The disadvantages of being ‘rich’

5
Mike Wootton

Mike Wootton

No column last week as I was in the United Kingdom what a long trip that is, halfway around the world.

Once again but probably more forcefully this time, I was struck by the cost differentials between there and here. The gross domestic product (GDP) per capita of UK is $38,514 and here in the Philippines it is $ 2,587. The average annual income in UK is $ 50,510 and here in the Philippines it is a bit less than $ 12,000 [boosted by salaries of the overseas Filipino workers]. A fairly big disparity.

You can rent a BMW 120 for the equivalent of just over P2,000 per day inclusive of everything except fuel [which is twice the price it is here]. To rent a vehicle including driver and fuel here is about P3,000 to P4,000 per day. I stayed in four-star hotel for P3,000/night, bought an adult size hoodie and t-shirt for P1,200, and new designer eyeglasses for P8,000. A main course for a meal in an upmarket restaurant was about P1,000 and a cup of coffee P120. To buy a three-bedroom house of about 150 square meters in a nice area would cost about P12 million to P15 million, and to buy an Audi A4, which costs P3 million here in the Philippines, would cost about P1.5 million in UK.

From the above, you can see that the cost of [middle class]living in UK is generally lower than the cost of living in the Philippines, and by quite a big margin. Interest rates on house loans are about 4 percent while here in the Philippines they are about 7 percent to 8 percent.


Credit card interest rates here are about two or three times the rates in UK. World-class public education is generally free, although university fees are high and first class medical services can also be free but increasingly are being charged for. Utilities there account for 4 percent to 5 percent of the monthly expense, whereas here they are anything up to 20 percent of the budget. So even accounting for the fact there are a lot more poor people in the Philippines, which depresses the average income, it is still very expensive to live a middle class life.

I have used examples for the UK because I know it best, but similar patterns exist in most of Europe and the United States. It is the Philippines which is “out of gear”; Saint Thomas Aquinas, the exponent of fair market pricing, would surely spin like a whirlwind in his grave if he looked at the Philippines. You may say “well the pricing levels are justified here by the small market, there are less people here who would aspire to own an Audi A4 than there are in the UK” – and indeed there are . . . and so it will always be!

What these examples tell me is that while the Philippines is a cheap place to employ people it is a very expensive place to live, contrary to the “old think” which is that the Philippines is cheap, it is not. The business process outsourcing people have got it right, they use cheap resources and minimize their exposure to expatriate living costs by having minimal expatriate supervision, but the jobs that they provide do little to aid the economic development of the Philippines, because the barriers to personal development and the local production which that would generate are so high.

This is where the rapacious greed, which is endemic to the Philippines, really does shoot economic development “right through the heart.” There is an old fashioned mindset prevalent here which goes something like “I have loads of money, so I don’t need knowledge,” which is founded on the glorification of money regardless as to how it may have been made or when it was made. The only qualification necessary to pronounce words of “wisdom” on any subject under the sun is the possession of lots of money. If such attitudes prevail, then the Philippines will never develop beyond its current less developed status because the sole ingredient for power and influence is money, nothing else. The money may have been made years ago when the regulations were more easily circumvented than they can be now, and the “I have loads of money so I don’t need knowledge” mindset does not work as well as it did before; surprise, surprise . . . There is a requirement for knowledge as well as open mindedness if real economic development is to take place – just throwing money around [or hoarding it away]on a whim is not going to take things forward other than by some lucky chance. The objectives of those who hold the money and power need to be aligned with what is good for the country, and they are clearly not aligned now [and public private partnerships are not the answer here in the Philippines!].

For so long as the possession and amassing of large amounts of money is the sole criterion for power and influence and the main objectives remain polarized, then the Philippines will not develop and the lives of nearly 100 million Filipinos will not improve, and corruption will continue to be central to the way of doing business. To work hard and honestly does not produce enough consumption to feed the appetites of the real power holders. It is a vicious circle. To exemplify the point; an educated person with decision making authority in government who would see themselves as “middle class” would like a middle class trapping, say an Audi A4 or even a few days away in a nice hotel, or even a new set of designer eyeglasses, but on their salary at the cost level of such trappings they cannot be afforded, but thanks to the wealth of the local businessman—he can provide the wherewithal to meet the government employee’s desires—in exchange for a favor or two of course . . . Feudalism sustained.

So if goods and property were priced compatibly with income levels, there would be less of a culture of corruption and the Philippines might actually develop in a more inclusive way, and then there would be a real and significant middle class that have the feeling of entitlement necessary to mount a real challenge to the “ I have loads of money so I don’t need knowledge” old timers.

Mike can be contacted at mawootton@gmail.com

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5 Comments

  1. Good example Ben. Another “take” on this is that the official poverty level in UK was in 2010 the equivalent of Php 104,000/month for a family of four with one child over 14 years old, below which people qualify for government financial support. The poverty level in the Philippines is Php 5,485/month for a family of five below which little meaningful government financial support is provided. The consumer market in an advanced economy is focussed on a middle class standard of living whereas here it is focussed on a disadvantaged standard of living; as Ben points out it is the overpriced “necessities” in the Philippines which damages the bulk of the population – most people don’t use LPG simply because they cannot afford it, firewood has to do.

  2. Don’t compare the income between U.K. and income in the philippines, Your income in U.K. of $50,000 looks big,but in reality I don’t know if you survive on that income if you live in London.
    Whereas, $12,000 or P516,000 income, even if you live in Manila, I think you will have a comportable life in Manila with a house helper for sure.

    • Dominic Albert on

      well said, this is also the reason why Mr.Mike Wootton chose to live in the Philippines

    • I disagree. The Philippines is overpriced, and has gotten worse over the near-decade I have been here thanks to inflation of both prices and the exchange value of the peso. For example, nine years ago a tank of LPG cost about P400, which at the prevailing exchange rate was roughly $7.30. Now that tank of gas costs P700, and since the value of the peso has increased by about 20% over that period, the equivalent dollar cost is now $16.30; that amounts to an annual average inflation rate over the period of 24.8%. Other basic commodities are perhaps not quite so volatile, but on a comparative basis, the cost of living here is climbing at an alarming rate. Do wages increase by 20-25 percent per year to compensate? The flat or slightly increasing rate of poverty suggests they are not, at least not for enough people.

  3. I am just wondering why you’re still living in the {if you are] Philippines for these years.
    I hit foreighners complaining about the Philippines and yet, They are still here. If you don’t like the place,you are free to leave and we don’t want you either.