• The power of self-interest

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    wootonIt would be nice to think that real inclusive growth could actually be achieved but alas, it is an imperfect world and the vast majority of political-economic systems just don’t allow for it. The best to be hoped for would be a fair sharing of new wealth and opportunity. In political system terms, roughly half the world’s population is under some form of democracy while the other half is under hybrid or authoritarian regimes, the large populations of China and India tend to balance each other out as India is a democracy while China is an authoritarian regime.

    But whether a political system is democratic or not theoretically makes little difference to the way in which wealth and opportunity are shared. In fact, logically an authoritarian regime should be better equipped to ensure the inclusivity of opportunity, communism after all majored on that promise but they couldn’t really get themselves properly organized, nor were they very good at planning!

    The Philippines is, according to the World Democracy Index, a flawed democracy as is India, Indonesia, Thailand, Hong Kong, much of South America and some countries in Europe. Basically, the aim is to measure to what degree the people have control or strong influence on what the government does. Here, some people have control and strong influence over what the government does, but most people really don’t, even if they start marching in the streets to protest about things they don’t like.

    The real barrier to greater inclusivity is the free market capitalist system. Even Adam Smith, its “father,” admitted that the free-market system was founded on the principle of self-interest [a.k.a. ”greed”]. But there really is no such thing as a “free market,” since all markets are controlled or regulated to some degree in order to try to protect people from being too badly “ripped off” and from monopoly power. Problems arise, however, when there is claimed to be a regulatory mechanism but it doesn’t work properly, like here in the Philippines where some may perceive that there really is a “free” market albeit constitutionally restricted to the local players. Those who have money, often thanks to government franchises and political connections, create monopolies which make lots of money which can then be used to help circumvent proper regulation, sustaining and even growing the monopoly position already established and in some cases developing new ones, “and the money keeps rolling in.” So indeed, the Philippines is not a free-market economy, it is a monopolistic market and monopolistic markets operate counter to consumer interest. There is little effective control on their behavior, because the regulatory system can be manipulated with the use of money and connections. Where some apparent competition does exist for example in telecommunications, it is clear that Globe and Smart keep a close eye on each other and just follow each other’s lead. Despite the much trumpeted “open access,” can individual domestic consumers really buy electricity from anybody other than the Manila Electric Co. in the Meralco franchise area? The European Union and the United States spend a lot of time and effort in trying to ensure that monopolistic situations do not occur, and that if they do that they are firmly regulated. But how often do we see in the Philippines a new entrepreneurial venture coming in out of the blue, offering better quality service or goods at significantly lower prices than the monopolists, and taking a large part of the domestic market share? Never, they will be crushed before they get anywhere.

    For new entrants to capture consumer market share in the Philippines is a major challenge despite the fact that 32 percent of the economy depends on small and medium sized enterprises—the SMEs, they are small and they will stay small, unless they find more open markets outside the Philippines. Even foreign brands such as Marks and Spencer, Lush, Doc Martens and Waitrose operate here in the Philippines, only thanks to arrangements with the local retail oligarchs. The level of market control here is stifling and that is so sad in a country of 100 million people who would welcome a bit of choice and real competition—no wonder the cost of living is so high, and it will continue to increase so long as the monopolists have the power and the money to circumvent the law and sell things for the highest price they can get.

    So yes, the Philippines is indeed a democracy, albeit a flawed one, but in reality the voters have little choice on how government works for them and real inclusive growth will only be allowed as far as it suits the self-interest of the rich and powerful. “Enlightened self-interest,” a philosophy that promotes the idea that what is good for all is in the long run good for me, too, is not something which has caught on too much in the Philippines. I wonder if it ever will?

    There is no doubt in my mind that one of the best business investments in the Philippines is a manufacturing facility in a Philippine Economic Zone Authority zone, which makes something with raw material that is locally produced and then exports its product to markets in other countries, subject of course to trade restrictions.

    Export manufacturing. Alas though that may not be such a good idea for very much longer as the cost the local raw material as well as the cost of living of the labor force is in the control of the local monopolists, demand for the local raw materials produced on the monopolists land will lead to cost increases, worker’s wages must rise to keep pace [perhaps?] with rising living costs, and such manufacturing will then become uncompetitive. . .

    Better to import the raw materials from somewhere else perhaps and limit the risk to workers costs, but then you have the challenge of the Bureau of Customs.

    Mike can be contacted at mawootton@gmail.com

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