in all those years. And second, how much taxes they have been paying for continued subsidies to their local producers so that the latter can sell them products and services at a cheaper price when similar products and services can be sourced and imported elsewhere at a low price and they don't have to pay a single cent of tax money for these.
Consider Hongkong. The people in this economy are busy producing various goods and services, and facilitating international trade. Why? Because it has a unilateral trade liberalization policy. They don't pay for a huge army of trade negotiators and consultants; they don't blame other parties and countries why they continue to be rigid and restrictive in allowing the exports of other countries when their own citizens demand for it. Hongkong did not ask, and is not asking, that other countries should reduce their tariffs and other non-tariff barriers first, before they will go to the negotiating table. Almost any country that has good quality products and have buyers there can bring in their commodities and pay zero tariff.
In this situation, millions of people from many parts of the world are swooping into this small but very dynamic economy to tour, dine, meet, shop, and do more shopping. Why? Because those people know that Hongkong offers plenty of choices for them, from the most expensive global brands to the cheapest products sold in huge volume. Choices that are not easily available in their country because their governments, trade negotiators, and many local producers are busy persuading other countries that they start liberalizing first before they do, busy blaming other governments if they fail to do so, or busy concocting various reasons and alibi why they should retain their trade restrictions even after other countries have started liberalizing their importation policies.
In a situation like this, the Hongkong government and economy is creating lots of jobs for its people and emigrants, and when people have jobs, they don't demand various state welfare and subsidies because they can provide for themselves and their families. And if there is less demand and clamor for various state subsidies, there is less demand and rationale for high and multiple taxes and fees. This mainly explains why Hongkong remains the freest or among the freest economies in the world.
Singapore is another country that has unilateral trade liberalization policy. And very often it is neck-and-neck with Hongkong in the annual ranking of the world's freest economy studies by various big international think tanks. It is also attracting millions of foreign visitors. Every year, the number of tourists is about twice or thrice the size of its nationals.
Dubai too, and Georgia. The latter, a small European economy, has enacted a zero-import tariff policy just a few years ago, and it is among the fastest growing economies in the European continent. Brunei, Estonia, and Chile are close to being unilateral free traders too.
Trade negotiations are being done by thousands of country trade representatives and bureaucrats, along with WTO officials and staff. Unfortunately, neither countries nor governments trade with each other. People do. And when people trade with each other, from other countries or continents, they do not set conditions. A Korean telecommunications engineer does not demand that a French fashion designer should first buy his Korean company's services or cellular phone products, before he buys the Frenchman's line of clothing. No such thing. People buy a product or service because he thinks he gets value for his money. And this forces many producers and suppliers from many parts of the world to produce good quality commodities at competitive prices, if they want to attract as many buyers and clients as possible. And people engaged in this kind of trade are better off.
For the Philippines and other developing countries, a unilateral free trade policy will serve their economies better. Among the immediate positive results are the following:
First, their people will have lots of choices for their consumer goods and production inputs, whether they are manufacturers that need good quality raw materials, or farmers that need good quality but cheap hand tractors.
Second, the economy will boost its tourism potentials as many people from other countries having high commodity prices due to high taxes and trade protectionism will come in not only to enjoy the tropical climate and white sand beaches, but also to shop, shop, and shop.
Third, the economy will generate plenty of new jobs, from manufacturers who can produce more efficiently and cheaply with more options for their production technologies and raw materials, to farmers who can produce more with cheaper farm machineries and modern post-harvest machines. This also includes tourism-related industries like airlines, hotels, malls, shops, restaurants, and beach and mountain resorts.
Fourth, the economy will worry less about so-called "external aggression". Take Hongkong again. Any potential aggressor country, assuming there is any, will think not only twice or thrice, but a hundred times, before it will ever attempt to invade and colonize that economy. This is true even if it has a very small air force, navy, and army, or even if we assume that China will not give it protective cover. Why? Because among the biggest American and Canadian companies, among the biggest British, French, German, Italian, other European companies, among the biggest Japanese, Korean and Australian companies, have branches, offices, and shops in Hongkong. So any potential aggressor country will face the most ruthless fighter planes, the most modern battle ships, and the most battle-tested soldiers of these big and rich countries who will protect their respective business interests and nationals that are based in that territory. So it is safe to assume and assert that if you are a unilateral free trader and a unilateral low tax economy, you will attract some of the biggest companies in the world, and you will attract no external enemy.
This list of the benefits of unilateral free trade is not exhaustive and complete; it only outlines some of the most basic arguments. To summarize: If we want more economic growth, more job creation, let us minimize if not stop trade negotiations, go straight to a unilateral trade liberalization. If we want peace, let us have free trade and free market.
Consumer choice and free trade
High unemployment and underemployment rates are among the scourge of modern economies today, both in rich and poor countries. People would want to be productive, to be economically useful to their family and community. It's just that there are a number of man-made restrictions that prevent them from being hired by other people, or from employing themselves through entrepreneurship. In a number of countries though, there are plenty of subsidies and allowances given to jobless people, single parents, etc. So there are some "incentives" to become irresponsible because they are "entitled" to certain social and economic benefits anyway. But that is not the subject of this paper. It is those who were rendered economically unproductive due to man-made restrictions like high taxes, bureaucratic business regulations, and trade protectionism.
Trade protectionism comes in two forms: high tariffs and high non-tariff barriers (NTBs) like plentiful trade requirements and regulations. Any or both of these happening can cause damage to the economy, the entrepreneurs, their employees and the jobless people in particular.
Take the case of Hong Kong. There are no tariffs or import taxes, so imported goods – except those explicitly prohibited like hazardous wastes and ozone-depleting substances – come in duty free. Aside from zero tariff policy, international trade is facilitated and very much encouraged through the following additional policies: (a) no laws for valuing goods for customs purposes (since there are no tariffs). (b) no rules of origin or certificate of origin required, (c) no rules on anti-dumping and countervailing measures or any "safeguard" actions. These policies amount to zero NTBs. In addition, there are no State-owned trading enterprises that can cause unfair competition to private sector traders. For the exporters, there are no export-related duties and taxes, no "local content" requirements for exports, no subsidy to exporters.
What all these mean is that the government will hire very few customs personnel and inspectors, and importers too will not need to hire additional lawyers, accountants, other "negotiators" with government customs officials since there are very few requirements to comply with. Since there is very little demand for such kinds of jobs and services, young people will see it and they would rather become traders and entrepreneurs when they grow up.
When there is zero tariff, zero NTBs (zero tax for countervailing, anti-dumping or other safeguard measures, zero fees for other trade regulations like rules of origin certificates, and so on), landed price of imported goods is low and cheap. So when you add up those two important factors, (i) plenty of entrepreneurs + (ii) cheap imported commodities (whether for household consumption or production inputs and intermediate goods), the result is more economic growth, more job creation, possibly a full-employment economy.
Full employment does not mean zero unemployment rate. It could mean 2 or 3 percent unemployment rate because some people are "jobless" at the time of a labor force survey because they have a high "reservation wage". Meaning a job is awaiting for them anytime but they refuse to take it because they are waiting for another job offer with higher pay or better package (say car and housing, travels, commissions, etc.).
Resistance to free trade through very small or zero tariff and very small or zero NTBs, comes from three groups of people. These are the protected sectors and businessmen, the left-leaning NGOs and lobby groups, and the government bureaucracy and politicians. Let us tackle them one by one.
The protectionist businessmen and sectors can be understandable because they feel threatened that their products might be spurned by local consumers who might find imported substitutes not only cheaper but better in quality. But the same protectionist businessmen and sectors also want free trade in other products and commodities that they do not produce. A rice farmer is biased only against imported rice but he wants free trade and more choices when it comes to fertilizers and hand tractors, shoes and clothes for his children, tv and other appliances for his house, etc. When they realize that they actually benefit from free trade for their household needs and farm inputs, plus the possibility that they can export their surplus rice at a higher price when their productivity improves due to more modern farming tools and practices, their opposition to free trade can weaken.
The second group, the left-leaning NGOs, trade unions, media and other professionals are harder to please because of very often, plain envy and ideological hatred of free markets. They hate to see some people becoming very rich and prosperous because of the big economic opportunities opened up by free trade. They hate to see inequality and temporary economic dislocation as a result of resource reallocation in society. And some of them are on the payroll of big businesses who benefit from trade protectionism and absence of foreign competition. But being consumers, deep inside they want free trade, they want more choices, they want bargains, for their various personal and professional needs, from shoes and jeans to food and drinks, to cell phones, laptops and cars.
The last group, the government trade bureaucracy and politicians, are the hardest to please, the hardest to convince of the evils of trade protectionism. Mainly because they live off on taxes, and high tariff means high tax revenues. Or high tariff and NTBs mean difficulty for entrepreneurs and hence, higher incentives for the latter to pay them bribes or other favor in exchange for facilitating trade. When a country is protectionist, the trade bureaucrats and some politicians enjoy vast arbitrary powers: who can trade and who cannot trade; where they can export and import and where they cannot; by how much quantity they can trade; how much fees to pay and many papers and documents to submit; and ultimately, how quick or late they can allow trade. Arbitrary powers mean arbitrary mean and opportunity to amass wealth at the expense of consumers, especially the poor and the jobless.
Unlike businessmen, farmers, labor unions, media people and other professional groups, consumers are not organized. The power of the consumers is in their purchasing capacity, in the expression of their preferences and priorities as reflected in the goods and services they buy. Their power is therefore, not fully articulated in media and Congress, but in various market places like malls, shops and public markets. The absence or non-articulation of power by consumers is also reflected in the level of poverty and joblessness in society.
It is important therefore, to continue explaining the importance of free trade if society is to attain full employment and assert consumer choice and freedom. And it is equally important to explain and expose the reasons and vested interests of some groups of people who are opposing free trade.
Meanwhile, the WTO has just released its World Trade Report 2008: Trade in a Globalizing World. The main message of that report is simple: Trade and globalization have brought greater prosperity to hundreds of millions as well as greater stability among nations.
-------
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
Free Trade 5: Business , Rock Music and Cycling Globalization, July 17, 2007
Free Trade 6: Counterfeit Drugs Worldwide, December 21, 2007
Free Trade 7: Class War, Eco-protectionism and Climate, April 02, 2008
Free Trade 8: Global RIce Price, May 13, 2008
Free trade 9: Parallel Importation of Medicines, May 22, 2008
Some facts here on the two basic documents: the "Revised Draft Modalities for Agriculture" (July 10 draft) is 116 pages long, single spaced, including tables. The "Draft Modalities for Non-Agricultural Market Access" (July 10 draft) is 112 pages, single spaced, including tables. Both documents are not so easy to understand for someone busy producing or trading various goods and services, or for ordinary consumers who only want as many choices as possible. But those documents can be convenient and easy to understand for someone whose job is to put up various regulations and restrictions, then meet and talk how on to slightly reduce those restrictions and schedule endless rounds of global meetings and negotiations.
From time to time, we get to read news stories and opinion articles on how this and that country's trade representatives and negotiators are blaming someone else, or group or bloc of country representatives, why the trade talks collapse. The tone of the blame-game is something like this: "We can't bring down our tariffs and agricultural subsidies because the other parties and countries are not bringing down their tariffs and non-tariff barriers on other sectors." So the current trade protectionism is justified because the other parties are equally protectionist, if not retaining and instituting even more trade restrictions.
One wonders how much money have been paid by taxpayers from the countries concerned, first to pay for the salaries, travels, and perks of their country trade negotiators, including their pool of consultants and secretariat support, in all those years. And second, how much taxes they have been paying for continued subsidies to their local producers so that the latter can sell them products and services at a cheaper price when similar products and services can be sourced and imported elsewhere at a low price and they don't have to pay a single cent of tax money for these.
Consider Hongkong. The people in this economy are busy producing various goods and services, and facilitating international trade. Why? Because it has a unilateral trade liberalization policy. They don't pay for a huge army of trade negotiators and consultants; they don't blame other parties and countries why they continue to be rigid and restrictive in allowing the exports of other countries when their own citizens demand for it. Hongkong did not ask, and is not asking, that other countries should reduce their tariffs and other non-tariff barriers first, before they will go to the negotiating table. Almost any country that has good quality products and have buyers there can bring in their commodities and pay zero tariff.
In this situation, millions of people from many parts of the world are swooping into this small but very dynamic economy to tour, dine, meet, shop, and do more shopping. Why? Because those people know that Hongkong offers plenty of choices for them, from the most expensive global brands to the cheapest products sold in huge volume. Choices that are not easily available in their country because their governments, trade negotiators, and many local producers are busy persuading other countries that they start liberalizing first before they do, busy blaming other governments if they fail to do so, or busy concocting various reasons and alibi why they should retain their trade restrictions even after other countries have started liberalizing their importation policies.
In a situation like this, the Hongkong government and economy is creating lots of jobs for its people and emigrants, and when people have jobs, they don't demand various state welfare and subsidies because they can provide for themselves and their families. And if there is less demand and clamor for various state subsidies, there is less demand and rationale for high and multiple taxes and fees. This mainly explains why Hongkong remains the freest or among the freest economies in the world.
Singapore is another country that has unilateral trade liberalization policy. And very often it is neck-and-neck with Hongkong in the annual ranking of the world's freest economy studies by various big international think tanks. It is also attracting millions of foreign visitors. Every year, the number of tourists is about twice or thrice the size of its nationals.
Dubai too, and Georgia. The latter, a small European economy, has enacted a zero-import tariff policy just a few years ago, and it is among the fastest growing economies in the European continent. Brunei, Estonia, and Chile are close to being unilateral free traders too.
Trade negotiations are being done by thousands of country trade representatives and bureaucrats, along with WTO officials and staff. Unfortunately, neither countries nor governments trade with each other. People do. And when people trade with each other, from other countries or continents, they do not set conditions. A Korean telecommunications engineer does not demand that a French fashion designer should first buy his Korean company's services or cellular phone products, before he buys the Frenchman's line of clothing. No such thing. People buy a product or service because he thinks he gets value for his money. And this forces many producers and suppliers from many parts of the world to produce good quality commodities at competitive prices, if they want to attract as many buyers and clients as possible. And people engaged in this kind of trade are better off.
For the Philippines and other developing countries, a unilateral free trade policy will serve their economies better. Among the immediate positive results are the following:
First, their people will have lots of choices for their consumer goods and production inputs, whether they are manufacturers that need good quality raw materials, or farmers that need good quality but cheap hand tractors.
Second, the economy will boost its tourism potentials as many people from other countries having high commodity prices due to high taxes and trade protectionism will come in not only to enjoy the tropical climate and white sand beaches, but also to shop, shop, and shop.
Third, the economy will generate plenty of new jobs, from manufacturers who can produce more efficiently and cheaply with more options for their production technologies and raw materials, to farmers who can produce more with cheaper farm machineries and modern post-harvest machines. This also includes tourism-related industries like airlines, hotels, malls, shops, restaurants, and beach and mountain resorts.
Fourth, the economy will worry less about so-called "external aggression". Take Hongkong again. Any potential aggressor country, assuming there is any, will think not only twice or thrice, but a hundred times, before it will ever attempt to invade and colonize that economy. This is true even if it has a very small air force, navy, and army, or even if we assume that China will not give it protective cover. Why? Because among the biggest American and Canadian companies, among the biggest British, French, German, Italian, other European companies, among the biggest Japanese, Korean and Australian companies, have branches, offices, and shops in Hongkong. So any potential aggressor country will face the most ruthless fighter planes, the most modern battle ships, and the most battle-tested soldiers of these big and rich countries who will protect their respective business interests and nationals that are based in that territory. So it is safe to assume and assert that if you are a unilateral free trader and a unilateral low tax economy, you will attract some of the biggest companies in the world, and you will attract no external enemy.
This list of the benefits of unilateral free trade is not exhaustive and complete; it only outlines some of the most basic arguments. To summarize: If we want more economic growth, more job creation, let us minimize if not stop trade negotiations, go straight to a unilateral trade liberalization. If we want peace, let us have free trade and free market.
Consumer choice and free trade
High unemployment and underemployment rates are among the scourge of modern economies today, both in rich and poor countries. People would want to be productive, to be economically useful to their family and community. It's just that there are a number of man-made restrictions that prevent them from being hired by other people, or from employing themselves through entrepreneurship. In a number of countries though, there are plenty of subsidies and allowances given to jobless people, single parents, etc. So there are some "incentives" to become irresponsible because they are "entitled" to certain social and economic benefits anyway. But that is not the subject of this paper. It is those who were rendered economically unproductive due to man-made restrictions like high taxes, bureaucratic business regulations, and trade protectionism.
Trade protectionism comes in two forms: high tariffs and high non-tariff barriers (NTBs) like plentiful trade requirements and regulations. Any or both of these happening can cause damage to the economy, the entrepreneurs, their employees and the jobless people in particular.
Take the case of Hong Kong. There are no tariffs or import taxes, so imported goods – except those explicitly prohibited like hazardous wastes and ozone-depleting substances – come in duty free. Aside from zero tariff policy, international trade is facilitated and very much encouraged through the following additional policies: (a) no laws for valuing goods for customs purposes (since there are no tariffs). (b) no rules of origin or certificate of origin required, (c) no rules on anti-dumping and countervailing measures or any "safeguard" actions. These policies amount to zero NTBs. In addition, there are no State-owned trading enterprises that can cause unfair competition to private sector traders. For the exporters, there are no export-related duties and taxes, no "local content" requirements for exports, no subsidy to exporters.
What all these mean is that the government will hire very few customs personnel and inspectors, and importers too will not need to hire additional lawyers, accountants, other "negotiators" with government customs officials since there are very few requirements to comply with. Since there is very little demand for such kinds of jobs and services, young people will see it and they would rather become traders and entrepreneurs when they grow up.
When there is zero tariff, zero NTBs (zero tax for countervailing, anti-dumping or other safeguard measures, zero fees for other trade regulations like rules of origin certificates, and so on), landed price of imported goods is low and cheap. So when you add up those two important factors, (i) plenty of entrepreneurs + (ii) cheap imported commodities (whether for household consumption or production inputs and intermediate goods), the result is more economic growth, more job creation, possibly a full-employment economy.
Full employment does not mean zero unemployment rate. It could mean 2 or 3 percent unemployment rate because some people are "jobless" at the time of a labor force survey because they have a high "reservation wage". Meaning a job is awaiting for them anytime but they refuse to take it because they are waiting for another job offer with higher pay or better package (say car and housing, travels, commissions, etc.).
Resistance to free trade through very small or zero tariff and very small or zero NTBs, comes from three groups of people. These are the protected sectors and businessmen, the left-leaning NGOs and lobby groups, and the government bureaucracy and politicians. Let us tackle them one by one.
The protectionist businessmen and sectors can be understandable because they feel threatened that their products might be spurned by local consumers who might find imported substitutes not only cheaper but better in quality. But the same protectionist businessmen and sectors also want free trade in other products and commodities that they do not produce. A rice farmer is biased only against imported rice but he wants free trade and more choices when it comes to fertilizers and hand tractors, shoes and clothes for his children, tv and other appliances for his house, etc. When they realize that they actually benefit from free trade for their household needs and farm inputs, plus the possibility that they can export their surplus rice at a higher price when their productivity improves due to more modern farming tools and practices, their opposition to free trade can weaken.
The second group, the left-leaning NGOs, trade unions, media and other professionals are harder to please because of very often, plain envy and ideological hatred of free markets. They hate to see some people becoming very rich and prosperous because of the big economic opportunities opened up by free trade. They hate to see inequality and temporary economic dislocation as a result of resource reallocation in society. And some of them are on the payroll of big businesses who benefit from trade protectionism and absence of foreign competition. But being consumers, deep inside they want free trade, they want more choices, they want bargains, for their various personal and professional needs, from shoes and jeans to food and drinks, to cell phones, laptops and cars.
The last group, the government trade bureaucracy and politicians, are the hardest to please, the hardest to convince of the evils of trade protectionism. Mainly because they live off on taxes, and high tariff means high tax revenues. Or high tariff and NTBs mean difficulty for entrepreneurs and hence, higher incentives for the latter to pay them bribes or other favor in exchange for facilitating trade. When a country is protectionist, the trade bureaucrats and some politicians enjoy vast arbitrary powers: who can trade and who cannot trade; where they can export and import and where they cannot; by how much quantity they can trade; how much fees to pay and many papers and documents to submit; and ultimately, how quick or late they can allow trade. Arbitrary powers mean arbitrary mean and opportunity to amass wealth at the expense of consumers, especially the poor and the jobless.
Unlike businessmen, farmers, labor unions, media people and other professional groups, consumers are not organized. The power of the consumers is in their purchasing capacity, in the expression of their preferences and priorities as reflected in the goods and services they buy. Their power is therefore, not fully articulated in media and Congress, but in various market places like malls, shops and public markets. The absence or non-articulation of power by consumers is also reflected in the level of poverty and joblessness in society.
It is important therefore, to continue explaining the importance of free trade if society is to attain full employment and assert consumer choice and freedom. And it is equally important to explain and expose the reasons and vested interests of some groups of people who are opposing free trade.
Meanwhile, the WTO has just released its World Trade Report 2008: Trade in a Globalizing World. The main message of that report is simple: Trade and globalization have brought greater prosperity to hundreds of millions as well as greater stability among nations.
-------
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
Free Trade 5: Business , Rock Music and Cycling Globalization, July 17, 2007
Free Trade 6: Counterfeit Drugs Worldwide, December 21, 2007
Free Trade 7: Class War, Eco-protectionism and Climate, April 02, 2008
Free Trade 8: Global RIce Price, May 13, 2008
Free trade 9: Parallel Importation of Medicines, May 22, 2008
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