Recently I got a private mail from a good friend in one of the discussion yahoogroups that I moderate, Pilipinas Forum (PF). My friend wrote,
“PF has degenerated into a one-track advocacy platform rather than a free market of ideas. Anything that gets posted gets a single kind of response:
the culprit: BIG GOVERNMENT AND TAXES
the solution: MINIMAL GOVERNMENT”
I thanked my friend for voicing out that sentiment. It’s a healthy and friendly observation and I need to be aware of such observation or sentiment. So perhaps I need to clarify a few things.
First, PF is not an organization with a definite and specific advocacy or program of action. PF is just a forum, like millions of other online fora out there, from blogs to wordpress to other ygroups. So there is still diversity in opinions. Contrast that with a ygroups I created for Minimal Government (MG) supporters, that ygroups can be considered relatively “one-track advocacy” forum because of the specifically-defined advocacy.
Second, the core of my political and economic advocacies is not MG per se, but Personal Responsibility. If you visit the online magazine www.thelobbyist.biz, the title of my weekly column there is “Back to Personal Responsibility”. And if you visit MG’s website, www.minimalgovernment.net, it says there, “In a sense, MG is a philosophical movement attempting to change the dominant thinking in our people that many things in our lives – education, health care, housing, pension,… – should be government responsibility, not personal or parental or firm responsibility.”
So my philosophy can be summarized as follows:
the culprit: Big Government Responsibility and taxation
the solution: More Personal Responsibility
I find it really disgusting that so many bright people in this planet have bright ideas on how to make the world a better place, by forcing you and me, our family, friends, neighbors, everyone, to finance their bright ideas. And they make thousands of press releases, hold press conferences left and right, to announce their bright ideas!
Why can’t they say, “Hey, I got a bright idea how to reduce housing backlog and the squatters problem, but I won’t force you to finance my idea and projects even if you don’t believe in it. Only people who believe in my idea will!”
But they say, “There is lack of food, there is high malnutrition among certain groups of people, so we propose even bigger budget from big taxes and fees, for the Department of Agriculture, NFA, Quedancor, UNFAO, UN WFP, WB, ADB, etc; more food self-sufficiency and less food imports or exports, less international trade in food, etc.”
We can pick up any subject under the sun; what differentiate our perspectives in analyzing certain problems and the corresponding solutions to them will depend on how much faith, or lack of faith, we put in personal responsibility. The lesser that faith is, the more we will believe in more government, more forced collectivism.
That is why in analyzing the on-going global financial turmoil, my approach is more philosophical than financial. If you are an individual with small or no stable income, don’t buy an expensive house. If you are a bank, don’t lend someone big amount of house mortgage if you perfectly know that his/her capacity to pay in the future is suspect. If you are a government, don’t force banks or other private enterprises from lending to people whose capacity to pay such loans is suspect if not impossible. The “common denominator” remains the same: personal responsibility. Disregard it and we’ll have a society of irresponsible, authoritarian and corrupt people ruling our lives.
Thursday, October 23, 2008
Tuesday, October 21, 2008
Agri Econ 4: Government Agricultural Interventions
Everybody in this planet is a food consumer. Hence, there is a big demand for food; the bigger the population, the bigger the demand. There will also be big incentives for farmers and other food producers to grow more food, both for their own household consumption and to produce a surplus for various consumers and make a profit.
If food producers and consumers are left on their own, they should be able to adjust among themselves. If food prices are high because there are too many consumers and few farmers, and there are minimal or no barriers to farming, some of the consumers will be encouraged to become food producers too, or at least become food traders -- and pretty soon, food prices can go down as food supply expands. If food prices go down so low to unprofitable levels, some farmers will shift to high-value food products where profitability remains high, while other farmers will stop producing and find other work. The resulting food supply reduction will result in upward adjustment in food prices, and the dynamics between food production and food consumption continue.
Some bright men and women, however, think that farmers and consumers are too poor or too stupid to be left on their own -- that government, both national and local, plus multilateral institutions and NGOs, should guide how farmers and consumers should behave. This interventionist thinking has become widespread that agriculture bureaucracies and interventions in many countries have become huge. Naturally, the taxes and fees needed to sustain them, plus their endless conferences and activities will be big too. High taxes plus huge army of agriculture regulators, bureaucrats and statist activists would mean higher food prices too.
Last October 16, World Food Day was celebrated. National bureaucracies like the Department of Agriculture, multilateral institutions like the UN Food and Agriculture Organization (UN FAO), and big international NGOs like Oxfam, seized the occasion to preach for ever-bigger government intervention and politicization of agriculture. Among the advocacies they promoted were the following.
More tax money, xx billion pesos more on top of existing budgets and subsidies, for Philippine agriculture for the country to avoid the recent “rice crisis” and huge food price hikes. Two, do not rely on private entrepreneurship in agriculture because the market will prod farmers to produce more pineapples and bananas for exports, even biofuels and other cash crops, instead of more rice and corn. Three, agriculture trade liberalization is wrong and must be slapped with high tariffs and non-tariff barriers; instead, food “self-sufficiency” should be pursued.
These are myths that need to be corrected. Here are some reasons why they can be considered myths.
One, every year, there is no dearth of reports and stories of wastes and inefficiencies, if not corruption and robbery, in Philippine agriculture. Among the publicized ones involved the fertilizer scam, the government’s Quedan and Rural Credit Corporation (Quedancor) involving the swine scam, and politicians’ unaccounted political accounts in the same government corporation.
Subsidizing farmers look humane, rationale and advancing social equity. However, the practice may encourage some of them to continue farming not because they like doing it and they are earning from it, but because they are getting certain subsidies which makes farming “profitable”. Such redistribution of money from consumers and taxpayers to farmers is not simple, the procedures can be bureaucratic, which will require lots of paper work. Thus, farmers who want to get the various subsidies have to devote time and resources away from farming and into submitting documents and papers in their respective governments’ agriculture ministries and agencies.
In a rice farming village in Pangasinan province, north of Manila that this writer regularly visits, the following were gathered:
* The municipal government last year or two years ago, distributed hand tractors that can also work as water pumps, plus PVC hose for irrigation, to selected farmers who are members of a local cooperative.
* Farmer beneficiaries are supposed to pay nearly PhP 7,000 (around US$148 at P47/$) per year for 10 years.
* After a year, only about 15% of the farmer-borrowers have paid.
* No sanctions were imposed on the non-paying farmers, such as taking back the tractors and giving these to other farmers who did not qualify in the earlier selection process.
The “standard” belief and practice among farmers in many municipalities and provinces in the country is that they pay only on the first three years of the 10-year payment period. No one went to prison or had his tractor or any form of support taken back by the government for negligence in payment. The dominant thinking is that if it is a government program, farmers believe it is a dole-out and they are not supposed to strictly follow the terms in the contract, like regularly paying the loan or tractor or seeds/fertilizers extended to them.
Two, it escapes the mind of many anti-market activists that farmers themselves, big or small, are private entrepreneurs driven by the dual desire to produce food for their household consumption, and to produce a surplus for profit. The Philippine population is increasing by 1.8 million people every year, net of death and migration. The rice land area has remained static at 4 to 4.2 million hectares in the last two or three decades. There is not much land to devote for rice as there is large land conversions going on -- initially from forest to non-forest use like rice and corn land, then from agriculture to residential or commercial/industrial land. And many parts of the country are mountainous that only a few ingenuous Filipino farmers can secure regular irrigation sources from somewhere.
And yet for such steady increase in the number of rice consumers while rice land has remained static, there is only one important conclusion: rice productivity is increasing over time. If this is not true, food riots and mass starvation would have happened many years ago, but it never did. Credit goes to private entrepreneurs in agriculture – farmers and traders, millers and processors, etc. – not so much the NGO activists and often unproductive agriculture bureaucracies.
Three, food imports by the Philippines from its rice-exporting Asian neighbors have covered up for any food supply deficit due to various reasons (strong typhoons, drought, pest attack, earthquakes, and so on). Since the 90s until today, Philippine imports averaged 8% to 10% of annual consumption. Besides, the country’s rice-surplus neighbors really have the natural “comparative advantage” in growing rice than the Philippines. Take Thailand and Vietnam, the world’s top two rice exporting countries, for example.
First, these two countries have wide, contiguous rice land areas of between seven to 10 million hectares, compared to the Philippines’ four million hectares scattered in various provinces and islands around the archipelago. Second, these two countries have huge rivers as main irrigation source like Mekong River, courtesy of their being a contiguous land mass. Third, these two countries have no or very little typhoons, only about 10 per year perhaps, versus the Philippines’ 20 typhoons per year on average.
Interventions like the provision of farm equipment, seeds and fertilizers, credit and marketing network, entrepreneurial spirit, are not included yet. The natural geography of those two countries alone gives them enough comparative and competitive advantage to grow rice. The Philippines’ comparative advantage is more on tourism, not agriculture.
Thus, instead of continuing agricultural trade protectionism, the various tariff and non-tariff barriers in agricultural imports, especially rice, should be slowly removed. Poor households who cannot afford to buy some local grains, vegetables, animal and fishery products in large amount for their families’ daily consumption, should be given respite by giving them access to otherwise cheaper food imports from the country’s Asian neighbors.
The market, the interaction between producers and consumers, not between bureaucrats and statist activists, can provide reliable information and signals for both producers and consumers to adjust with each other. Hence, statist interventions for more tax money for more subsidies, more tax money for dishonest and corrupt politicians and bureaucrats, and more agricultural trade restrictions and protectionism, should be slowly reduced, ultimately abolished. There is nothing wrong with a social system that allows the lazy and irresponsible to go hungry and poor, while allowing the hardworking, the entrepreneurial and responsible people to flourish and become rich.
-------
Related papers I wrote recently:
(1) More Food Producers, Less Food Bureaucrats
September 08, 2008
Agriculture is often an emotional subject when it should not be. Mention farming and farmers and images of poverty and economic difficulty would more often than not, come up in the minds of the public. Hence, various forms of subsidies, crop insurance, trade protectionism and other “incentives” were cooked up and implemented by many governments and generally supported by the public.
That should not be the case because everybody in this planet is a food consumer. Hence, there is a big demand for food, and there is big incentive for farmers and other food producers to grow more food, both for their own household consumption and to produce a surplus for various consumers and make a profit.
If food producers and consumers are left on their own, they should be able to adjust among themselves. If food prices are high because there are too many consumers and there are few farmers, and there are little or no barriers to farming, some of the consumers will be encouraged to become food producers too, or at least become food traders, and pretty soon, food prices can go down as food supply expands. If food prices go down so low to unprofitable levels, some farmers will shift to high-value food products where profitability remains high, while other farmers will stop producing and find other work. The resulting food supply reduction will result in upward adjustment in food prices, and the dynamics between food production and food consumption continue.
Some bright men and women, however, think that farmers and many consumers are too poor or too stupid to be left on their own, that government, both national and local, should guide them how they should behave, so that everybody will have access to good food at a good price. This interventionist thinking has become widespread so that bureaucracies in agriculture ministries or departments and related or supporting agencies have become huge and wide in many countries. Naturally, the taxes and fees needed to sustain them all, including their conferences, meetings, travel and other activities will be big too.
Bureaucracies in agriculture-related foreign aid institutions also expand as these institutions become more efficient in convincing the taxpayers in richer countries that they should continue paying high taxes because part of it is being used to subsidize farmers in poorer countries. Of course they do not mention or tone down the fact that a big portion of the foreign aid money goes to the politicians, agriculture and infrastructure bureaucracies of recipient countries first, before reaching the poor farmers, if any is left.
So with more intervention and subsidies, agriculture departments or ministries and their attached agencies naturally have huge budgets, directly or indirectly. With lots of money to administer, tinker, if not play around, the agriculture bureaucracies would normally attract robbers and opportunists among men and women. Cases of inefficiencies and wastes of tax money are widely reported in many rich countries like the EU’s Common Agriculture Policy (CAP) and the US.
Here in the Philippines, there is no lack of large-scale robbery scandals. Among the most prominent were the fertilizer scam in 2005, then the swine scam this year involving the government’s Quedan and Rural Credit Corporation (Quedancor) and politicians’ unaccounted political accounts in the same government corporation.
Subsidizing farmers look humane, rationale and advancing social equity. However, the practice may encourage some of them to continue farming not because they like doing it and they are earning from it, but because they are getting endless subsidies which makes farming “profitable”. Such redistribution of money from consumers and taxpayers to farmers is not simple, the procedures can be bureaucratic that will require lots of paper work. Thus, farmers who want to get the various subsidies have to devote time and resources away from farming and into submitting documents and papers in their respective governments’ agriculture ministries and agencies.
In a rice farming village in Pangasinan province that I regularly visit, I learned of the following. The municipal government last year distributed hand tractors that can also work as water pumps, plus PVC hose for irrigation, to selected farmers who are members of a local cooperative. Farmer beneficiaries are supposed to pay nearly PhP 7,000 (around US$152 at P46/$) per year for 10 years. After a year, only about 15 percent of the farmer-borrowers have paid. There are no sanctions done to non-paying farmers like taking back the tractors and give to other farmers who did not qualify in the earlier selection process.
The “standard” belief and practice among farmers is that they pay only on the first 3 years of the 10-years payment period. No one went to prison or his tractor or any form of support taken back by the government for negligence in payment. And the thinking persists that if it is government program, it is a dole-out and people are not supposed to strictly follow the terms in the contract, like regularly paying the loan or tractor or seeds/fertilizers extended to them.
The issue of non-productive use of agricultural extension workers employed by the provincial and city/municipal governments is another case of wastes. The extension workers are supposed to be the “bridge” between new results in agricultural R&D and modern farming practices, and the farmers on the field, especially the subsistence farmers. But the right incentive for the extension workers to do their job well is not there. Whether they perform their work or not, they are already assured of their monthly salary and allowances. They are accountable to the Mayor, or other local politicians who recommended them and/or approved their employment in the local government. So when the provincial Governor or city/municipal Mayor assigns them in any work except agricultural extension work, they do it.
Efforts by multilateral bodies and bureaucracies to expand foreign aid in agriculture in poorer countries purportedly to stabilize food prices in the future are likely to create more wastes and inefficiencies than good results. The better options are: One, leave the farmers and consumers alone to adjust and adapt to changes in food supply and demand as reflected in food prices. Two, abolish, or at least consolidate, certain agricultural programs and agencies which have been clearly burdensome to taxpayers for a long time now with no clear and consistent positive results. And three, abolish or at least consolidate, certain regulations that make life more difficult, more complicated, for people engaged in food production and distribution. Let us have less agricultural and economic bureaucrats and more agri-businessmen and women.
(2) State Intervention in Agriculture Production and Distribution
July 07, 2008
A number of observers and policy makers blame "market manipulation" and "market failure" as reasons for the current food price spikes around the world. Hence, existing government regulations, taxation, and intervention should be retained, if not expanded, in agricultural production and distribution.
Below are a some of these interventions and regulations being practiced by governments in many countries around the world. I have identified no less than 10 various government interventions in the sector, but due to space constraints, will discuss only seven of them here. A longer paper covering and discussing all those interventions that I have identified will be posted in our website, http://www.minimalgovernment.net/.
After enumerating these interventions and their purported rationale, my comments and critic of these measures follow. The "farmers" being referred in the foregoing discussions refer to both small and big/commercial farmers.
One, subsidize farmers to produce more food for "self sufficiency" . The goal here is self-explanatory.
Two, subsidize farmers to produce less food in times of bumper harvest. The goal is to stop prices from going too low that will make farming unprofitable, which might prompt some farmers to stop farming and move elsewhere.
Three, impose high agricultural tariffs to discourage importation of food that are cheaper than those locally-produced. The goal here is to protect local farmers from foreign competition, never mind the consumers who demand cheaper food.
Four, subsidize farmers to produce more crops for biofuels and away from food. The goal is to help "fight global warming".
Five, have an agricultural insurance where farmers will get subsidy when the price of their produce declines in the future. The goal is to prod farmers to continue producing certain crops even when it may look unprofitable to do so.
Six, impose "community preference" of high health and sanitation standards, animal welfare and labor standards, for imported food products; otherwise, the tariff will be very high.
And seven, impose rice "export ban" at the height of high world rice prices. The goal is to protect local prices from rising further when some of local output will be diverted for the world market.
For me, these are misguided public policies that do not result in more food for more consumers at more or differentiated price levels. Their negative consequences are as follows.
First, maintaining food "self-sufficiency" policy invites agricultural protectionism in order to shield local farmers from foreign competition, which may turn them off from continued farming, which can result to "food insufficiency" someday. Some countries produce particular agricultural commodities more efficiently than others by virtue of their geography (wide flat lands, few mountains, lots of lakes and rivers, away from usual typhoon path, and so on), soil condition, conservation practices and entrepreneurial spirit of farmers, etc. Hence, it will give justice to both local consumers to avail of such natural and social advantages in other country that allow them to produce cheaper food than what local producers can provide. A good example of what food autarky can do is North Korea.
Commodities that often experience huge price spikes are those that are least-traded. Rice that is traded internationally is only about six percent of global food production. So when certain countries experience supply shortfall for whatever reasons, the leeway for emergency supply from imports is small, resulting in huge price spikes and hence, economic difficulty for poorer consumers of those countries.
Second, encouraging farmers to produce less food when they are capable of producing more prevents local food prices from falling, which should have benefited consumers. This perverse use of taxpayers money then making the same taxpayers pay more for food that could have been made available at a lower price is insensitive public policy.
Third, as discussed above, food protectionism penalizes consumers, including many farmers themselves who experience crop damage or small harvest (due to strong typhoons, pest or insect attack, prolonged drought, civil conflict, etc.). A better option is to cut, if not abolish, those tariffs on food products, have full free trade in food and other commodities and services. Producers of food-surplus countries will benefit through higher income, while consumers of food-deficient countries will benefit through lower price.
Fourth, encouraging production of more biofuels through tax money has contributed to the recent food price spikes, even if at a minor level. If farming for biofuels production is indeed profitable, then there is no need for subsidies.
Fifth, encouraging farmers to continue producing particular commodities even if their prices have gone down (due to big local harvest due to improved productivity, due to big harvests abroad and imported cheaply, etc.) to non-profitable levels is not good. Taxpayers should be spared from shelling out more money for price differential subsidy. With current high prices of many food products, farming is becoming more profitable. But when governments maintain, if not increase, various farm insurance and price subsidy, this means those governments have no intention of allowing cheaper farm production in the future.
Sixth, those strict health, sanitation, environmental, animal welfare, and labor standards were imposed by farm lobbies and bureaucracies of rich governments, not so much by consumers. If some rich consumers want these strict regulations, they can do so by demanding labeling and purchasing only those products (local or imported). Poorer consumers who may not be too strict with those standards and just want cheaper and safe food, need not be forced to pay ore. If food products are indeed unfit for human consumption, they should be banned, not over-taxed to make it very expensive for consumers.
And seventh, export bans by some governments have worsened the difficulty of net rice importing countries through even higher rice prices. Global supply is disrupted and some farmers in rice-surplus countries are discouraged from higher production since the opportunity to earn higher at exporting rice was killed. Allow freer trade, have few or zero restrictions, in mobility and trading of commodities that experience high price increases so that producers will have more incentives to produce more.
There is no substitute to allowing the individuals – food producers, traders, processors, and consumers – determine what is good for them. More government intervention in agricultural production and distribution is creating more problems than solutions.
---------
See also:
If food producers and consumers are left on their own, they should be able to adjust among themselves. If food prices are high because there are too many consumers and few farmers, and there are minimal or no barriers to farming, some of the consumers will be encouraged to become food producers too, or at least become food traders -- and pretty soon, food prices can go down as food supply expands. If food prices go down so low to unprofitable levels, some farmers will shift to high-value food products where profitability remains high, while other farmers will stop producing and find other work. The resulting food supply reduction will result in upward adjustment in food prices, and the dynamics between food production and food consumption continue.
Some bright men and women, however, think that farmers and consumers are too poor or too stupid to be left on their own -- that government, both national and local, plus multilateral institutions and NGOs, should guide how farmers and consumers should behave. This interventionist thinking has become widespread that agriculture bureaucracies and interventions in many countries have become huge. Naturally, the taxes and fees needed to sustain them, plus their endless conferences and activities will be big too. High taxes plus huge army of agriculture regulators, bureaucrats and statist activists would mean higher food prices too.
Last October 16, World Food Day was celebrated. National bureaucracies like the Department of Agriculture, multilateral institutions like the UN Food and Agriculture Organization (UN FAO), and big international NGOs like Oxfam, seized the occasion to preach for ever-bigger government intervention and politicization of agriculture. Among the advocacies they promoted were the following.
More tax money, xx billion pesos more on top of existing budgets and subsidies, for Philippine agriculture for the country to avoid the recent “rice crisis” and huge food price hikes. Two, do not rely on private entrepreneurship in agriculture because the market will prod farmers to produce more pineapples and bananas for exports, even biofuels and other cash crops, instead of more rice and corn. Three, agriculture trade liberalization is wrong and must be slapped with high tariffs and non-tariff barriers; instead, food “self-sufficiency” should be pursued.
These are myths that need to be corrected. Here are some reasons why they can be considered myths.
One, every year, there is no dearth of reports and stories of wastes and inefficiencies, if not corruption and robbery, in Philippine agriculture. Among the publicized ones involved the fertilizer scam, the government’s Quedan and Rural Credit Corporation (Quedancor) involving the swine scam, and politicians’ unaccounted political accounts in the same government corporation.
Subsidizing farmers look humane, rationale and advancing social equity. However, the practice may encourage some of them to continue farming not because they like doing it and they are earning from it, but because they are getting certain subsidies which makes farming “profitable”. Such redistribution of money from consumers and taxpayers to farmers is not simple, the procedures can be bureaucratic, which will require lots of paper work. Thus, farmers who want to get the various subsidies have to devote time and resources away from farming and into submitting documents and papers in their respective governments’ agriculture ministries and agencies.
In a rice farming village in Pangasinan province, north of Manila that this writer regularly visits, the following were gathered:
* The municipal government last year or two years ago, distributed hand tractors that can also work as water pumps, plus PVC hose for irrigation, to selected farmers who are members of a local cooperative.
* Farmer beneficiaries are supposed to pay nearly PhP 7,000 (around US$148 at P47/$) per year for 10 years.
* After a year, only about 15% of the farmer-borrowers have paid.
* No sanctions were imposed on the non-paying farmers, such as taking back the tractors and giving these to other farmers who did not qualify in the earlier selection process.
The “standard” belief and practice among farmers in many municipalities and provinces in the country is that they pay only on the first three years of the 10-year payment period. No one went to prison or had his tractor or any form of support taken back by the government for negligence in payment. The dominant thinking is that if it is a government program, farmers believe it is a dole-out and they are not supposed to strictly follow the terms in the contract, like regularly paying the loan or tractor or seeds/fertilizers extended to them.
Two, it escapes the mind of many anti-market activists that farmers themselves, big or small, are private entrepreneurs driven by the dual desire to produce food for their household consumption, and to produce a surplus for profit. The Philippine population is increasing by 1.8 million people every year, net of death and migration. The rice land area has remained static at 4 to 4.2 million hectares in the last two or three decades. There is not much land to devote for rice as there is large land conversions going on -- initially from forest to non-forest use like rice and corn land, then from agriculture to residential or commercial/industrial land. And many parts of the country are mountainous that only a few ingenuous Filipino farmers can secure regular irrigation sources from somewhere.
And yet for such steady increase in the number of rice consumers while rice land has remained static, there is only one important conclusion: rice productivity is increasing over time. If this is not true, food riots and mass starvation would have happened many years ago, but it never did. Credit goes to private entrepreneurs in agriculture – farmers and traders, millers and processors, etc. – not so much the NGO activists and often unproductive agriculture bureaucracies.
Three, food imports by the Philippines from its rice-exporting Asian neighbors have covered up for any food supply deficit due to various reasons (strong typhoons, drought, pest attack, earthquakes, and so on). Since the 90s until today, Philippine imports averaged 8% to 10% of annual consumption. Besides, the country’s rice-surplus neighbors really have the natural “comparative advantage” in growing rice than the Philippines. Take Thailand and Vietnam, the world’s top two rice exporting countries, for example.
First, these two countries have wide, contiguous rice land areas of between seven to 10 million hectares, compared to the Philippines’ four million hectares scattered in various provinces and islands around the archipelago. Second, these two countries have huge rivers as main irrigation source like Mekong River, courtesy of their being a contiguous land mass. Third, these two countries have no or very little typhoons, only about 10 per year perhaps, versus the Philippines’ 20 typhoons per year on average.
Interventions like the provision of farm equipment, seeds and fertilizers, credit and marketing network, entrepreneurial spirit, are not included yet. The natural geography of those two countries alone gives them enough comparative and competitive advantage to grow rice. The Philippines’ comparative advantage is more on tourism, not agriculture.
Thus, instead of continuing agricultural trade protectionism, the various tariff and non-tariff barriers in agricultural imports, especially rice, should be slowly removed. Poor households who cannot afford to buy some local grains, vegetables, animal and fishery products in large amount for their families’ daily consumption, should be given respite by giving them access to otherwise cheaper food imports from the country’s Asian neighbors.
The market, the interaction between producers and consumers, not between bureaucrats and statist activists, can provide reliable information and signals for both producers and consumers to adjust with each other. Hence, statist interventions for more tax money for more subsidies, more tax money for dishonest and corrupt politicians and bureaucrats, and more agricultural trade restrictions and protectionism, should be slowly reduced, ultimately abolished. There is nothing wrong with a social system that allows the lazy and irresponsible to go hungry and poor, while allowing the hardworking, the entrepreneurial and responsible people to flourish and become rich.
-------
Related papers I wrote recently:
(1) More Food Producers, Less Food Bureaucrats
September 08, 2008
Agriculture is often an emotional subject when it should not be. Mention farming and farmers and images of poverty and economic difficulty would more often than not, come up in the minds of the public. Hence, various forms of subsidies, crop insurance, trade protectionism and other “incentives” were cooked up and implemented by many governments and generally supported by the public.
That should not be the case because everybody in this planet is a food consumer. Hence, there is a big demand for food, and there is big incentive for farmers and other food producers to grow more food, both for their own household consumption and to produce a surplus for various consumers and make a profit.
If food producers and consumers are left on their own, they should be able to adjust among themselves. If food prices are high because there are too many consumers and there are few farmers, and there are little or no barriers to farming, some of the consumers will be encouraged to become food producers too, or at least become food traders, and pretty soon, food prices can go down as food supply expands. If food prices go down so low to unprofitable levels, some farmers will shift to high-value food products where profitability remains high, while other farmers will stop producing and find other work. The resulting food supply reduction will result in upward adjustment in food prices, and the dynamics between food production and food consumption continue.
Some bright men and women, however, think that farmers and many consumers are too poor or too stupid to be left on their own, that government, both national and local, should guide them how they should behave, so that everybody will have access to good food at a good price. This interventionist thinking has become widespread so that bureaucracies in agriculture ministries or departments and related or supporting agencies have become huge and wide in many countries. Naturally, the taxes and fees needed to sustain them all, including their conferences, meetings, travel and other activities will be big too.
Bureaucracies in agriculture-related foreign aid institutions also expand as these institutions become more efficient in convincing the taxpayers in richer countries that they should continue paying high taxes because part of it is being used to subsidize farmers in poorer countries. Of course they do not mention or tone down the fact that a big portion of the foreign aid money goes to the politicians, agriculture and infrastructure bureaucracies of recipient countries first, before reaching the poor farmers, if any is left.
So with more intervention and subsidies, agriculture departments or ministries and their attached agencies naturally have huge budgets, directly or indirectly. With lots of money to administer, tinker, if not play around, the agriculture bureaucracies would normally attract robbers and opportunists among men and women. Cases of inefficiencies and wastes of tax money are widely reported in many rich countries like the EU’s Common Agriculture Policy (CAP) and the US.
Here in the Philippines, there is no lack of large-scale robbery scandals. Among the most prominent were the fertilizer scam in 2005, then the swine scam this year involving the government’s Quedan and Rural Credit Corporation (Quedancor) and politicians’ unaccounted political accounts in the same government corporation.
Subsidizing farmers look humane, rationale and advancing social equity. However, the practice may encourage some of them to continue farming not because they like doing it and they are earning from it, but because they are getting endless subsidies which makes farming “profitable”. Such redistribution of money from consumers and taxpayers to farmers is not simple, the procedures can be bureaucratic that will require lots of paper work. Thus, farmers who want to get the various subsidies have to devote time and resources away from farming and into submitting documents and papers in their respective governments’ agriculture ministries and agencies.
In a rice farming village in Pangasinan province that I regularly visit, I learned of the following. The municipal government last year distributed hand tractors that can also work as water pumps, plus PVC hose for irrigation, to selected farmers who are members of a local cooperative. Farmer beneficiaries are supposed to pay nearly PhP 7,000 (around US$152 at P46/$) per year for 10 years. After a year, only about 15 percent of the farmer-borrowers have paid. There are no sanctions done to non-paying farmers like taking back the tractors and give to other farmers who did not qualify in the earlier selection process.
The “standard” belief and practice among farmers is that they pay only on the first 3 years of the 10-years payment period. No one went to prison or his tractor or any form of support taken back by the government for negligence in payment. And the thinking persists that if it is government program, it is a dole-out and people are not supposed to strictly follow the terms in the contract, like regularly paying the loan or tractor or seeds/fertilizers extended to them.
The issue of non-productive use of agricultural extension workers employed by the provincial and city/municipal governments is another case of wastes. The extension workers are supposed to be the “bridge” between new results in agricultural R&D and modern farming practices, and the farmers on the field, especially the subsistence farmers. But the right incentive for the extension workers to do their job well is not there. Whether they perform their work or not, they are already assured of their monthly salary and allowances. They are accountable to the Mayor, or other local politicians who recommended them and/or approved their employment in the local government. So when the provincial Governor or city/municipal Mayor assigns them in any work except agricultural extension work, they do it.
Efforts by multilateral bodies and bureaucracies to expand foreign aid in agriculture in poorer countries purportedly to stabilize food prices in the future are likely to create more wastes and inefficiencies than good results. The better options are: One, leave the farmers and consumers alone to adjust and adapt to changes in food supply and demand as reflected in food prices. Two, abolish, or at least consolidate, certain agricultural programs and agencies which have been clearly burdensome to taxpayers for a long time now with no clear and consistent positive results. And three, abolish or at least consolidate, certain regulations that make life more difficult, more complicated, for people engaged in food production and distribution. Let us have less agricultural and economic bureaucrats and more agri-businessmen and women.
(2) State Intervention in Agriculture Production and Distribution
July 07, 2008
A number of observers and policy makers blame "market manipulation" and "market failure" as reasons for the current food price spikes around the world. Hence, existing government regulations, taxation, and intervention should be retained, if not expanded, in agricultural production and distribution.
Below are a some of these interventions and regulations being practiced by governments in many countries around the world. I have identified no less than 10 various government interventions in the sector, but due to space constraints, will discuss only seven of them here. A longer paper covering and discussing all those interventions that I have identified will be posted in our website, http://www.minimalgovernment.net/.
After enumerating these interventions and their purported rationale, my comments and critic of these measures follow. The "farmers" being referred in the foregoing discussions refer to both small and big/commercial farmers.
One, subsidize farmers to produce more food for "self sufficiency" . The goal here is self-explanatory.
Two, subsidize farmers to produce less food in times of bumper harvest. The goal is to stop prices from going too low that will make farming unprofitable, which might prompt some farmers to stop farming and move elsewhere.
Three, impose high agricultural tariffs to discourage importation of food that are cheaper than those locally-produced. The goal here is to protect local farmers from foreign competition, never mind the consumers who demand cheaper food.
Four, subsidize farmers to produce more crops for biofuels and away from food. The goal is to help "fight global warming".
Five, have an agricultural insurance where farmers will get subsidy when the price of their produce declines in the future. The goal is to prod farmers to continue producing certain crops even when it may look unprofitable to do so.
Six, impose "community preference" of high health and sanitation standards, animal welfare and labor standards, for imported food products; otherwise, the tariff will be very high.
And seven, impose rice "export ban" at the height of high world rice prices. The goal is to protect local prices from rising further when some of local output will be diverted for the world market.
For me, these are misguided public policies that do not result in more food for more consumers at more or differentiated price levels. Their negative consequences are as follows.
First, maintaining food "self-sufficiency" policy invites agricultural protectionism in order to shield local farmers from foreign competition, which may turn them off from continued farming, which can result to "food insufficiency" someday. Some countries produce particular agricultural commodities more efficiently than others by virtue of their geography (wide flat lands, few mountains, lots of lakes and rivers, away from usual typhoon path, and so on), soil condition, conservation practices and entrepreneurial spirit of farmers, etc. Hence, it will give justice to both local consumers to avail of such natural and social advantages in other country that allow them to produce cheaper food than what local producers can provide. A good example of what food autarky can do is North Korea.
Commodities that often experience huge price spikes are those that are least-traded. Rice that is traded internationally is only about six percent of global food production. So when certain countries experience supply shortfall for whatever reasons, the leeway for emergency supply from imports is small, resulting in huge price spikes and hence, economic difficulty for poorer consumers of those countries.
Second, encouraging farmers to produce less food when they are capable of producing more prevents local food prices from falling, which should have benefited consumers. This perverse use of taxpayers money then making the same taxpayers pay more for food that could have been made available at a lower price is insensitive public policy.
Third, as discussed above, food protectionism penalizes consumers, including many farmers themselves who experience crop damage or small harvest (due to strong typhoons, pest or insect attack, prolonged drought, civil conflict, etc.). A better option is to cut, if not abolish, those tariffs on food products, have full free trade in food and other commodities and services. Producers of food-surplus countries will benefit through higher income, while consumers of food-deficient countries will benefit through lower price.
Fourth, encouraging production of more biofuels through tax money has contributed to the recent food price spikes, even if at a minor level. If farming for biofuels production is indeed profitable, then there is no need for subsidies.
Fifth, encouraging farmers to continue producing particular commodities even if their prices have gone down (due to big local harvest due to improved productivity, due to big harvests abroad and imported cheaply, etc.) to non-profitable levels is not good. Taxpayers should be spared from shelling out more money for price differential subsidy. With current high prices of many food products, farming is becoming more profitable. But when governments maintain, if not increase, various farm insurance and price subsidy, this means those governments have no intention of allowing cheaper farm production in the future.
Sixth, those strict health, sanitation, environmental, animal welfare, and labor standards were imposed by farm lobbies and bureaucracies of rich governments, not so much by consumers. If some rich consumers want these strict regulations, they can do so by demanding labeling and purchasing only those products (local or imported). Poorer consumers who may not be too strict with those standards and just want cheaper and safe food, need not be forced to pay ore. If food products are indeed unfit for human consumption, they should be banned, not over-taxed to make it very expensive for consumers.
And seventh, export bans by some governments have worsened the difficulty of net rice importing countries through even higher rice prices. Global supply is disrupted and some farmers in rice-surplus countries are discouraged from higher production since the opportunity to earn higher at exporting rice was killed. Allow freer trade, have few or zero restrictions, in mobility and trading of commodities that experience high price increases so that producers will have more incentives to produce more.
There is no substitute to allowing the individuals – food producers, traders, processors, and consumers – determine what is good for them. More government intervention in agricultural production and distribution is creating more problems than solutions.
---------
See also:
Agri Econ 1: Food Prices and Government, April 13, 2008
Agri Econ 2: Rice Laissez Faire vs. Subsidies, May 06, 2008
Agri Econ 3: Dr. Samran Sombatpanit and WASWC, July 03, 2008
Monday, October 13, 2008
US Debt 3: Crisis of Irresponsibility
The ongoing economic turmoil in the US and the rest of the world has been termed a “credit crisis,” a “financial meltdown,” a “market free fall,” and even worse, a “crisis of capitalism.” The use of the latter phrase is implying that the current economic woes could be the beginning of the “end of capitalism,” and the rise of what? Rise of socialism, or Hugo Chavezm, or other forms of statism?
For lack of a more apt term to describe the ongoing financial troubles in major economies around the world, this writer would rather use the term “crisis of irresponsibility.” Here are some reasons why.
One, borrower irresponsibility. There is general acceptance, if not consensus, that the immediate cause of the current global financial trouble was the widespread default of sub-prime borrowers in the US for the houses they bought. People who have small or no stable income were allowed to buy houses whose price are much higher than what those borrowers could really afford to pay if some explicit or implicit subsidies were absent. The immediate symptom showed up in July 2007 after Wall Street investors started pulling out their money after learning those huge sub-prime homeowners’ loan default.
Two, lender irresponsibility. Anticipating continued “housing price bubble,” the lenders – developers, commercial banks, mortgage houses, investment banks, insurance companies – lent even to sub-prime borrowers, people who have questionable capacity to pay those high-priced houses, and charged them higher interest rates.
Three, housing policy irresponsibility. When a government policy forces banks to give out bad loans, then more bad loans will be given away. Eamonn Buttler in his article, “Blame bad rules, not capitalism”, wrote “(On) 12 October 1977, US President Jimmy Carter signed the ‘anti-redlining’ law. Before then, lenders generally denied loans to people in poor neighborhoods. But the politicians – with good intent – wanted to make home ownership available to all Americans. So lenders were forced into giving out risky mortgages: what we now call ‘sub-prime’ loans.”
And four, plain BIG government irresponsibility. Making a bad public policy even bigger and worse. For instance, after the “anti-redlining law,” semi-governmental companies Freddie and Fannie made investors believe that the bad mortgages they made were guaranteed by government, creating a “moral hazards” problem wherein complacency can be rewarded with bailout, not penalized with bankruptcy.
Now, the public in the US and around the world is bombarded with “more government financial regulations please” mantra. Really? But the US government cannot even properly discipline itself, generating hundreds of billions of dollars of budget deficit every year (at least $480 billion by end-2008, for instance). And worse, the Federal government is facing an estimated $56 trillion debt.
In a commentary, “America's $53 trillion debt problem,” David Walker wrote: “The nation's real tab amounted to $53 trillion as of the end of the last fiscal year (September 30, 2007). That was the sum of our public debt; accrued civilian and military retirement benefits; unfunded, promised Social Security and Medicare benefits; and other financial obligations… The rescue package and other bailout efforts for Fannie Mae, Freddie Mac, AIG and the auto industry, escalating operating deficits, compounding interest and other factors are likely to boost the tab to $56 trillion or more by the end of this calendar year.”
The US' gross domestic output (GDP) in a year is about $14 trillion. The cumulative debt of the federal government alone will be about 4x of GDP! GDP is the combined production of goods and services by the federal, local and state governments, private corporations and households.
So, can an institution that can irresponsibly accumulate various debts amounting to 4x of GDP, be the "bright guys" to provide “leadership” in regulating further all corporations, earning or misbehaving, private corporations? This does not look good.
From one big government intervention (encouraging or forcing sub-prime and risky loans and fiscal irresponsibility) to another xx billion dollars for Fannie and Freddie, $85B for AIG, and the enacted $700 billion bailout or “rescue package,” and higher future taxes to pay past and current bailouts and borrowings), there seems to be no logical conclusion or timetable for the never ending big government intervention and taxation.
US capitalism needs the current "electric shock" to deliver real hard lesson for both the American capitalists and the American government. Private enterprises should be allowed to grow big or go bankrupt – without government intervention. The job of the government is to ensure the rule of law, that parties honor their obligations and contracts with other parties, and that robbers, killers and other criminals along the way are neutralized.
The US stockmarket and the rest of the economy have so far shed several trillion dollars of losses and failures because their debt culture (federal debt + local and state governments debt + corporations and household debt) has bloated the economy by trillions of dollars. The bubble should pop, the excesses should be removed, and irresponsibility (personal, corporate and government) should be checked and controlled.
Failing big business should not marry big government. But it is happening now, nonetheless. The Treasury Department, the Fed, the White House and Capitol Hill think that to "solve" previous and current government failures, even bigger government intervention, regulation, borrowings and taxation should be introduced
Plenty of news stories these days say that many American households are cutting back on their consumptions except the necessities – food, health care, education, etc. – which means Americans feel they are poorer now, or they anticipate they will be poorer in the coming days. How can they be made to feel "richer"?
One option is a large-scale income tax cut. Allow them to keep more of their monthly or annual income, let them spend the "de facto" wage increase. Someone's spending is somebody else's income. But all the above US government agencies can think of are retain, if not increase in the future, current high income taxes – to finance more government spending, more bailouts, and possibly, more printing of money. The few tax cut measures in the multi-billion bailout was more of a “sweetener” so that more Republican legislators will support the huge bailout bill.
The author of the book, “In Defense of Global Capitalism”, Mr. Johan Norberg, has some good arguments on why the “more government financial regulations please” mantra is wrong. In his paper, “Regulators cannot avert next crisis”, he wrote: “Every crisis has led to thousands of new pages of regulation. Why is it that regulation doesn't stop crises from happening again? Look no further than the US federal institutions in Washington, DC, and we find 12,113 individuals working full time to regulate the financial markets. What did they do with the powers they had?.. So we get new rules that target the mistakes that everybody already knows they must avoid. The next possible crisis and its causes are so far unknown, and our regulations may have no effect or even make them worse...”
To sum up, is the current “crisis of irresponsibility” leading to continuation or death of irresponsibility?
Based on the above discussions and ongoing global development, the answer seems to point to a continuation, if not expansion, of irresponsibility. But as mentioned earlier, a crisis is short-lived and will not drag for a long time. There is a $56 trillion debt somewhere, and that’s for the US federal government debt alone. Not included there are several trillion dollars debt by US local and state governments, plus trillion dollars more by other central governments of other rich countries (Europe and Japan).
So there should be more crisis ahead in the coming years. But one really big crisis out there will definitely be resolved in favor of death of irresponsibility, especially of big government irresponsibility that encourages, directly or indirectly, personal and corporate irresponsibility. When people around the world assume more personal and parental responsibilities in running their own lives, their own households and communities, and expect less “government responsibility”, then societies will be headed to a new world order and ultimately, world peace.
--------
Greed and Responsibility
Can greed be good, both for the individual and society?
I think Yes, if it is coupled by personal responsibility and not causing harm to other people in the process of being greedy.
Example. A person salivates at the prospect that the price of the 2nd house that he is about to buy will double, if not triple, within one or two years. So he moved to buy that house by recalling his investments elsewhere, took a loan of only 30 percent or nothing, to buy that house cash. He never robbed or kidnapped for ransom anyone to get additional money. From plain pure savings and borrowings with earnest desire to pay the loan.
This still falls under "greed", right? Greed with personal responsibility.
Another variation is greed with personal irresponsibility.
A person who has no money even for a downpayment, or has enough income for his current consumptions and amortization payment, but took another mortgage with zero or very little personal equity for a high-priced 2nd house with the same salivating desire to make big money after a year or two. This is a very risky practice with some harm to other people happening if that person will default on his loan.
The current financial woes in the US and elsewhere is a result not too much of greed per se, but of greed + debt culture. Living beyond one's means, living on borrowed money, living on an illusion of big money in the future that may or may not materialize. There is lot of personal irresponsibility involved.
With this view, the current situation therefore, is good. It is a self-correcting mechanism by the market. Those with bloated assets suddenly experience their assets shrink, if not become bankrupt. As my favorite finance whiz kid Gina would say, "the market will correct itself with or without government intervention."
People with bleeding hearts for corporate failures simply don't get it.
Capitalism without failure is like religion without sin.
Or like Christianity without hell.
The sins of the past will haunt the sinner today, or in the future.
Once the sin has been atoned or "paid" and corrected, life will go on.
Incidentally, there's a good article from the IHT today, "Debt is whittling away US economic power",
http://www.iht.com/articles/2008/10/12/business/leonhardt.php?page=1
The debt culture will catch up on America. It has caught up now, but not entirely. There's more debt and bubbles down the carpet and bed of the US government, both federal and state/local government, than currently admitted.
With the current bail-outs and planned ownership stakes in a number of private banks, the US government's debt is changing from bad to worse. Applaud more borrowings and more regulations!
* See also
US Debt 1: How Bloated is the US Govt? May 08, 2006
US Debt 2: Private Sector Bailout of Government, September 26, 2008
For lack of a more apt term to describe the ongoing financial troubles in major economies around the world, this writer would rather use the term “crisis of irresponsibility.” Here are some reasons why.
One, borrower irresponsibility. There is general acceptance, if not consensus, that the immediate cause of the current global financial trouble was the widespread default of sub-prime borrowers in the US for the houses they bought. People who have small or no stable income were allowed to buy houses whose price are much higher than what those borrowers could really afford to pay if some explicit or implicit subsidies were absent. The immediate symptom showed up in July 2007 after Wall Street investors started pulling out their money after learning those huge sub-prime homeowners’ loan default.
Two, lender irresponsibility. Anticipating continued “housing price bubble,” the lenders – developers, commercial banks, mortgage houses, investment banks, insurance companies – lent even to sub-prime borrowers, people who have questionable capacity to pay those high-priced houses, and charged them higher interest rates.
Three, housing policy irresponsibility. When a government policy forces banks to give out bad loans, then more bad loans will be given away. Eamonn Buttler in his article, “Blame bad rules, not capitalism”, wrote “(On) 12 October 1977, US President Jimmy Carter signed the ‘anti-redlining’ law. Before then, lenders generally denied loans to people in poor neighborhoods. But the politicians – with good intent – wanted to make home ownership available to all Americans. So lenders were forced into giving out risky mortgages: what we now call ‘sub-prime’ loans.”
And four, plain BIG government irresponsibility. Making a bad public policy even bigger and worse. For instance, after the “anti-redlining law,” semi-governmental companies Freddie and Fannie made investors believe that the bad mortgages they made were guaranteed by government, creating a “moral hazards” problem wherein complacency can be rewarded with bailout, not penalized with bankruptcy.
Now, the public in the US and around the world is bombarded with “more government financial regulations please” mantra. Really? But the US government cannot even properly discipline itself, generating hundreds of billions of dollars of budget deficit every year (at least $480 billion by end-2008, for instance). And worse, the Federal government is facing an estimated $56 trillion debt.
In a commentary, “America's $53 trillion debt problem,” David Walker wrote: “The nation's real tab amounted to $53 trillion as of the end of the last fiscal year (September 30, 2007). That was the sum of our public debt; accrued civilian and military retirement benefits; unfunded, promised Social Security and Medicare benefits; and other financial obligations… The rescue package and other bailout efforts for Fannie Mae, Freddie Mac, AIG and the auto industry, escalating operating deficits, compounding interest and other factors are likely to boost the tab to $56 trillion or more by the end of this calendar year.”
The US' gross domestic output (GDP) in a year is about $14 trillion. The cumulative debt of the federal government alone will be about 4x of GDP! GDP is the combined production of goods and services by the federal, local and state governments, private corporations and households.
So, can an institution that can irresponsibly accumulate various debts amounting to 4x of GDP, be the "bright guys" to provide “leadership” in regulating further all corporations, earning or misbehaving, private corporations? This does not look good.
From one big government intervention (encouraging or forcing sub-prime and risky loans and fiscal irresponsibility) to another xx billion dollars for Fannie and Freddie, $85B for AIG, and the enacted $700 billion bailout or “rescue package,” and higher future taxes to pay past and current bailouts and borrowings), there seems to be no logical conclusion or timetable for the never ending big government intervention and taxation.
US capitalism needs the current "electric shock" to deliver real hard lesson for both the American capitalists and the American government. Private enterprises should be allowed to grow big or go bankrupt – without government intervention. The job of the government is to ensure the rule of law, that parties honor their obligations and contracts with other parties, and that robbers, killers and other criminals along the way are neutralized.
The US stockmarket and the rest of the economy have so far shed several trillion dollars of losses and failures because their debt culture (federal debt + local and state governments debt + corporations and household debt) has bloated the economy by trillions of dollars. The bubble should pop, the excesses should be removed, and irresponsibility (personal, corporate and government) should be checked and controlled.
Failing big business should not marry big government. But it is happening now, nonetheless. The Treasury Department, the Fed, the White House and Capitol Hill think that to "solve" previous and current government failures, even bigger government intervention, regulation, borrowings and taxation should be introduced
Plenty of news stories these days say that many American households are cutting back on their consumptions except the necessities – food, health care, education, etc. – which means Americans feel they are poorer now, or they anticipate they will be poorer in the coming days. How can they be made to feel "richer"?
One option is a large-scale income tax cut. Allow them to keep more of their monthly or annual income, let them spend the "de facto" wage increase. Someone's spending is somebody else's income. But all the above US government agencies can think of are retain, if not increase in the future, current high income taxes – to finance more government spending, more bailouts, and possibly, more printing of money. The few tax cut measures in the multi-billion bailout was more of a “sweetener” so that more Republican legislators will support the huge bailout bill.
The author of the book, “In Defense of Global Capitalism”, Mr. Johan Norberg, has some good arguments on why the “more government financial regulations please” mantra is wrong. In his paper, “Regulators cannot avert next crisis”, he wrote: “Every crisis has led to thousands of new pages of regulation. Why is it that regulation doesn't stop crises from happening again? Look no further than the US federal institutions in Washington, DC, and we find 12,113 individuals working full time to regulate the financial markets. What did they do with the powers they had?.. So we get new rules that target the mistakes that everybody already knows they must avoid. The next possible crisis and its causes are so far unknown, and our regulations may have no effect or even make them worse...”
To sum up, is the current “crisis of irresponsibility” leading to continuation or death of irresponsibility?
Based on the above discussions and ongoing global development, the answer seems to point to a continuation, if not expansion, of irresponsibility. But as mentioned earlier, a crisis is short-lived and will not drag for a long time. There is a $56 trillion debt somewhere, and that’s for the US federal government debt alone. Not included there are several trillion dollars debt by US local and state governments, plus trillion dollars more by other central governments of other rich countries (Europe and Japan).
So there should be more crisis ahead in the coming years. But one really big crisis out there will definitely be resolved in favor of death of irresponsibility, especially of big government irresponsibility that encourages, directly or indirectly, personal and corporate irresponsibility. When people around the world assume more personal and parental responsibilities in running their own lives, their own households and communities, and expect less “government responsibility”, then societies will be headed to a new world order and ultimately, world peace.
--------
Greed and Responsibility
Can greed be good, both for the individual and society?
I think Yes, if it is coupled by personal responsibility and not causing harm to other people in the process of being greedy.
Example. A person salivates at the prospect that the price of the 2nd house that he is about to buy will double, if not triple, within one or two years. So he moved to buy that house by recalling his investments elsewhere, took a loan of only 30 percent or nothing, to buy that house cash. He never robbed or kidnapped for ransom anyone to get additional money. From plain pure savings and borrowings with earnest desire to pay the loan.
This still falls under "greed", right? Greed with personal responsibility.
Another variation is greed with personal irresponsibility.
A person who has no money even for a downpayment, or has enough income for his current consumptions and amortization payment, but took another mortgage with zero or very little personal equity for a high-priced 2nd house with the same salivating desire to make big money after a year or two. This is a very risky practice with some harm to other people happening if that person will default on his loan.
The current financial woes in the US and elsewhere is a result not too much of greed per se, but of greed + debt culture. Living beyond one's means, living on borrowed money, living on an illusion of big money in the future that may or may not materialize. There is lot of personal irresponsibility involved.
With this view, the current situation therefore, is good. It is a self-correcting mechanism by the market. Those with bloated assets suddenly experience their assets shrink, if not become bankrupt. As my favorite finance whiz kid Gina would say, "the market will correct itself with or without government intervention."
People with bleeding hearts for corporate failures simply don't get it.
Capitalism without failure is like religion without sin.
Or like Christianity without hell.
The sins of the past will haunt the sinner today, or in the future.
Once the sin has been atoned or "paid" and corrected, life will go on.
Incidentally, there's a good article from the IHT today, "Debt is whittling away US economic power",
http://www.iht.com/articles/2008/10/12/business/leonhardt.php?page=1
The debt culture will catch up on America. It has caught up now, but not entirely. There's more debt and bubbles down the carpet and bed of the US government, both federal and state/local government, than currently admitted.
With the current bail-outs and planned ownership stakes in a number of private banks, the US government's debt is changing from bad to worse. Applaud more borrowings and more regulations!
* See also
US Debt 1: How Bloated is the US Govt? May 08, 2006
US Debt 2: Private Sector Bailout of Government, September 26, 2008
Monday, October 06, 2008
Patent exhaustion and the rule of law
The philosophy of "rule of law" is very explicit that a law should apply to all and everything, and no one or nothing is exempted. That not even the legislators and administrators of the State should be exempted or have the power to make exemptions. That is why classical political philosophers (like Friedrich Hayek) argued that not all output by the legislature, national or local government councils, can be considered as "general laws" because many rules created by modern legislatures often make certain exemptions. And those "exemptees" and "above the law" are usually the economically protected and politically connected ones.
Take the case of patents or other forms of intellectual property rights (IPR). A patent is granted by a national government to a product or invention by a certain manufacturer. This is the State's way of saying "Thank you for producing an innovative product for the use of the people". But before the State grants such compliment, it first requires lots of papers and permits, authorizations and accreditations, taxes and fees. Once the manufacturer and inventor of such product has complied with all those regulatory requirements, the State, through its agencies that handle and grant IPR, finally gives the patent.
So, securing a patent, complying with the State's various regulatory requirements for an IPR protection, are neither short nor cheap. It takes long and expensive procedures -- from the actual invention itself, discovering the basic and applied sciences that govern the molecules and physical energy of one's invention, checking and counter-checking that there will be no harmful risks to the consumers, to complying with the bureaucracy, discovering the rules and regulations, both printed and hidden, that govern the molecular behavior of government regulators.
This sends mixed signals to entrepreneurs and traders out there. Let us tackle two prominent and opposing signals or options, and the corresponding behavior to each respective option.
One, by requiring stringent and expensive patent approval system, the State will be accountable to protect an IPR, come high or low water.
Corresponding behavior: Go through the entire process, endure the bureaucracy, taxes and fees. This is the route taken by law-abiding individuals, inventors, scientific institutions, and corporations.
Two, by requiring stringent and expensive patent approval system, there should be some loopholes or "exemptions" somewhere.
Corresponding behavior: Don't go through the entire process, don't endure the bureaucracy, taxes and fees. Find those loopholes and exemptions, or introduce and lobby the introduction of such exemptions, and still make money in the end. This is the route taken by less innovative, or bleeding heart collectivist, and often shrewd, individuals, inventors, and corporations.
In the patent and IPR system of many developing countries like the Philippines, the policy of "national exhaustion", meaning a patent on an invention in a particular country will stay until the end of its patent life, is followed. But with growing socialization of health care campaigns in the world, a new concept called "international exhaustion" – for drugs and medicines only – was introduced and negates "national exhaustion". It was introduced first in the WTO under the Trade-Related Aspects of IPRs (TRIPS), and second in the country through the "Cheaper medicines law" (Republic Act 9502). This unfortunately, is a violation of the "rule of law" principle because it grants exemption to the general rule of protecting private property rights, regardless of reason or alibi, social, cultural or whatever.
The scheme violates "national exhaustion" rule but the said violation is legalized and implemented by the State under the "international exhaustion" rule is called "parallel importation". Drug manufacturer X went through option one discussed above (i.e., endured all the bureaucracies and paid all the taxes and fees to get a patent, say in the Philippines). Now the government agency that granted the patent to company X can now say, "The patent that I gave to drug manufacturer X is now 'exhausted' and useless because the same patented drug it sells here has been introduced and sold in other countries. So other firms can now parallel import said drug and sell it here; no need to go through the long process of securing a patent."
This sudden about-face can be done instantly and the national patent system for the affected drug becomes a farce and a hypocrisy. The plentier the practice and declaration of "international exhaustion", the bigger the hypocrisy.
But that's on the level of political and legal philosophy alone. Let us tackle the implication of "parallel importation" scheme on public health, which is the main reason why said violation of the rule of law on patent has been justified in the first place.
Drug trader Company Y buys "cheaper medicines" from the sister firm of Company X from abroad, then transported, stored, and distributed said drug to various drugstores, pharmacies and other drug retail outlets in the home country – all without permission or approval by Company X being the national patent holder of said drug. One or more patients develop bad allergies, or develop negative side effects, after taking the "cheaper medicine" imported and distributed by Company Y. It turns out that any or all of the following possibilities happened:
The imported "cheaper medicine" was mishandled, mis-stored (say a few degrees Celsius hotter than the minimum temperature required for effective storage), opened from original containers and repacked, and consequently contained wrong labels and wrong expiration date, etc.
The imported "cheaper medicine" was counterfeit, produced by a fake and unlicensed drug manufacturer abroad, and the medicine contained very little or no active ingredients that can cure a particular disease.
The original manufacturer (sister firm abroad of Company X) found some health risks in the medicine and was recalling it, but Company Y is just a trader and has spent money already for the importation, transportation, storage and distribution to many retail outlets here, and would not care recalling said drug since it will not be affected anyway because it does not carry the corporate brand of the drug manufacturer.
Who will the adversely affected patient complain and possibly sue? Company X at home country, or its sister firm abroad, or drug trader Company Y, or the physician who prescribed the medicine, or the drug store?
Recently the Philippines and other importing countries were gripped by the scare of melamine-tainted milk from China. The chemical melamine is said to cause kidney problems on babies and children who consumed the milk. A number of raids were conducted, by the police, the Health department, and other government agencies, to remove from the shelves and storage areas of supermarkets, drug stores and warehouses, milk products that are proven or even suspected of containing melamine. The panic was wide but pinpointing who is responsible for manufacturing and distributing said melamine-tainted milk was not clear.
A similar scare in the distribution of counterfeit medicines, or original but mis-handled and mis-stored medicines, or medicines recalled by drug manufacturers but not recalled by drug traders, can happen someday in this country or other countries that implemented the "parallel importation" and "junk the national patent" scheme.
But policy damage has been done, because laws have been enacted in a number of countries that legalized the violation of the rule of law on national patent and IPR protection. And pretty soon, an implementing rules and regulations (IRR) will be promulgated in the Philippines to give more meat and mechanism on how to operationalize the violation of the rule of law.
Some "remedies" or remedial measures can be introduced though, in order to reduce the potential risks and damage by this scheme. This author has proposed some safeguard measures to be incorporated in the planned IRR. Seems that not one of them has been considered by the government agency that has the power to give patent and the power to render said patent "exhausted" and meaningless later on under the "international exhaustion" rule as legalized by the new law.
Another remedy perhaps, is for the all government agencies involved that required the submission of various regulatory requirements and agencies that collected various taxes and fees, to reimburse the full costs of compliance by the patent holder. The latter's right to private property protection of an invention has been disregarded by the same government agencies that promised to protect such private property right. Hence, the patent holder should be fully reimbursed at least, as a way of the State saying, "Sorry for disregarding your private property right and for my violation of the rule of law on IPR protection."
Take the case of patents or other forms of intellectual property rights (IPR). A patent is granted by a national government to a product or invention by a certain manufacturer. This is the State's way of saying "Thank you for producing an innovative product for the use of the people". But before the State grants such compliment, it first requires lots of papers and permits, authorizations and accreditations, taxes and fees. Once the manufacturer and inventor of such product has complied with all those regulatory requirements, the State, through its agencies that handle and grant IPR, finally gives the patent.
So, securing a patent, complying with the State's various regulatory requirements for an IPR protection, are neither short nor cheap. It takes long and expensive procedures -- from the actual invention itself, discovering the basic and applied sciences that govern the molecules and physical energy of one's invention, checking and counter-checking that there will be no harmful risks to the consumers, to complying with the bureaucracy, discovering the rules and regulations, both printed and hidden, that govern the molecular behavior of government regulators.
This sends mixed signals to entrepreneurs and traders out there. Let us tackle two prominent and opposing signals or options, and the corresponding behavior to each respective option.
One, by requiring stringent and expensive patent approval system, the State will be accountable to protect an IPR, come high or low water.
Corresponding behavior: Go through the entire process, endure the bureaucracy, taxes and fees. This is the route taken by law-abiding individuals, inventors, scientific institutions, and corporations.
Two, by requiring stringent and expensive patent approval system, there should be some loopholes or "exemptions" somewhere.
Corresponding behavior: Don't go through the entire process, don't endure the bureaucracy, taxes and fees. Find those loopholes and exemptions, or introduce and lobby the introduction of such exemptions, and still make money in the end. This is the route taken by less innovative, or bleeding heart collectivist, and often shrewd, individuals, inventors, and corporations.
In the patent and IPR system of many developing countries like the Philippines, the policy of "national exhaustion", meaning a patent on an invention in a particular country will stay until the end of its patent life, is followed. But with growing socialization of health care campaigns in the world, a new concept called "international exhaustion" – for drugs and medicines only – was introduced and negates "national exhaustion". It was introduced first in the WTO under the Trade-Related Aspects of IPRs (TRIPS), and second in the country through the "Cheaper medicines law" (Republic Act 9502). This unfortunately, is a violation of the "rule of law" principle because it grants exemption to the general rule of protecting private property rights, regardless of reason or alibi, social, cultural or whatever.
The scheme violates "national exhaustion" rule but the said violation is legalized and implemented by the State under the "international exhaustion" rule is called "parallel importation". Drug manufacturer X went through option one discussed above (i.e., endured all the bureaucracies and paid all the taxes and fees to get a patent, say in the Philippines). Now the government agency that granted the patent to company X can now say, "The patent that I gave to drug manufacturer X is now 'exhausted' and useless because the same patented drug it sells here has been introduced and sold in other countries. So other firms can now parallel import said drug and sell it here; no need to go through the long process of securing a patent."
This sudden about-face can be done instantly and the national patent system for the affected drug becomes a farce and a hypocrisy. The plentier the practice and declaration of "international exhaustion", the bigger the hypocrisy.
But that's on the level of political and legal philosophy alone. Let us tackle the implication of "parallel importation" scheme on public health, which is the main reason why said violation of the rule of law on patent has been justified in the first place.
Drug trader Company Y buys "cheaper medicines" from the sister firm of Company X from abroad, then transported, stored, and distributed said drug to various drugstores, pharmacies and other drug retail outlets in the home country – all without permission or approval by Company X being the national patent holder of said drug. One or more patients develop bad allergies, or develop negative side effects, after taking the "cheaper medicine" imported and distributed by Company Y. It turns out that any or all of the following possibilities happened:
The imported "cheaper medicine" was mishandled, mis-stored (say a few degrees Celsius hotter than the minimum temperature required for effective storage), opened from original containers and repacked, and consequently contained wrong labels and wrong expiration date, etc.
The imported "cheaper medicine" was counterfeit, produced by a fake and unlicensed drug manufacturer abroad, and the medicine contained very little or no active ingredients that can cure a particular disease.
The original manufacturer (sister firm abroad of Company X) found some health risks in the medicine and was recalling it, but Company Y is just a trader and has spent money already for the importation, transportation, storage and distribution to many retail outlets here, and would not care recalling said drug since it will not be affected anyway because it does not carry the corporate brand of the drug manufacturer.
Who will the adversely affected patient complain and possibly sue? Company X at home country, or its sister firm abroad, or drug trader Company Y, or the physician who prescribed the medicine, or the drug store?
Recently the Philippines and other importing countries were gripped by the scare of melamine-tainted milk from China. The chemical melamine is said to cause kidney problems on babies and children who consumed the milk. A number of raids were conducted, by the police, the Health department, and other government agencies, to remove from the shelves and storage areas of supermarkets, drug stores and warehouses, milk products that are proven or even suspected of containing melamine. The panic was wide but pinpointing who is responsible for manufacturing and distributing said melamine-tainted milk was not clear.
A similar scare in the distribution of counterfeit medicines, or original but mis-handled and mis-stored medicines, or medicines recalled by drug manufacturers but not recalled by drug traders, can happen someday in this country or other countries that implemented the "parallel importation" and "junk the national patent" scheme.
But policy damage has been done, because laws have been enacted in a number of countries that legalized the violation of the rule of law on national patent and IPR protection. And pretty soon, an implementing rules and regulations (IRR) will be promulgated in the Philippines to give more meat and mechanism on how to operationalize the violation of the rule of law.
Some "remedies" or remedial measures can be introduced though, in order to reduce the potential risks and damage by this scheme. This author has proposed some safeguard measures to be incorporated in the planned IRR. Seems that not one of them has been considered by the government agency that has the power to give patent and the power to render said patent "exhausted" and meaningless later on under the "international exhaustion" rule as legalized by the new law.
Another remedy perhaps, is for the all government agencies involved that required the submission of various regulatory requirements and agencies that collected various taxes and fees, to reimburse the full costs of compliance by the patent holder. The latter's right to private property protection of an invention has been disregarded by the same government agencies that promised to protect such private property right. Hence, the patent holder should be fully reimbursed at least, as a way of the State saying, "Sorry for disregarding your private property right and for my violation of the rule of law on IPR protection."
Tuesday, September 30, 2008
Inflation and CBs 5: Capitalism Without Failure is Like Religion Without Sin
Capitalism without failure is like religion without sin. The statement is from a CATO scholar, Gerald P. O'Driscoll Jr., in his paper, "Treasury's Thieves". Perhaps people should keep that in mind before they conclude that the current financial turmoil in the US, which is spreading to financial markets abroad, marks the beginning of the "end of capitalism".
The current financial "meltdown" should happen. If the meltdown does not happen today, then it should happen tomorrow, or next week, or next year. And it should continue, if only to weed out the irresponsible corporate leaders and the cheaters.
What should not happen is a government bail-out of collapsing and imploding big banks and firms. In this case, the proposed US government bailout for the financial sector to the tune of $700 billion -- not counting the projected budget deficit of more than $480 billion by the end of 2008 of the federal government alone (many states, cities and counties have their own sets of budget deficits).
So why is government bailout not justifiable? Three important reasons.
One, make those responsible for a corporate collapse be accountable for their mistakes. Hence, they should pay the price for their irresponsibility and misbehavior. Those who should sink must sink. And taxpayers' money should not be used to bail out irresponsible corporate guys.
Two, governments by themselves have no money on their own to bail out failed enterprises except for what governments confiscate from the income and savings of the hardworking citizens in the form of various taxes, charges regulatory fees and fines, or by printing money endlessly through their central banks, which can push inflation upwards endlessly, and thereby rob again the responsible citizens of the real value of their income, savings and investments.
And three, the US Fed's and other central banks' (like the Europe CB) large-scale bailout pool and consequent monetary policies will be distortionary. In cases like this, producers and manufacturers are forced to watch the behavior of the Fed or any central bank on whether it will raise or lower or keep existing interest rates, or protect the currency from further depreciation or appreciation, rather than watch the behavior of consumers (if their preferences and buying pattern are changing or not) or the behavior of competing producers from other countries (if they are producing better quality goods and services or selling at lower prices or a combination of both).
High inflation is caused mainly by lower supply relative to demand. So to address high inflation, expand supply relative to the size of demand. But central bank bureaucrats think they can solve the world's price problem by centralizing monetary tools in their hands, and squeeze money supply by tightening credits and raising interest rates -- which in the process choke many entrepreneurs and producers, both big and small.
The term "socialism for the rich" (under a longer phrase, "profits are privatized but losses are socialized") is wrong. The proposed multi-billion dollar bailout can be aptly called "socialism for the irresponsible" because only irresponsible and envious people would love socialism. Under socialism, the lazy and the envious will still eat, will still have allowances, and will be entitled to free "quality" education, health care, housing, etc. because social equality is non-negotiable.
For the socialists or trying-hard socialists, personal and corporate responsibility or irresponsibility do not count much. What matters to them is more "government responsibility" . So, corporate irresponsibility of officials of those big firms don't count much, those firms are "too big to fail", they should not sink, and their officials need not go to prison.
Some people ask, "Who are the irresponsible? Who defines 'irresponsibility' and who should penalize them?" There can be a BIG political battle on the definition of "irresponsible" because among the most irresponsible institutions involved in the current financial "meltdown" is the BIG US government itself.
It is easy to spot an irresponsible guy or institution: they live beyond their means, consistently. They spend much bigger than their income or revenue, consistently. Or worse, they spend and ask for more subsidies even if they have no income, nor have any plan to work and have regular income. A person who in his late 20s or 30s still depends his parents' allowance is irresponsible. A bank that lends to many people, who it perfectly knows have no jobs or no stable jobs and income, is irresponsible. A government on budget deficit, for one, two, five decades or more, is irresponsible.
So, how should they be penalized? The penalties for cases like failed companies are already in the books of any country's legal system. Bank or corporate officials who lose their stockholders' money should go to prison, or the cemetery perhaps -- in the case of those unlucky to be caught by really mad and impoverished investors.
After the US government announced the huge bailout fund that it seeks from the US Congress, the US stock markets were battered once more, the US dollar was knocked down further, and even world oil prices were up once more.
Why? It's the distrust on the US government, distrust on any fiscal "stimulus" by a bailout scheme because of the big taxes and fees that will be confiscated from the pockets and monthly salaries of US citizens in the coming months and years.
A friend shared that the proposed Treasury bailout plan has this provision:
Dictators hate for their work and decision to be reviewed and questioned. "Non-reviewable" clause by any court or any agency speaks of the absence of accountability and transparency, absence of personal and official responsibility, for any mistakes in the future. If they are not dictators, then they should be fully transparent and fully accountable for their actions and policy decisions. If they do not want to be accountable for any future mistake, then they should not initiate such bailout move in the first place.
The pattern and the dangers are there: individual responsibility is meaningless under a socialist or trying-hard socialist framework. Everything is "government responsibility" . The primacy of the collective over the individual, always. And in their books, to have order in the collective, each individual -- except the administrators and governors of the collective -- must surrender a big portion of their income, their savings and their personal liberty, to the collective. Then there will be order in society, harmony and equality. Perhaps equality in misery.
Again, corporate failures and bankruptcies, as well as expansion and becoming big, are part of the game under a capitalist set-up. Market failures almost always result in market solutions, unlike government failures that almost always result in more bureaucracies and offices to find out how much have been wasted and stolen already.
Here at home, if Metrobank or BDO or BPI would "collapse" someday for whatever reason, taxpayers should not support any bailout by the government, whether through the the central bank (BSP) or congressional appropriation. Let any big but misbehaving ship sink if it must -- that's fair game, and this alone will put enough pressure and discipline on existing banks, corporations and enterprises not to act irresponsibly. Government has little or no role on private contracts between stockholders or owners and corporate officials, except with its usual role of a parasite -- collecting high and dozens of different taxes when one or two taxes will suffice.
* See also: Inflation and CBs 4: Subsidies and Money Printing, August 17, 2008
The current financial "meltdown" should happen. If the meltdown does not happen today, then it should happen tomorrow, or next week, or next year. And it should continue, if only to weed out the irresponsible corporate leaders and the cheaters.
What should not happen is a government bail-out of collapsing and imploding big banks and firms. In this case, the proposed US government bailout for the financial sector to the tune of $700 billion -- not counting the projected budget deficit of more than $480 billion by the end of 2008 of the federal government alone (many states, cities and counties have their own sets of budget deficits).
So why is government bailout not justifiable? Three important reasons.
One, make those responsible for a corporate collapse be accountable for their mistakes. Hence, they should pay the price for their irresponsibility and misbehavior. Those who should sink must sink. And taxpayers' money should not be used to bail out irresponsible corporate guys.
Two, governments by themselves have no money on their own to bail out failed enterprises except for what governments confiscate from the income and savings of the hardworking citizens in the form of various taxes, charges regulatory fees and fines, or by printing money endlessly through their central banks, which can push inflation upwards endlessly, and thereby rob again the responsible citizens of the real value of their income, savings and investments.
And three, the US Fed's and other central banks' (like the Europe CB) large-scale bailout pool and consequent monetary policies will be distortionary. In cases like this, producers and manufacturers are forced to watch the behavior of the Fed or any central bank on whether it will raise or lower or keep existing interest rates, or protect the currency from further depreciation or appreciation, rather than watch the behavior of consumers (if their preferences and buying pattern are changing or not) or the behavior of competing producers from other countries (if they are producing better quality goods and services or selling at lower prices or a combination of both).
High inflation is caused mainly by lower supply relative to demand. So to address high inflation, expand supply relative to the size of demand. But central bank bureaucrats think they can solve the world's price problem by centralizing monetary tools in their hands, and squeeze money supply by tightening credits and raising interest rates -- which in the process choke many entrepreneurs and producers, both big and small.
The term "socialism for the rich" (under a longer phrase, "profits are privatized but losses are socialized") is wrong. The proposed multi-billion dollar bailout can be aptly called "socialism for the irresponsible" because only irresponsible and envious people would love socialism. Under socialism, the lazy and the envious will still eat, will still have allowances, and will be entitled to free "quality" education, health care, housing, etc. because social equality is non-negotiable.
For the socialists or trying-hard socialists, personal and corporate responsibility or irresponsibility do not count much. What matters to them is more "government responsibility" . So, corporate irresponsibility of officials of those big firms don't count much, those firms are "too big to fail", they should not sink, and their officials need not go to prison.
Some people ask, "Who are the irresponsible? Who defines 'irresponsibility' and who should penalize them?" There can be a BIG political battle on the definition of "irresponsible" because among the most irresponsible institutions involved in the current financial "meltdown" is the BIG US government itself.
It is easy to spot an irresponsible guy or institution: they live beyond their means, consistently. They spend much bigger than their income or revenue, consistently. Or worse, they spend and ask for more subsidies even if they have no income, nor have any plan to work and have regular income. A person who in his late 20s or 30s still depends his parents' allowance is irresponsible. A bank that lends to many people, who it perfectly knows have no jobs or no stable jobs and income, is irresponsible. A government on budget deficit, for one, two, five decades or more, is irresponsible.
So, how should they be penalized? The penalties for cases like failed companies are already in the books of any country's legal system. Bank or corporate officials who lose their stockholders' money should go to prison, or the cemetery perhaps -- in the case of those unlucky to be caught by really mad and impoverished investors.
After the US government announced the huge bailout fund that it seeks from the US Congress, the US stock markets were battered once more, the US dollar was knocked down further, and even world oil prices were up once more.
Why? It's the distrust on the US government, distrust on any fiscal "stimulus" by a bailout scheme because of the big taxes and fees that will be confiscated from the pockets and monthly salaries of US citizens in the coming months and years.
A friend shared that the proposed Treasury bailout plan has this provision:
Sec. 8. Review. Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.
Dictators hate for their work and decision to be reviewed and questioned. "Non-reviewable" clause by any court or any agency speaks of the absence of accountability and transparency, absence of personal and official responsibility, for any mistakes in the future. If they are not dictators, then they should be fully transparent and fully accountable for their actions and policy decisions. If they do not want to be accountable for any future mistake, then they should not initiate such bailout move in the first place.
The pattern and the dangers are there: individual responsibility is meaningless under a socialist or trying-hard socialist framework. Everything is "government responsibility" . The primacy of the collective over the individual, always. And in their books, to have order in the collective, each individual -- except the administrators and governors of the collective -- must surrender a big portion of their income, their savings and their personal liberty, to the collective. Then there will be order in society, harmony and equality. Perhaps equality in misery.
Again, corporate failures and bankruptcies, as well as expansion and becoming big, are part of the game under a capitalist set-up. Market failures almost always result in market solutions, unlike government failures that almost always result in more bureaucracies and offices to find out how much have been wasted and stolen already.
Here at home, if Metrobank or BDO or BPI would "collapse" someday for whatever reason, taxpayers should not support any bailout by the government, whether through the the central bank (BSP) or congressional appropriation. Let any big but misbehaving ship sink if it must -- that's fair game, and this alone will put enough pressure and discipline on existing banks, corporations and enterprises not to act irresponsibly. Government has little or no role on private contracts between stockholders or owners and corporate officials, except with its usual role of a parasite -- collecting high and dozens of different taxes when one or two taxes will suffice.
* See also: Inflation and CBs 4: Subsidies and Money Printing, August 17, 2008
Friday, September 26, 2008
US Debt 2: Private Sector Bailout of Government
On the subect of "bail-out", below is a short but good paper from a good friend, former President of Mackinac Center for Public Policy in Midland, Michigan, Larry Reed.
Larry is arguing that it's the private sector bailing out the national/federal government, not the other way around.
Meanwhile, now Mackinac Center President Joe Lehman made a comment a few years ago, that "While the Democrats want to bring us (Americans) to socialism on a train, the Republicans want to bring us there on a bus."
A friend here in Manila asked me, "After 8 years with Bush, does your friend in Mackinac change his statement?"
I said, "I think Yes. Probably he will say now, 'both Democrats and Republicans are bringing the US to socialism on a train.'"
-------
http://www.mackinac.org/article.aspx?ID=9829
Not So Fast!
by Lawrence Reed
"Thank God we had the federal government last week to bail out the private sector!"
That's what a rather statist friend of mine declared, almost gleeful that the financial crisis seemed to be proving how much we all need a massive federal establishment to both regulate and rescue us.
Never mind the federal government's own indispensable role as an enabler in the crisis, from its reckless monetary policy to its jawboning banks to make dubious mortgage loans. Never mind the long-term danger of its assumption of colossal new obligations and the moral hazard in the message its intervention sends. My response to my friend was of a more narrow focus. "Thank God we have the private sector to bail out the federal government not just last week, but every week!" I exclaimed.
Think about it. Taxes on the private sector pay a majority of the federal government's bills. For most of the rest, the government borrows by selling its debt obligations mostly to private sector entities - including banks, insurance companies and individuals.
The federal government is the world's biggest taxer and the world's biggest debtor. If those of us in the private sector didn't pay our taxes or didn't buy Washington's paper, the feds would have gone belly-up decades ago. We've rescued Washington to the tune of about $10 trillion and rising. A big difference between Washington bailing out the private sector and the private sector bailing out Washington is that the private sector has to work, invest, employ people and produce goods to come up with the cash. It can't print it like Ben Bernanke can.
Our friends in Washington have blessed us with future burdens almost too astronomical to comprehend. In the name of taking care of us in our old age, we are saddled with no less than $6 trillion in Social Security payouts over the next 75 years for which there are no presently-earmarked funding streams. According to Brian Riedl of the Heritage Foundation, the unfunded obligations for the new federal prescription drug program, enacted under President Bush total another $8 trillion. On and on it goes. The private sector has an awful lot of bailing out to do in coming decades.
If you have any doubts about the role played in the present crisis by the very federal government now posturing as our rescuer, take a look at this article from the Sept. 30, 1999 edition of The New York Times: http://tinyurl. com/3jdn9e. And then contemplate how deeply we taxpayers will have to dig in the not-too-distant future to pay the bills of our benevolent, compassionate and forward-thinking government.
* See also, US Debt 1: How Bloated is the US Govt? May 08, 2006
Larry is arguing that it's the private sector bailing out the national/federal government, not the other way around.
Meanwhile, now Mackinac Center President Joe Lehman made a comment a few years ago, that "While the Democrats want to bring us (Americans) to socialism on a train, the Republicans want to bring us there on a bus."
A friend here in Manila asked me, "After 8 years with Bush, does your friend in Mackinac change his statement?"
I said, "I think Yes. Probably he will say now, 'both Democrats and Republicans are bringing the US to socialism on a train.'"
-------
http://www.mackinac.org/article.aspx?ID=9829
Not So Fast!
by Lawrence Reed
"Thank God we had the federal government last week to bail out the private sector!"
That's what a rather statist friend of mine declared, almost gleeful that the financial crisis seemed to be proving how much we all need a massive federal establishment to both regulate and rescue us.
Never mind the federal government's own indispensable role as an enabler in the crisis, from its reckless monetary policy to its jawboning banks to make dubious mortgage loans. Never mind the long-term danger of its assumption of colossal new obligations and the moral hazard in the message its intervention sends. My response to my friend was of a more narrow focus. "Thank God we have the private sector to bail out the federal government not just last week, but every week!" I exclaimed.
Think about it. Taxes on the private sector pay a majority of the federal government's bills. For most of the rest, the government borrows by selling its debt obligations mostly to private sector entities - including banks, insurance companies and individuals.
The federal government is the world's biggest taxer and the world's biggest debtor. If those of us in the private sector didn't pay our taxes or didn't buy Washington's paper, the feds would have gone belly-up decades ago. We've rescued Washington to the tune of about $10 trillion and rising. A big difference between Washington bailing out the private sector and the private sector bailing out Washington is that the private sector has to work, invest, employ people and produce goods to come up with the cash. It can't print it like Ben Bernanke can.
Our friends in Washington have blessed us with future burdens almost too astronomical to comprehend. In the name of taking care of us in our old age, we are saddled with no less than $6 trillion in Social Security payouts over the next 75 years for which there are no presently-earmarked funding streams. According to Brian Riedl of the Heritage Foundation, the unfunded obligations for the new federal prescription drug program, enacted under President Bush total another $8 trillion. On and on it goes. The private sector has an awful lot of bailing out to do in coming decades.
If you have any doubts about the role played in the present crisis by the very federal government now posturing as our rescuer, take a look at this article from the Sept. 30, 1999 edition of The New York Times: http://tinyurl. com/3jdn9e. And then contemplate how deeply we taxpayers will have to dig in the not-too-distant future to pay the bills of our benevolent, compassionate and forward-thinking government.
* See also, US Debt 1: How Bloated is the US Govt? May 08, 2006
Tuesday, September 16, 2008
Rule of Law 1: Entrepreneurship and Government Permits
The World Bank and International Finance Corporation (WB-IFC) conducts an annual report, “Doing Business” and its 2009 Report was released last week. The goal of such report is to assess the 181 countries (178 countries in the 2008 Report) included in the survey on how easy or how bureaucratic they are for entrepreneurs and businessmen – who create jobs, who buy and produce various goods and services in society. It is a complex and delicate procedure, involving the inputs of top business consulting, auditing, legal and other companies in the countries surveyed.
After assessing the countries through assignment of a certain score, it ranked all the 181 countries. For this year, the 10 factors considered and measured in coming up with a composite score and where rankings are made, of “Ease in Doing Business” were: (1) Starting a business, (2) Dealing with construction permits, (3) Employing workers, (4) Registering property, (5) Getting credit, (6) Protecting investors, (7) Paying taxes, (8) Trade across borders, (9) Enforcing contracts, and (10) Closing a business.
So, how did the Philippines fare?
Rank in Ease of Doing Business, 2008
1. Singapore
4. Hong Kong
12. Japan
13. Thailand
20. Malaysia
23. Korea
61. Taiwan
83. China
88. Brunei
92. Vietnam
122. India
129. Indonesia
135. Cambodia
140. Philippines
165. Lao PDR
Again, for the nth time, the Philippines proved to be among the most bureaucratic of all supposedly “emerging economies”, ranking 140th out of 181 countries included in the survey! What pulled down its ranking were its scores on the procedures in Starting a business, also in Closing a business.
The top 10 countries with easiest procedures in starting a business – New Zealand, Canada, Australia, Georgia, Ireland, United States, Mauritius, United Kingdom, Puerto Rico and Singapore – only have one, at most 6 or 7, procedures to register and start a business, and each procedure does not take long to complete, and the fees are not plenty and high. In addition, the local governments hardly have any part in business registration procedures.
In contrast, the Philippines requires at least 15 procedures: 3 with the Securities and Exchange Commission (SEC); 4 with the barangay/village and city/municipality; 6 with the Bureau of Internal Revenue (BIR); 1 with the Social Security System (SSS); and 1 with PhilHealth. Registration with Pag-IBIG maybe optional, but most firms are required or advised to do so. Ask any serious entrepreneurs around, and most likely they will pinpoint at the local governments and the BIR that really give them difficulty if not hell.
The empowerment of local government units (LGUs) after the enactment of the Local Government Code (1991) was supposed to make the LGUs more responsive to the needs of the people in the locality. What happened in many cases, was the lives of hard-working and entrepreneurial people became more complicated, the less-responsible and less hard-working people were placated and subsidized, and personnel of the barangay/municipal/city halls were expanded and often pampered. Political decentralization and devolution did not mean less government but on the contrary, more government, as both national government agencies (NGAs) and LGUs take turns in slapping new regulations, new taxes and fees, to entrepreneurs who are deemed to have less political clout to the incumbent set of politicians.
The BIR will remain to be the nest of wastes and inefficiencies, if not large-scale corruption, because of the various powers and authority, whether transparent or arbitrary, given to that agency by various revenue laws sought by the Executive branch and granted to them by the Legislative branch.
Then there are many other NGAs that also require their own set of requirements, regulations and fees, on top of regulations, taxes and fees imposed and collected by the above-mentioned NGAs and LGUs. If a firm is manufacturing or distributing various food products, drinks, medicines and related products, it will have to get a license from the Bureau of Food and Drugs (BFAD) and/or the Department of Health (DOH). A friend of this writer who likes cooking produced different sauces for different type of barbeques. He invented around 20 different sauces, had his own packaging, already set up the marketing channels with selected local restaurants, shops, supermarkets, even a few outlets in the US. Six months have passed, 10 months, a year, and he still never got his BFAD license despite having submitted various samples for testing and re-testing. This experience plus some family concerns pushed him to abandon his business plan and migrated to the US instead.
If a firm is dealing with minerals extraction, it will have to go through a very long and complicated process in getting an Environmental Clearance Certificate (ECC) and other environmental permits with the Department of Environment and Natural Resources (DENR) and LGUs.
Friedrich Hayek observed in his book, The Constitution of Liberty, that government regulations “will always limit the scope of experimentation and thereby obstruct what may be useful developments. They will normally raise the cost of production or reduce overall productivity” (Chapter 15, Economic Policy and the Rule of Law). More regulations, more restrictions. Although such regulations may mean more revenues and more power for any national or local government body, they definitely kill certain innovative spirit and outcomes that some entrepreneurs may produce and develop.
The Rule of Law philosophy explicitly limits the arbitrary power of governments to create and enact too many rules, too many regulations and restrictions. Entrepreneurship and job creation is not a crime and harmful to people, especially those who need jobs, those who need new products and services. What often results with more restrictions, is that more ways and schemes are invented – and allowed in exchange for bribes – to circumvent and avoid those restrictive rules. This results in high levels of what are known as “informal” or “underground” economies.
For entrepreneurship and rule of law in the economy to flourish, the number of business regulations have to be drastically cut and reduced. Then entrepreneurship and job creation will be rewarded with freedom and prosperity, not penalized with endless regulations and taxation.
After assessing the countries through assignment of a certain score, it ranked all the 181 countries. For this year, the 10 factors considered and measured in coming up with a composite score and where rankings are made, of “Ease in Doing Business” were: (1) Starting a business, (2) Dealing with construction permits, (3) Employing workers, (4) Registering property, (5) Getting credit, (6) Protecting investors, (7) Paying taxes, (8) Trade across borders, (9) Enforcing contracts, and (10) Closing a business.
So, how did the Philippines fare?
Rank in Ease of Doing Business, 2008
1. Singapore
4. Hong Kong
12. Japan
13. Thailand
20. Malaysia
23. Korea
61. Taiwan
83. China
88. Brunei
92. Vietnam
122. India
129. Indonesia
135. Cambodia
140. Philippines
165. Lao PDR
Again, for the nth time, the Philippines proved to be among the most bureaucratic of all supposedly “emerging economies”, ranking 140th out of 181 countries included in the survey! What pulled down its ranking were its scores on the procedures in Starting a business, also in Closing a business.
The top 10 countries with easiest procedures in starting a business – New Zealand, Canada, Australia, Georgia, Ireland, United States, Mauritius, United Kingdom, Puerto Rico and Singapore – only have one, at most 6 or 7, procedures to register and start a business, and each procedure does not take long to complete, and the fees are not plenty and high. In addition, the local governments hardly have any part in business registration procedures.
In contrast, the Philippines requires at least 15 procedures: 3 with the Securities and Exchange Commission (SEC); 4 with the barangay/village and city/municipality; 6 with the Bureau of Internal Revenue (BIR); 1 with the Social Security System (SSS); and 1 with PhilHealth. Registration with Pag-IBIG maybe optional, but most firms are required or advised to do so. Ask any serious entrepreneurs around, and most likely they will pinpoint at the local governments and the BIR that really give them difficulty if not hell.
The empowerment of local government units (LGUs) after the enactment of the Local Government Code (1991) was supposed to make the LGUs more responsive to the needs of the people in the locality. What happened in many cases, was the lives of hard-working and entrepreneurial people became more complicated, the less-responsible and less hard-working people were placated and subsidized, and personnel of the barangay/municipal/city halls were expanded and often pampered. Political decentralization and devolution did not mean less government but on the contrary, more government, as both national government agencies (NGAs) and LGUs take turns in slapping new regulations, new taxes and fees, to entrepreneurs who are deemed to have less political clout to the incumbent set of politicians.
The BIR will remain to be the nest of wastes and inefficiencies, if not large-scale corruption, because of the various powers and authority, whether transparent or arbitrary, given to that agency by various revenue laws sought by the Executive branch and granted to them by the Legislative branch.
Then there are many other NGAs that also require their own set of requirements, regulations and fees, on top of regulations, taxes and fees imposed and collected by the above-mentioned NGAs and LGUs. If a firm is manufacturing or distributing various food products, drinks, medicines and related products, it will have to get a license from the Bureau of Food and Drugs (BFAD) and/or the Department of Health (DOH). A friend of this writer who likes cooking produced different sauces for different type of barbeques. He invented around 20 different sauces, had his own packaging, already set up the marketing channels with selected local restaurants, shops, supermarkets, even a few outlets in the US. Six months have passed, 10 months, a year, and he still never got his BFAD license despite having submitted various samples for testing and re-testing. This experience plus some family concerns pushed him to abandon his business plan and migrated to the US instead.
If a firm is dealing with minerals extraction, it will have to go through a very long and complicated process in getting an Environmental Clearance Certificate (ECC) and other environmental permits with the Department of Environment and Natural Resources (DENR) and LGUs.
Friedrich Hayek observed in his book, The Constitution of Liberty, that government regulations “will always limit the scope of experimentation and thereby obstruct what may be useful developments. They will normally raise the cost of production or reduce overall productivity” (Chapter 15, Economic Policy and the Rule of Law). More regulations, more restrictions. Although such regulations may mean more revenues and more power for any national or local government body, they definitely kill certain innovative spirit and outcomes that some entrepreneurs may produce and develop.
The Rule of Law philosophy explicitly limits the arbitrary power of governments to create and enact too many rules, too many regulations and restrictions. Entrepreneurship and job creation is not a crime and harmful to people, especially those who need jobs, those who need new products and services. What often results with more restrictions, is that more ways and schemes are invented – and allowed in exchange for bribes – to circumvent and avoid those restrictive rules. This results in high levels of what are known as “informal” or “underground” economies.
For entrepreneurship and rule of law in the economy to flourish, the number of business regulations have to be drastically cut and reduced. Then entrepreneurship and job creation will be rewarded with freedom and prosperity, not penalized with endless regulations and taxation.
Thursday, September 04, 2008
CSOs and State 5: Subsidiarity, Decentralization and Privatization
This paper will discuss some political concepts related to citizen administration and governance, including the role of civil society organizations (CSOs). Those 3 concepts in the title though will be the dominant themes.
The principle of subsidiarity
This principle states that the lowest and least centralized levels of administration and governance should handle the citizens’ various concerns. Only on concerns where the lower levels cannot handle that the next higher level of administration should take charge.
According to Wikipedia, “The principle of subsidiarity goes back to Pope Leo XIII in Rerum Novarum and holds that government should undertake only those initiatives which exceed the capacity of individuals or private groups acting independently. The principle is based upon the autonomy and dignity of the human individual… and emphasizes the importance of small and intermediate-sized communities or institutions, like the family, the church, and voluntary associations, as mediating structures which empower individual action and link the individual to society as a whole and holds that all other forms of society.”
This is a beautiful model of citizen administration because it encourages self-reliance, independence of action, and most importantly, it promotes and respects individual and parental responsibility in running people’s lives. Ultimately, society is made not mainly of government agencies and bureaucracies, but of individuals, households and their voluntary organizations. Such bodies range from churches, neighborhood or village associations, sports clubs, civic and charity clubs, professional organizations, advocacy associations, and so on. Government is only part of society and it is not the most important part, it is individuals and people.
Decentralization
Decentralization of political power, from the central or national government to the sub-national or local government, is a move that affirms the beauty and practicality of the principle of subsidiarity. This is after people have realized the ugliness and impracticality of central planning under a socialist government set-up or any of its derivatives characterized by a big and centralized government that is supposed to provide and subsidize everything but also takes everything from the people.
So certain social and economic functions are devolved to local government units (LGUs), functions that used to be handled by the central government and its various line agencies. Decentralization in this sense, is good because the LGUs are able to bridge the gap between a powerful and often less-sensitive central government, and ordinary citizens and their private enterprises and civil society organizations. Such civil society organs are mostly "apolitical" (like cooperatives, neighborhood associations, churches, sports clubs, civic and charity clubs, etc.), where people just want their individual choices and organizational freedom be respected. The citizens often feel “powerless” in relation to a centralized and very often bureaucratic, national government.
Local government function in this respect can approximate the competition among private enterprises and/or individuals in providing the needs of society. When certain functions are provided by the central or national government alone, there is no competition, there is only monopoly. And a monopoly very often creates lots of waste and inefficiencies because a monopolist thinks its “consumers”, the people, have no other options anyway.
Competition is possible among local governments. Neighboring towns and/or cities attracting lots of investors, local or multinationals, are forced to compete with each other in terms of better infrastructure, lower crime rates, lower local taxes, easier business registration, and so on. This competition among neighboring cities is happening in some of Metro Manila’s LGUs (composed of 17 cities and municipalities), and the result is generally good. Provinces and cities or municipalities that have good white sand beaches, or beautiful waterfalls or lakes and mountain resorts, will be competing with other provinces and cities or municipalities that have the same natural attractions. The LGUs in this situation will be compelled to improve their infrastructures like airports, seaports, roads, power supply, etc., as well as improve the peace and order situation, if they are serious in attracting more tourists and visitors to come. More tourism, more business and employment opportunities to local residents.
With this background in mind, can one conclude that local governments automatically provide more democracy? NO. While it is true that LG is closer to the citizens and can identify their needs more than a central government, LG can also introduce its own set of economic distortions through new regulations, taxes and fees on top of those implemented and collected by the national government.
Note for instance, those small economies with very small local governments like Maldives, Singapore and Hong Kong: they charge only 1, 4, and 5 different taxes respectively, for medium-sized companies. In contrast, economies with plenty of local governments like the Philippines, Indonesia and India, even with decentralization, charge 47, 51 and 60 different taxes and fees, respectively, to medium-sized enterprises. Data from the World Bank and Price Waterhouse Coopers (WB-PWC) study, “Paying Taxes 2008: The Global Picture”.
Will decentralization always lead to better governance and poverty alleviation? NO. Decentralization can lead to better governance because LGUs competing with each other can improve services to the public, but this is not always the case. As discussed above, LG can introduce new rules and regulations, new taxes and fees, even create new local monopolies, etc. on top of existing regulations, taxes and monopolies administered by the central government. The end-loser of this situation are the citizens.
And will fiscal decentralization ensure equality among regions? Again, NO. There is no assurance for equality among regions, provinces, cities and villages because each locality has physical, geographical and population characteristics that are different from the other localities. Finally, local governments should NOT aspire for equality among each other. An island-province that is mountainous and volcanic cannot aspire to become equal with a flat, cosmopolitcan and urbanized island-province. The former can develop eco-tourism or geothermal energy as main development path.
Splitting of function
The main task for the national government in the opinion of this writer, is maintenance of (a) armed forces against external aggression, (b) foreign affairs and international diplomacy, (c) infrastructure and public works not covered by the private sector through franchise or build-operate-transfer, build-own-operate and related schemes; (d) judiciary, both lower and higher courts to settle disputes among people, their enterprises and organizations, (e) legislature, to amend or abolish antiquated laws, create or consolidate new laws, and (f) revenue collection and budgetary disbursement body.
The rest of social functions – the police, fire protection, basic and secondary education, primary health care, garbage collection, others – can be devolved to LGUs. The purpose is to instill competition among LGUs – better roads, airports, other infrastructure; better peace and order; better education and training of people, etc. So that people can “vote with their feet”, if their current LGU is behaving like a giant hold-upper and providing mediocre services, people can leave and move to other provinces or cities. With such splitting of function, I can hardly think of other disadvantages.
Levels of local government
Local government takes many forms in many countries. In the Philippines, LGUs range from the province, down to city or municipality, down to the barangay or village, as the lowest and most basic political organ. A province is composed of municipalities and cities. A city is more “prestigious” than a municipality because the former connotes bigger economic activities and hence, bigger revenues. All LGUs have a share of internal revenue allotment from the national government, and have powers to create and collect their own set of local taxes and fees.
In theory and in the law, those barangay leaders should be “non-partisan”; hence, they cannot join the established political parties. In reality, they are highly partisan to any opposing candidates for city or municipal mayor. Nonetheless, barangay leaders are usually the most sensitive to citizens’ concerns.
In the experience of this author as a private citizen, and living in a “non-gated” village or subdivision, the most important function of a local government, the barangay especially, is the maintenance of peace and order in the locality. The barangay does this mainly through good street lighting in the evening, and having very alert and mobile barangay patrols. When some neighbors become noisy at nighttime, disturbing other people’s sleep, just one phone call of the barangay, the barangay patrol comes in a few minutes, and the noisy neighbors suddenly become silent. Any roving thieves and robbers are also afraid to come near the neighborhood in the evening because they can easily be seen and recognized due to good street lights.
When there is peace and order in the community, people can be productive. They can work late if they want, or start work very early in the morning, knowing that their house, their family, are generally safe. Of course, households should still secure their house and other property properly.
Getting good people for local governments
Bad politicians run for local (and central) government mainly to steal, or to create restrictive and protectionist policies to favor and protect themselves, their businesses, and their friends’ economic and political interests. But good people also have the same incentives to run for the same position, mainly to block the victory or capture of political power by the bad politicians. Hence, “recruting good people for local governments” is not a problem because there is always an incentive for some well-meaning people to join the government, both at the local and national levels.
The main problem though is the credibility of the electoral process. Good politicians are not likely to cheat in elections and to bribe election officials just to win. It is the corrupt politicians who have all the incentives to cheat in elections, bribe voters, bribe election inspectors, bribe election officials. And it is this lack of credibility of the electoral process in the Philippines and many other developing countries that is the main hindrance why many good people are discouraged from entering politics. There is deep feeling that one will be compelled by circumstances to engage in some election cheating, or bribery of election officials, from limited to large level, if only to minimize the damage and reduce the effect of large-scale cheating by the bad politicians and unprincipled political parties. This alone turns off many good people from entering politics and they prefer to be in private business, where there is less political controversies, where life is more peaceful.
There are at least 2 ways to help remedy this situation. One is a major reform in a country’s electoral system towards more transparent, more modern system like computerized voting and counting. And two, to have a strong political party with very distinct and principled political and economic philosophy, and the party and its leaders will provide political, financial and moral support system to good politicians not to lose heart and be more brave.
The usual campaign of “fighting corruption”, “good governance” and related mottos may no longer catch the imagination of the average citizens because almost all political parties, almost all politicians, whether from the administration or the opposition, are saying the same thing. There is a big potential for a political party that advances the principle of subsidiarity, classical liberal and related philosophies of less government, less taxes and regulations, and advancing individual responsibility. A political party that strongly believes in the “rule of law” in the Hayekian definition of “the law applies to everyone and exempts no one”.
Liberalism
This philosophy, according to wikipedia, considers “individual liberty to be the most important political goal”. Putting this definition with the above definition of subsidiarity principle, it can be said that the individuals and their family, their private enterprises, their voluntary and civil society organizations, are the lowest levels of citizen administration and governance, and not the local government. Only in cases and functions where the households, the private enterprises and civil society organs cannot handle, that local governments up to the central government should take charge.
The advantage of relying first with the individuals and their voluntary organizations for self-administration and self-reliance, is that various goods and services are produced and exchanged in a voluntary way. When a locality has lots of rice, vegetables, fruits, animal products, but no fishery products, a fisherman or aquaculture farmer, or a small firm producing and trading fishery products, will provide said products to the people. And when people have lots to eat but no or little entertainment areas, another firm can put up a mall with moviehouses, or theme park, and so on.
When people exchange goods and services in a voluntary manner, as in free trade and free market, very little forcible contributions, i.e., taxes and fees, will be needed. The government’s role, local governments especially, is to watch out and discipline lazy and bully people who engage in stealing, cheating and various crimes. The protection of the citizens’ right to life, right to private property, and right to liberty and dignity, remains a very important function of government, both the central and local government.
Privatization
Here in the Philippines, the proliferation of private security guards is noticeable. All malls and department stores, all residential and office buildings, all banks and convenience stores, all schools and universities (except government schools at elementary level), all hospitals, all villages and subdivisions, even airports, seaports and bus terminals, are guarded by private security guards. In a sense, one can say that the peace and order function has been privatized, and so far it is working. And that it is an indicator of citizen distrust of the capacity and sincerity of the government policemen. The police effectively has limited function but big budget, and some of them are tainted with links to organized criminals.
Private schools at the pre-elementary, elementary and secondary levels are plenty in the Philippines. Which again is an indicator of citizen distrust of the capacity and quality of government-run schools, despite the Department of Education (DepEd) having the biggest annual budget among all departments and agencies. There are plenty of private clinics and hospitals too, some expensive but many are offering competitive prices. People have choices depending on their budget and type of services demanded.
If peace and order function can be privatized, and private security companies are competing with each other in offering good services, many other social functions can be privatized too.
Privatization is consistent with the principle of subsidiarity. If private enterprises can provide the needs of the people, say education, restaurant, buses, hospital, haircut, then both central and local government should stay away. This also reduces the rationale for high and multiple taxes and fees. And privatization works best if the economy is deregulated and demonopolized. When a state enterprise is privatized, it should be “one of the many” enterprises in that sector. If privatization happens while the economy is over-regulated and monopolized, then it will just be a transfer from government monopoly to private monopoly, and citizens will not feel much the difference. When citizens say private enterprises are better compared to government monopoly, it’s because in the former, they have a choice. They can patronize one company and boycott the others. This scares all other enterprises, and they are all forced to improve their services.
Some services becoming expensive after privatization can be expected, and some services becoming cheaper after privatization can be expected too. This is because of “product differentiation” and “price segmentation” by competing enterprises. When an airline is a government monopoly, fares can be either low (due to subsidy) or high (due to wastes) but services can be lousy because the monopolist knows that the riding public have no other airlines to choose anyway. After privatization coupled with deregulation and demonopolization, various airlines come in and compete with each other. Airline A will field new and modern planes, provide free food and drinks to passengers and charge expensive fares. Airline B is a budget airline, no food and drinks and charge low fares. Airline C also gives no food and drinks but offer some perks on participating shops and hotels and charges fare midway between those of airlines A and B. That is how product or service differentiation and price segmentation work and it is one result of competition.
It is important that local government leaders should recognize the practicality of the principle of subsidiarity and privatization, that local governments can only be a transition stage to a condition of civil society, and not an end in itself in citizen self-administration and empowerment. Informed and responsible people know what they want, and what they do not want. This creates diversity in needs and aspirations of people, but such diversity should be respected, not discouraged by forcing equality in society.
Subscribe to:
Posts (Atom)