Saturday, December 07, 2019

Welfarism 34, Larry Reed on poverty and self-reliance

These are old notes by a great friend Larry Reed, former President of the Mackinac Center in Michigan, then President of the Foundation for Economic Education (FEE) in New York. He surveyed the policies of past US Presidents on non-welfarism. These are chapters in his book, "Government, Poverty and Self-Reliance: Wisdom of 19th Century Presidents."

Enjoy. Meanwhile, I like this meme from freedomworks.org.


“A Subtle Destroyer”
April 8, 2005 |  By Lawrence W. Reed

…  "The lessons of history, confirmed by the evidence immediately before me, show conclusively that continued dependence upon relief induces a spiritual and moral disintegration fundamentally destructive to the national fiber. To dole out relief in this way is to administer a narcotic, a subtle destroyer of the human spirit. It is inimical to the dictates of sound policy. It is in violation of the traditions of America."

Those were not the words of a 19th century president. They came from the lips of our 32nd chief executive, Franklin Delano Roosevelt, in his State of the Union Address on Jan. 4, 1935. A moment later, he declared, "The Federal Government must and shall quit this business of relief."

We all know that it didn't. Indeed, 30 years later Lyndon Johnson would take "this business of relief" to new and expensive heights in an official "War on Poverty." Another 30 years and more than $5 trillion in federal welfare later, a Democratic president in 1996 would sign a bill into law that ended the federal entitlement to welfare. As Ronald Reagan, a far wiser man, observed long before it dawned on Bill Clinton, "We fought a war on poverty, and poverty won."

What Reagan instinctively knew, Bill Clinton finally admitted and FDR preached but didn't practice was that government poverty programs are themselves poverty-stricken. We have paid an awful price in lives and treasure to learn some things that the vast majority of Americans of the 19th century — and the chief executives they elected — could have plainly told us: Government welfare or "relief" programs encouraged idleness, broke up families, produced intergenerational dependency and hopelessness, cost taxpayers a fortune and yielded harmful cultural pathologies that may take generations to cure.

The failure of the dole was so complete that one journalist a decade ago posed a question to which just about everybody knows the answer and the lesson it implies. "Ask yourself," wrote John Fund of The Wall Street Journal, "If you had a financial windfall and wanted to help the poor, would you even think about giving time or a check to the government?"

The pre-eminent beneficiaries of the whole 20th century experiment in federal poverty-fighting were not those whom the programs ostensibly were intended to help. Rather, those beneficiaries were primarily two other groups:

Politicians who got elected and re-elected as champions of the needy and downtrodden. Some were sincere and well-meaning. Others were cynical, ill-informed, short-sighted and opportunistic. All were deluded into traveling paths down which not a single administration of the 19th century ever ventured — the use of the public treasury for widespread handouts to the needy.

The problem was neatly summarized once again by Tom Anderson, whose vignette on recent presidents I cited earlier. Anderson said the "welfare state" got its name because, "The politicians get well, while everybody else pays the fare."

The bureaucracy — the armies of professional poverty fighters whose jobs and empires always seemed secure regardless of the actual effects of the programs they administered. Economist Walter Williams put it well when he described this as "feeding the sparrows through the horses." Williams also famously observed, "A lot of people went to Washington (D.C.) to do good, and apparently have done very well."

Liberty: The Real War on Poverty
April 8, 2005 | By Lawrence W. Reed

An unabashed, unrepentant welfare statist would probably survey the men who held the highest office in the land during the 19th century and dismiss them as heartless, uncaring and hopelessly medieval. Even during the severe depressions of the 1830s and the 1890s, Presidents Martin Van Buren and Grover Cleveland never proposed that Washington, D.C., extend its reach to the relief of private distress broadly speaking, and they opposed even the smallest suggestions of that kind.

Welfare statists make a crucial error, however, when they imply that it was left to presidents of a more enlightened 20th century to finally care enough to help the poor. The fact is, our leaders in the 1800s did mount a war on poverty — the most comprehensive and effective ever mounted by any central government in world history. It just didn't have a gimmicky name like "Great Society," nor did it have a public relations office and elitist poverty conferences at expensive seaside resorts. If you could have pressed them then for a name for it, most if not all of those early chief executives might well have said their anti-poverty program was, in a word, liberty. This word meant things like self-reliance, hard work, entrepreneurship, the institutions of civil society, a strong and free economy, and government confined to its constitutional role as protector of liberty by keeping the peace.

In hindsight, it's a little amazing that the last great president of the 19th century, Grover Cleveland, was just about as faithful to that legacy of liberty as the first great one of that century, Thomas Jefferson. When Cleveland left office in March 1897, the federal government was still many years away from any sort of national program for public payments to the indigent.

To be sure, the Washington, D.C., establishment was bigger than Jefferson had left it in many other respects — alarmingly so, in most cases. But it was not yet even remotely a welfare state. Regardless of political party, the presidents of that period did not read into the Constitution any of the modern-day welfare-state assumptions. They understood these essential verities: Government has nothing to give anybody except what it first takes from somebody, and a government big enough to give the people everything they want is big enough to take away everything they've got. These chief executives had other things going for them, too — notably, a humbling faith in Divine Providence, and a healthy confidence in what a free and compassionate people could do without federal help.

And what a poverty program liberty proved to be! In spite of a horrendous civil war, half a dozen economic downturns and wave after wave of impoverished immigrants, America progressed from near-universal poverty at the start of the century to within reach of the world's highest per-capita income at the end of the century. The poverty that remained stood out like the proverbial sore thumb because it was now the exception, no longer the rule. In the absence of stultifying government welfare programs, our free and self-reliant citizenry spawned so many private, distress-relieving initiatives that American generosity became one of the marvels of the world. This essentially spontaneous, non-centrally-planned "war on poverty" stands in stark contrast to Lyndon Johnson's "Great Society" because it actually worked.

My assistant in preparing this paper, a Grove City College senior named Christopher Haberman, expressed in an e-mail to me a little frustration at what he was not finding as he researched the papers of Thomas Jefferson and James Madison. He wrote: "I was disappointed to find that there were not many direct references to poverty. It seems that (they) were more concerned with Barbary pirates. They had no concept of (direct) government aid to the impoverished."

Haberman was right. Consider Jefferson — the author of the Declaration of Independence, America's third president, and someone who exerted enormous intellectual influence during this country's formative years. His were the first two presidential terms of America's first full century as a nation. His election in 1800 marked a turning point from 12 years of Federalist Party rule and set the tone for decades to follow. In his first Inaugural Address in 1801, Jefferson gave us a splendid summation of what government should do. It did not describe welfare programs, but rather, "A wise and frugal government, which shall restrain men from injuring one another, shall leave them otherwise free to regulate their own pursuits of industry and improvement, and shall not take from the mouth of labor the bread it has earned. This is the sum of good government."

A similar view was held by James Madison, a key figure in the construction of the Constitution, a prime defender of it in "The Federalist Papers" and our fourth president. Madison vetoed bills for so-called "internal improvements," such as roads, at federal expense, so it would have been inconceivable to Madison that it was constitutional to use the power of government to take from some people and give to others because the others were poor and needed it. While there might be a reasonable, even constitutional, case for certain federal road-building projects for national defense purposes (or at least the benefit of everyone), for Madison and Jefferson there was no constitutional case to be made for assistance to individuals in poverty.

In a speech in the U.S. House of Representatives years before he became president, Madison declared: "The government of the United States is a definite government, confined to specified objects. It is not like state governments, whose powers are more general. Charity is no part of the legislative duty of the government."
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See also:
Welfarism 31: More CCT and Subsidy Programs Won't Solve Self-inflicted Poverty, February 12, 2016 
Welfarism 32, On forcing restaurants to give their excess food to charities, July 27, 2016 

Welfarism 33, Janitor turned lawyer, self-reliance vs welfare-dependence, May 05, 2017

Friday, December 06, 2019

BWorld 391, COP 25 and fossil fuels

* My column in BusinessWorld, December 02, 2019.


The UN Framework Convention on Climate Change (UN FCCC) 25th Conference of Parties (COP 25) is held in Madrid starting this week, Dec, 2-13. In a press release dated Nov, 29, “COP25 to Be the Launchpad for Significantly more Climate Ambition,” it reiterated the target of annual climate money: “We will continue to urge developed nations to fulfill their pledge of mobilizing $100 billion annually by 2020. We also must see overall global finance flows… away from carbon-heavy investment and towards more sustainable and resilient growth. Drops in the bucket are not enough: we need a sea change.”

For more than two decades now, the UN and its various multilateral agencies have been demonizing fossil fuels and CO2 emission then they use lots of fossil fuels in their annual COP meetings with tens of thousands of participants, plus several thousands in various pre-COP meetings worldwide.

The reality is that many developing and newly industrializing economies embrace more fossil fuels to sustain their growth. Data in Table 1 delineate the G7 countries and major East Asian economies plus Australia, from 1995 COP 1 to 2018 COP 24.

  
Now, when we get the total fossil fuel use of countries and compare with their GDP size, a correlation is shown — all G7 countries that “decarbonize” faster, their fossil fuel consumption from 1995 to 2018 expanded only 0.8 to 1.3x, also have slow GDP expansion. The other group expanded their fossil fuel use by 1.4x or higher and experienced GDP expansion of 2.5x or higher (see Table 2). 


The Philippines has the smallest fossil fuel use of only 42 million tons oil equivalent (mtoe) in 2018, very small coal use of only 16 mtoe, and has the second-lowest GDP size of only $331 billion. And many groups, both government and non-government, are pushing and lobbying that the Philippines should cut its oil and coal plants via higher oil-coal tax, have a carbon tax upon the prodding of the IMF and other multilaterals, or a “climate tax on electricity” (CTE), a lousy idea filed by Congresman Luis Raymund Villafuerte.

While most climate activists abroad do not delineate the three types of fossil fuel energy and demonize all, several big environment and leftist groups in the Philippines demonize only oil-coal and praise gas. When the TRAIN (Tax Reform for Acceleration and Inclusion Act) law was enacted in 2017, they successfully lobbied to have a higher oil-coal tax and exempted gas from the tax hike. They seem to be in cahoots with gas companies here.

The UN and its attached multilaterals, the anti-coal, anti-fossil fuel environmentalists and lobbyists deny that climate change is cyclical (warming-cooling…) and natural (nature-made, not man-made), for the past 4.6 billion years when planet Earth was born. They distort basic geology and climatology because they are blinded by their ecological central planning mindset and hunger for more carbon taxes and multi-billion dollar climate money.

The IMF should focus on its original mandate of global macroeconomic and balance of payments stability, and get out of fanning climate alarmism and anti-inequality leftism. And Brexit is a good move partly to escape the EU’s heavy and restrictive environment and climate policies that can stifle stronger economic growth and business expansion.
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See also:

BWorld 388, TAPP paper on power, November 28, 2019 

CNN PH and climate, FIT-All and coal

Last year, June 26, 2018, I received an email from Mr. Chad de Guzman, Digital Producer of CNN Philippines. He was writing about the Feed in Tariff Allowance (FIT-All) and asked me several questions.

Backgrounder -- FIT-All is additional cost in the monthly bill of all electricity consumers nationwide, the difference between the guaranteed price (for 20 years) of favored renewables and the market clearing price (MCP) in WESM. In short, subsidies to renewables, especially wind-solar. This is contained in the RE law of 2008 or RA 9513 but FIT-All was imposed only in 2013, started with 4 centavos/kWh. Then it kept rising in 2016-2018 to 25 centavos/kWh.

Below were the questions sent by Mr. de Guzman:

"Who should be paying for FIT in your opinion?
Do you think amendments to the FIT provisions, especially the guaranteed price lock-in, would be enough to ease the burden on consumers? Or is abolishing the system better?
Can the Philippines begin a just energy transition with the government's "Build, Build, Build" program in tow? What is there to compromise?"

I replied to it the next day, then he made follow up questions:

"Sir, you're saying that we cannot shift our baseload completely to intermittent renewables because of their unreliability? How would you address the climate impact of using fossil fuel, even though the PH has a low NDC?"

I answered these too. Then no more communications from him, I waited if he would alert me about his article, none.

Curious, I checked his articles in CNN PH, I saw this,

COVER STORY Does the 'FIT-All' fit at all in your electric bill?
By Chad de Guzman
Published Jul 1, 2018 6:42:04 AM
https://cnnphilippines.com/news/2018/6/30/FIT-All-feed-in-tariff-electric-bill.html.

Zero mention of his interview with me. He simply dumped my response to his email interviews.

So I will post here my answers to his questions that he ignored or dishonored.

1. You said that consumers are carrying the brunt of the weight of paying for the FIT-All. Who should be paying for FIT in your opinion?

--> There should be no FIT or guaranteed high price for 20 years, in the first place. FIT is a creation of RA 9513 or the RE law of 2008, lots of cronyist provisions were created in that law (FIT, RPS, fiscal incentives like VAT exemption, ITH, etc.).

--> People who think they should support intermittent renewables like wind-solar, they should pay for their high price. No need for legislation and forcing, arm-twisting everyone else to pay their high price via FIT, mandatory dispatch to the grid, etc. People should walk their talk.

2. Do you think amendments to the FIT provisions, especially the guaranteed price lock-in, would be enough to ease the burden on consumers? Or is abolishing the system better?

--> My advocacy for free market, zero subsidy in pricing says that FIT system should be abolished by tomorrow. But my advocacy for rule of law, for respect of contracts says that those onerous provisions via the onerous law need to be respected somehow. Companies have invested billions of pesos to put those intermittent renewables, they need to recover their investment somehow.

--> I think a better compromise is to have one price for FIT for all (wind, solar, biomass, ror hydro) towards the low end received by ror hydro plants, P6+/kWh, see  http://bworldonline.com/positive-and-negative-disruptions-in-the-electricity-market/.
After all, the solar and wind advocates keep repeating the mantra that "solar tech, wind tech are improving so fast that the cost is declining also very fast." Let them walk their talk.

3. Can the Philippines begin a just energy transition with the government's "Build, Build, Build" program in tow? What is there to compromise?

--> If you mean having more intermittent wind-solar (plus battery) to power BBB, the answer is a big No. (1) If the Sun doesn't shine (like during monsoon/habagat of rains/cloudy days for 1 week straight or more), there will be no surplus solar power to store; if the wind doesn't blow, no surplus wind power to store. (2) BBB like building huge airports, long and big tollroads/skyways require huge amount of electricity for lighting that run 24/7 stable supply, no brownout even for a minute.

--> Fossil fuel is good. Oil allows people to travel long distances with convenience by car, buses. If oil is bad, people should use only skateboards, bicycles, running/walking shoes, and horses. Coal power provided nearly 50% of total electricity supply nationwide in 2017 even though coal plants constituted only about 35% of total installed power capacity.

--> Anti-fossil fuel, anti-coal people do not realize that the really dirty energy sources are candles and gensets. If there is frequent brownout because people rely too much on intermittent energy, poor people will buy more candles while the middle class and the rich will buy more gensets. More candles means more fires, more destruction of properties and deaths. More gensets means more noise and air pollution bec gensets run on diesel, more expensive, dirtier.

5. Sir, you're saying that we cannot shift we cannot shift our baseload completely to intermittent renewables because of their unreliability?

--> Yes. And not only big infra/BBB but even for ordinary households, small shops like carinderia, poor neighborhood/communities. 24/7 electricity allows the poor to study  work at night, improving their productivity today and tomorrow. Bright lights at night in poor communities drastically prevent road accidents and crimes. Dark streets means more abduction and rape, more robbery and murders. Criminals enjoy darkness, they easily become anonymous.

6.  How would you address the climate impact of using fossil fuel, even though the PH has a low NDC?

--> Climate change (CC) is natural and cyclical. Planet Earth is 4.6 B years old, we've had CC all those years, we have CC now, we'll have CC in the next 4+ B years. Warming-cooling-warming-cooling in endless, natural cycles. So it is more of natural or nature-made CC, not man-made CC.

--> Fossil fuel has allowed humanity to survive severe global cooling in the past via electrical heating in houses, shops and offices in temperate countries; via tall and stronger structures that allow people in the tropics to survive severe flooding.

-- > During period of global warming, fossil fuel electricity gives people reliable air-conditioning in their houses, cars and offices. If you look at the chart of humanity life expectancy, the big jump in life expectancy occurred in the past  1 1/2 century when modern electricity, modern cars and buildings were put to use.
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When we talk about natural climate cycle, there are so many examples. Like paleo-climate data of global warming-cooling cycle, sea ice melt-grow cycle, El Nino-La Nina cycle, winter-spring-summer-fall cycle in the North and South Hemisphere, wet-dry season cycle in the tropics, etc.

And these natural climate cycles would irritate most if not all climate alarmists. For them, there is only "unprecedented global warming." Wrong, there are many periods in the past of global warming -- Minoan warm period, Roman warm period, Medieval war period. They also deny that global cooling will occur after global warming phase, like the Little ice age (LIA) between the Medieval and modern warm periods.

Below, Arctic then Antarctica ice cycle, data from Japan Aerospace Exploration Agency (JAXA) - National Inter Polar Research (NIPR). Also compiled here, https://wattsupwiththat.com/reference-pages/sea-ice-page/

Arctic ice. The lowest levels normally occur in August-September, minimum record about 4 million sq. kms. -- about 13.3x the total land area of the Philippines of 0.3 million sq. kms. The highest levels normally occur in February-March, maximum record about 16 million sq. kms. -- about 53x the land area of the Philippines.


Antarctica ice. Reverse period with Arctic ice, the lowest levels occur in February-March, minimum record about 3 million sq. kms. Highest levels occur in February-March, maximum record about 20 million sq. kms.



El Nino-La Nina cycle. Sea surface temperature (SST) anomaly or deviation from the average temperature, 1950 to 2019. Data from the National Climate Data Center (NCDC) of the US National Oceanic and Atmospheric Administration (NOAA). More data are compiled here, https://wattsupwiththat.com/enso/.

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Then last October 23, 2019, I got an email from Ms. Marjolee Carpio of CNN PH, inviting me to a live interview on November 07, 2019, 7-7.30pm, “On The Record” program hosted by Ms. Ruth Cabal. Topic would be about the "current power situation in the Philippines" and there would be two other guests, Gerry Arances,  Executive Director of the Center for Energy, Ecology and Development (CEED), and Neri Colmenares, Chairperson of Bayan Muna.

I quickly replied Yes of course. I thought it would be a nice, cool debate with these two anti-coal guys, planet saviors who are often quoted or mentioned (online stories or tv interviews) in many reports by ABS-CBN and other media outlets. I have dozens of data and numbers why the anti-coal, anti-fossil fuel lobbyists, NGOs and multilaterals are wrong in their climate alarmism propaganda.

Then on November 07, 2019, I got another email from Marjolee, saying that they move the interview to another date. Meaning it was postponed or cancelled. When I asked the reason for postponement, I got no reply. I think Mr. Arrances and Colmenares chickened out? They realized that they are only  effective in talking to cameras and reporters that do not show data and charts that do not conform with their narratives?

Anyway, I hope other groups or media outlets would sponsor a debate on climate, fossil fuels, CO2 demonization, etc. Not only with Mr. Arrances and Colmenares, even with CCC and DENR officials, WWF and Greenpeace climate ideologues.

Wednesday, December 04, 2019

BWorld 390, Vape control and brand control

* My article in BusinessWorld last November 26, 2019.



“The only purpose for which power can be rightfully exercised over any member of a civilized community, against his will, is to prevent harm to others. His own good, either physical or moral, is not a sufficient warrant.”

— John Stuart Mill,
On Liberty (1859), Ch. 1 Introduction

We are now living healthier, wealthier, and longer. This despite people’s rising consumption of sugary food and drinks, fatty food and snacks, alcohol, tobacco, and vaping products. And there seems to be a problem with the narrative that more alcohol and tobacco and its substitutes like e-cigarettes, flavored vapor products, result in more sickness and by extension, more deaths. China and Indonesia have higher smoking prevalence (SP) than the Philippines yet they have higher life expectancy than us. The United Kingdom, United States, and Japan have higher SP than Thailand yet they have longer life expectancy than the latter (see Table). 



Recently President Rodrigo Duterte gave a verbal order to ban or prohibit vaping in public places nationwide and to arrest the violators. This is on top of existing law on smoking ban in public places, allowed only in some designated places.

There is little or zero debate that smoking is bad for our health — it is generally accepted. The debate has shifted to whether to have more restrictions and prohibitions against smoking, or to allow “harm reduction” via e-cigarettes and vaping products.

I do not smoke, never smoked even a single stick in my 50+ years. But I drink. I have enjoyed drinking with friends for the past four decades. I prefer the “low octane” beer with just 5% alcohol content and avoid the medium to “high octane” drinks with 20% or higher alcohol content. In a sense, beer consumption is my “harm reduction” instead of consuming hard liquor, and I can still enjoy those alcohol molecules that go through our blood stream up to the brain, which tend to relax people and evoke lots of laughter, even singing and dancing.

From what I read, most of the vapers who were hospitalized in the US recently were using tetrahydrocannabinol (THC) oil cut with Vitamin E acetate thickening agent, not standard vape juice. Vapers may not admit it because THC is the active ingredient in cannabis and is illegal in many countries. Vitamin E acetate is also not safe to inhale and has been linked to lipoid pneumonia, which can be fatal. So the culprit here may not be those ordinary water-based, some nicotine-containing, juices but the black market THC cartridges.

Instead of looking at vaping as encouraging more harm, it should be considered as reducing harm, as a “smoking cessation aid.”

Looking at prohibitions, we have lots of those laws in the Philippines — bans on prostitution, bans on certain types of gambling, bans on harmful drugs, bans on unregistered guns, bans on smuggling, bans on corruption and plunder. And we have all of these around us.

More bans and prohibitions only encourage more corruption. More regulations and taxation further encourage more smuggling, the result of which is that more smoking, drugs, and drinking happen because the smuggled products are cheaper.

This happened in Australia. After they legislated plain packaging for tobacco products in December 2012 — no more colorful packaging, no logo, only huge graphic warnings of dilapidated tongues and lungs — illegal and smuggled tobacco has increased from 11.5% of total supply in 2012, to 13.5% in 2013, 14.7% in 2014, up to 15% in 2017 (source: KPMG, March 2018. Illicit Tobacco in Australia, 2017 Full Year Report).

Finally, vape control, brand control via plain packaging, (minimum) wage control, (ceiling) fare control, (maximum) drug price control, gun control, drugs control, etc. — they are more about state command and control and less about regulation.

With these ever-rising bans and controls by the state, soon we will have sugar control, salt control, chocolates control. Not good.
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See also:

BWorld 388, TAPP paper on power, November 28, 2019 

Gold reserves, Russia and China stockpiling

Some interesting trend here, gold reserves in tonnes.
The US is the world's leader, followed by Germany. But see the other trend...

 https://tradingeconomics.com/country-list/gold-reserves



Is this part of the Russia-China "de-dollarization" moves? Instead of buying more US government bonds, they purchase and stockpile more gold? Interesting to watch.

Tuesday, December 03, 2019

BWorld 389, Tourism, taxation and competition

* My column in BusinessWorld on November 26, 2019.


The Philippines with 7,600+ islands and islets and 108 million population still has difficulty reaching $10 billion in tourism revenues, something that many of our neighbors in the region had attained nearly a decade ago (see Table 1).

  
During The Arangkada Philippines Project (TAPP) Conference last week, Nov. 21, at Marriott Grand Ballroom Manila, three policy reports were launched and discussed — on tourism, agribusiness, and power.

Among the data discussed in the tourism paper are milestones in the country’s airport development. I summarized and shortened the long table here, data gaps are indicated (see Table 2).

  
Seemingly lacking in our airport infrastructure is the development of budget terminals or low-cost carrier terminals (LCCTs). Japan has two (Kansai-Osaka and Narita Terminal 3), and these three tourism powerhouses in the ASEAN have one each: Singapore (Terminal 4), Malaysia (KLIA 2), and Thailand (Don Mueang). Not as glitzy as the regular terminals, these LCCTs are also modern yet charge lower for airlines and passengers and hence, further attracting more foreign visitors.

Another activity during the TAPP conference was a press conference with the heads of the Foreign Chambers of the Philippines composed of the chamber of commerce of the US, Canada, EU, Australia-New Zealand, Japan, and South Korea. Among the topics discussed was the Philippines’ taxation policy to attract more foreign direct investments (FDIs).

When the TRAIN (Tax Reform for Acceleration and Inclusion Act) law was enacted in 2017 and TRAIN 2 bill (renamed TRABAHO — Tax Reform for Attracting Better and Higher Quality Opportunities — bill) was filed in 2018, some 15 multinational companies with regional headquarters or regional operating headquarters in the country have left as the special taxes they enjoyed have been removed or to be removed. This was articulated by the Philippine Association of Multinational Companies Regional Headquarters Inc. Director Celeste Ilagan.

The unpopular TRABAHO bill was renamed CITIRA (Corporate Income Tax and Incentive Rationalization Act) bill this year and it still causes discomfort to many multinationals because the pace of reducing the corporate income tax (CIT) is long, from 30% to 20% in 10 years, while the removal of the gross income earned (GIE, 5%) and other fiscal incentives will be done in the first year of implementation. Indonesia plans to cut its CIT from the current 26% to 20% in two years.

So bottlenecks in airports and tourism and uncertainties in taxation, these two plus other factors contribute to low level of FDIs in the country. And I would add one more factor — some of our competition policies as implemented by the Philippine Competition Commission seem to be anti-multinationals.

Take the case of transport network vehicle services (TNVS). When US multinational Uber decided to leave the Philippines (and the ASEAN) in 2018, many factors contributed especially the heavy bureaucracies and penalties imposed by the Land Transportation Franchising and Regulatory Board. When Uber finally packed up in April 2018 and merged as minority investor in the remaining TNVS multinational, Grab, Uber was also fined by the PCC for hurrying the merger.

Recently, the PCC fined Grab P23.5 million for certain violations in its imposed requirements, including “overcharging” the passengers and acting as virtual monopolist.

This thing, “overcharging,” is a misnomer. If someone held a gun at people’s heads making them ride the costly TNVS, then that is clear overcharging and coercion. But people have many choices — jeepneys, buses, vans, regular taxis, new TNVS, Angkas motorcycle taxis. Thus, when people still choose the more costly TNVS, they do it for some other reasons like safety and comfort.

So that multi-million fine would ultimately be passed on to the public — directly via higher fare for exclusive rides, or indirectly via low fares but longer waiting time, more shared and indirect rides than exclusive direct rides.

When private enterprises create more jobs and provide goods and services to consumers, they are already doing a public service. Government should step back from more regulations and prohibitions, more taxation and intervention.
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See also:

Privatization 14, Notes in 2005

These are some of our exchanges on the subject in Minimal Government yahoogroups, Feb-March 2005. This chart is part of my ppt in one panel discussion in a conference in Hawaii in 2007.


(1) Me: Is there market failure in housing? NO. Me thinks the problem in supply of housing is because of government bureaucracy -- just too many steps and regulations, too many signatures by bureaucrats, local and national, before one can put up just 1 condo building.

(2) Cynthia: My opinion - YES, there is a market failure in the housing sector.  Whether this is due to supply side (nobody wants to provide housing at the market clearing price) or demand side (who wants to buy a lot when it's easier to squat on public land and easements and hope the government gives you title to the land when there are impending elections?) or regulatory (as you say in your post- bureaucracy can sometimes hinder, rather than help, development).

But a market failure does not necessarily mean that government should just step into the breach, and put up 101 housing agencies.  It does not mean that taxes should be raised to fund housing programs.  It does not mean that a separate GFI should be created just to handle housing funds.

Why can't government be more creative?  Why is the solution to every problem always- let's form a government agancy to take care of it, and give it an operating budget and raise taxes to provide the funds?’

(3) Marcial: On full privatization of public roads and highways. Since putting a manned toll gate in every intersecting private road with a privatized EDSA looks ridiculous, how does a private road corporation/cooperative finance itself?

1.      Vehicles with electronic chips. An electronic tracker monitors the mileage and route usage of every 'chipped' vehicle in the streets. Possible even in today's technology. The vehicle owner's usage will be charged directly from his bank account. Since a man with a car is not necessarily a man who pays on time, use a prepaid format.

2.      Credit cars. A robotic toll gate (non-obstructing structure that looks like an entrance to a shinto shrine) detects magnetic medium pasted on the sides of a car. The car automatically 'swipes' usage info as it passes the gate.

3.      The senator's method. I call it that because it's the most doable in case we wake up tomorrow to a fully-privatized highway network: Every vehicle that registers with metro manila as its base (owner's residence or office) automatically pays a metro manila road usage charge. For vehicles entering the NCR from outside, we'll still use the lovely manned toll gates currently in place. There aren't that many main feeders to and from NCR (I can think of only 3). But unlike #1 and 2 which can do a precise charge on usage for each road, the senator's method will rely on traffic data to estimate the allocation of collections say, between the EDSA Corp and Ayala Ave. Cooperative.

4.      Marcial's method. I'll just stand at the entrance of our subdivision wearing tattered shorts and torn t-shirt, rattling a large, battered milk can. Every passing vehicle w/o a sticker is obligated to drop a few coins into the can. NOW THAT'S VERY DOABLE!

(4) Alvin: Here is another piece of good news - PNB to be privatized again!  This company has been a lot of headache to the government. Rehabilitated in the late 80's, privatized in the early 90's, yet it continues to behave like a public behemoth - thus forcing government to rescue it once again a few years back. Banking is definitely an area that government should not be involved in.  And the market definitely agrees...

(5) Cynthia: Bureaucrats pay lip service to the privatization mandate, but behind the scenes, they have to be dragged kicking and screaming to the auction block. It's really annoying, because the longer they delay, the longer us taxpayers have to subsidize their bleeding operations.
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See also: 
Fat-Free Econ 12: Privatizing PAGCOR, June 08, 2012
Privatization 11: Presentation in Hawaii in 2007, June 08, 2013 
Privatization 12: PH government corporations sold, retained as of 2007, February 07, 2016 

Privatization 13, Firesale of GOCCs, notes in 2005, December 30, 2016

Thursday, November 28, 2019

BWorld 388, TAPP paper on power

* My article in BusinessWorld on November 20, 2019.


“Power is a key component of any nation’s growth. Ensuring a balanced and reliable generation portfolio and a robust and responsive transmission and distribution network should be a key priority of our public and private sectors.”

— Emmanuel de Dios,
CEO of GE Philippines and former DOE UnderSecretary

The Arangkada Philippines Project (TAPP) 2019 conference today at the Marriott Hotel Manila has a beautiful theme, “Turning on the TAP (Tourism, Agribusiness, Power).” TAPP is a major project of the Joint Foreign Chambers (JFC) in the Philippines composed of the Chamber of Commerce of the US, Canada, the EU, Australia-New Zealand, Japan, and Korea.

One of the three policy papers to be launched is “A Policy Brief on the Philippine Power Sector,” co-authored by Emmanuel “Jocot” de Dios, Lorenz de la Cruz, and yours truly. The 39 page-long paper contains a wealth of data, analysis, and recommendations addressed to both government and private stakeholders. Below is among the data presented there, I expanded the countries and years covered in the first two tables. Data sources are the BP Statistical Review of World Energy 2019, and US CIA Factbook.

The Philippines has low installed power capacity to cover increasing peak demand and unscheduled outages. Our 22 GW capacity in 2016 was just half of the capacity of Thailand, Vietnam, and Taiwan. Our electricity generation in 2018 was only half of Vietnam’s, which showed almost 10 times expansion over 1998 level (see Table 1).
  
  
Many environmental and climate activists oppose continued use of coal and even natural gas in power generation. They are misguided in imposing their desire on the rest of the Philippines population and businesses because our coal and natgas (natural gas) consumption is among the lowest in the region and if we cut those, we will be facing large-scale blackouts. Our coal use in 2018 was only half of Taiwan’s and Vietnam’s, one-fifth of South Korea’s, and one-seventh of Japan’s (see Table 2).

  
Low power capacity and low reserves lead to low electricity supply relative to demand and this results in higher electricity prices. When many other charges (transmission, distribution, system loss, universal, subsidies to renewables, etc.) and taxes are added to the generation cost, the result is the Philippines having the 3rd most expensive power in East Asia. Data sources are the International Energy Consultants (IEC), “Regional/Global Comparison of Retail Electricity Tariffs,” May 2016 and August 2018, and Department of Energy Director Mario Marasigan, Energy Outlook forum by Stratbase-ADRi, Sept. 27, 2018, Joy-Nostalg Hotel, Ortigas (see Table 3).

  
Now there are continuing moves to have more coal supply control, to oppose the construction of additional coal power plants like the proposed 1,200 MW plant in Atimonan, Quezon, and to have more power price control via lower secondary price cap in WESM.

Coal control, price control, wage control, rent control and other varieties of command and control are wrong. They distort the supply-demand dynamics towards shortages, discourage supply while encourage demand.

The Energy Regulatory Commission should fast track the approval of power supply agreements (PSAs) of more coal and conventional plants. We should have not just one but four or more 1,000+ MW new coal plants. Again, see Tables 1 and 2 on why this is necessary.

Business groups like the Federation of Philippine Industries (FPI) and Philippine Independent Power Producers Association, Inc. (PIPPA) are correct in pushing for faster PSA approval, which will encourage more gencos to build more power capacity, especially more baseload plants (running 24/7).

Less politics, less climate and energy alarmism, more energy realism and market competition. That is what we need.
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See also: