Real change starts at the top

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MIKE WOOTTON

MIKE WOOTTON

I see that 20 percent of bank lending in the Philippines goes to real estate development. That’s a lot in a nation like the Philippines where housing types are so different from, say, the European model—33 percent of people living in detached houses, 25 percent in semi-detached houses and 40 percent in flats or apartments.

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In the USA there are 116 million houses and apartments for 323 million people of which 83 percent have four rooms or more. There is a continuing shortage of decent housing in the Philippines and the proportion of the population living in detached houses in serviced sub-divisions is very small.

About 22 percent of bank lending in the USA goes towards real estate development, much of it for housing of a good standard. In the Philippines, most of the bank lending for real estate, it seems, is not for housing; it is for commercial real estate, shopping malls, offices, industrial parks, hotels and other commercial ventures and, of course, the simple speculative development of land.

Land in the Philippines is a very special commodity and its ownership is much prized. Most Philippines fortunes stem from land and developed real estate ownership and there is a tendency to just hold onto it in the expectation that at some time somebody will come along and buy it and a profit can be made, and even if nobody does come along it is good for boasting rights. I guess that the landowners just look forward to somebody building some roads for access to increase the value of the land. Pity the farmers and the agricultural sector.

To my mind there are three main factors influencing the real growth or lack thereof of the Philippines economy: the role of government, greed, and the simple difficulties of doing business. We could also add corruption; but it is, perhaps, buried somewhere in the three reasons I have cited.

The role of government is to protect the citizens; protect, in this sense, not just from physical harm, but also to ensure that an environment exists in which the citizens can have a reasonable quality of life. The government should be active and involved in making things work rather than be a barrier. It should actively ensure jobs, medical care, education and shelter as an absolute minimum. And not least it should ensure the viability of the agricultural sector by sorting out the knotty difficulties of land titles and permits in order to properly implement the comprehensive agrarian reform law.

For the past 30 odd years the fashion has been to sell government functions to private sector business. This is flawed thinking when adopted as a wholesale approach to stimulation of the economy. The most fundamental reason for it is being flawed thinking is that private sector business has no interest in the welfare of the citizens—why should it have? The argument against this is that consumers will patronise the business in a competitive environment that serves their interests best. But for that to work we need a properly competitive environment and robust regulation. In the Philippines that does not work either, there is minimal real competition, and regulation is either a sham or just simply not up to the job. Privatisation just feeds greed.

Greed is a serious constraint on the further development of the economy and the quality of life of Filipinos. Big business is not a charity and it has no need for altruism. It is not well regulated, there is minimal competition and success is determined on the returns to shareholders. No matter how much money they make, either corporately or as individual shareholders, it will never be enough. Gaining power and amassing money becomes a drug, an addiction. “How much is enough?” is not a question that could ever get a straight answer, the continuous amassing of wealth is itself the driver for these people and as their wealth and power becomes greater so does their ability to bend and break the rules in order to further their own quest in amassing money, or in many cases just getting more and more real estate which will be held doing nothing until its perceived value can be realised. It is highly unlikely that any of the fortunes so generated will ever find their way to creating more jobs or that landholdings will be made available for productive purposes by owner farmers.

The wealthy and the feudal lords, because of their wealth and power, are in a good position to make the rules suit their purpose. They can restrict competition; they can influence the regulators; and once they have the franchise, whatever it may be for, or just the land, then they can do what they like and everybody just has to suck it. They will not invest in things which create long term jobs because the returns are not good enough and they will prevent others from entering markets which they see as their own sovereign territory and which they believe from their out of touch position in the world, may threaten their own mission to amass infinite amounts of wealth.

Government is full of Byzantine regulations and procedures, which those operating them frequently don’t understand. The rules continually change part way through the applicant’s process; there is a general lack of will by the bureaucracy to do anything outside the strictest interpretation of the rules (as they may be understood by the individual bureaucrat). This is a big turn off to any new potential investor but doesn’t unduly affect those with vast amounts of money or political position and can work their way around. The stultifying bureaucracy actually serves well the interests of those with power. It gets rid of the nuisance, the new entrepreneurs or tenant farmers who just cannot afford the time or money to tackle these bureaucratic obstacles. Those with power can make the situation even more difficult if they want by just changing the rules or simply not signing a necessary permit.

So, where does this opinion take us? Privatisation as a general policy in the Philippines does not bring about economic development (as has been proven by much research in the advanced economies). It merely serves the addiction of the wealthy. Greed is prevalent and is a universal problem, possibly slightly more so where power and wealth are so admired and feared and land ownership is such an important thing. The bureaucracy is a nightmare and is a real barrier to any form of inclusive economic development.

If change is truly intended, then it must start at the top and not at the bottom. Government must ensure that real opportunity is available to the people as a whole and that this vast resource must be given fair opportunity to establish, develop, and grow businesses. This will allow real competition to develop and provide consumers a choice and, in turn, stimulate the agricultural sector to attain much greater productivity. For the Philippines to develop its real economy it must no longer be “locked up” by the rich and powerful. Greed should be seen for what it is, a cancer in society. Try opening up the economy so that everybody can participate fairly. That will be real change.

Mike can be contacted at maw3ootton@gmail.com.

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4 Comments

  1. Dear Mike, this is another good article from you which hits the nail on the head. Please continue with your articles which I hope will be given due respect by those in authority who can take the necessary action to improve the lives of their fellow Filipinos. Please keep up the good work and do not be discouraged by the skeptics and those who would continue to act only for their own selfish needs.

  2. Dodo birds please read, understand, and keep an open mind(including you Mr. Wootton)…
    ————————————————————-
    Phil Donohue: When you see around the globe the maldistribution of wealth, the desperate plight of millions of people in underdeveloped countries, when you see so few haves and so many have-nots, when you see the greed and the concentration of power, did you ever have a moment of doubt about capitalism? And whether greed is a good idea to run on?

    Milton Friedman: Well first of all tell me, is there some society you know that doesn’t run on greed? You think Russia doesn’t run on greed? You think China doesn’t run on greed? What is greed? Of course none of us are greedy. It’s only the other fella that’s greedy. The world runs on individuals pursuing their separate interests. The greatest achievements of civilization have not come from government bureaus. Einstein didn’t construct his theory under order from a bureaucrat. Henry Ford didn’t revolutionize the automobile industry that way. In the only cases in which the masses have escaped from the kind of grinding poverty that you are talking about, the only cases in recorded history are where they have had capitalism and largely free trade. If you want to know where the masses are worst off, it’s exactly in the kind of societies that depart from that. So that the record of history is absolutely crystal clear, there is no alternative way, so far discovered, of improving the lot of the ordinary people that can hold a candle to the productive activities that are unleashed by a free enterprise system.

    Phil Donohue: Seems to reward not virtue as much as the ability to manipulate the system.

    Milton Friedman: And what does reward virtue? You think the Communist commissar rewards virtue? You think a Hitler rewards virtue? Do you think… American presidents reward virtue? Do they choose their appointees on the basis of the virtue of the people appointed or on the basis of political clout? Is it really true that political self-interest is nobler somehow than economic self-interest? You know I think you are taking a lot of things for granted. And just tell me where in the world you find these angels that are going to organize society for us? Well, I don’t even trust you to do that.

  3. Amnata Pundit on

    Who will initiate the change at the top, the rich and powerful? Will they make changes that will go against their interest? The only ones who can initiate change are those who will benefit from it, that means those who are at the bottom must start the revolution. Only a revolution can reverse these screw the people policies emanating from the very top.

    • mike wootton on

      There is now an opportunity for government to actually govern …………. Hope its up to the challenge