Rational Choice

Thanks to my commentators and pop quiz

2008-09-12T11:06:00.003+08:00

Hi folks, it's been a while. While I reserve the right to post as I please, and you the right to avoid reading this, sheer courtesy obliges me to be timely in moderating comments. Actually I would have wanted to turn the moderation option off, except that spammers have a field day. So I have now dealt with the commentary backlog, and thanks for paying attention. And since you are, I have a pop quiz (and perhaps this should be standard interview question for financial analysts): the newspaper today reports that the debt of the Republic of the Philippines stands at Php 3.964 trillion, of which 2.303 trillion is local and the rest is domestic. Averaging over the number of Filipinos, every citizen owes Php43,805.

Estimate the net present value of the average debt burden of each individual today. List all the assumptions and calculations.

Hint: it is is certainly less than 43,805!

The protection racket

2008-02-10T19:22:00.000+08:00

The Philippine Government is now tightening the screws on direct hiring of Filipino overseas workers (i.e. not hired through licensed recruitment agencies). Read the details here and in the links referred.

The bureaucracy was slow in catching on - after severe repression of the formal labor market domestically, it realized its ineffectiveness in policing foreign markets. But the consistent boom in remittances introduced the government to a cash cow there for the m(b)ilking.

You'd wonder why the "beneficiaries" of protection are so enraged by these new regulations. Remember the saying? "Never attribute to malice what can be equally due to stupidity." Well in this case I think it's both.

Please pass the PALT

2008-01-28T18:44:00.001+08:00

Economists have been dreaming it for years: land reform by Progressive Agricultural Land Tax. The current land reform scheme in the Philippines (whose funding is running out in mid-2008) requires the State to acquire farm land from landowners until their properties are no larger than 5 ha, the legal retention limit. Acquisition requires "just compensation". Experience over the last 20 years of implementation has shown the colossal problems with this scheme. First, land ownership needs to be properly documented to determine whose guilty of breaking the law (on excess landholdings) and ensure legal transfer of property. Second, value of land needs to be set, opening a litigation abyss.

The beauty of the PALT is that it entails the same documentary requirement (done anyway under the second scheme) but avoiding the second set of problems associated with land valuation. Farm lands above the 5 ha retention limit are subject to an additional tax, which can be graduated by size class (say, 5.0 - 24.0, 24.0 - 50.0, above 50.0). The objection by Skinner (1991) that the PALT is administratively impractical is moot.

The tax rate can be made sufficiently punitive as to induce land fragmentation (say, 5, 10, and 20 times the regular real property tax assessment). The PALT is effectively a fine imposed on landowners who violate the law (RA 6657) on maximum farm land holdings.

Administration is simple: one need only to enact a national PALT, which is assessed on top of the local government real property taxes. Collection of the PALT can be done by a separate national government Bureau reporting to the Department of Finance. (Staffing can be done initially with personnel from the Department of Agrarian Reform.) Land sales can be facilitated by the Land Bank of the Philippines, who stands ready to acquire lands (at manageable prices) using money from the Agrarian Reform Fund (which is the current set-up). The land can then be resold to deserving farmers or landless farm workers (who amortize their lands under the usual discipline of formal mortgage contracts).

The PALT can even do away with some documentary requirements. It will not require remediation of land titles where these are defective - it can use the same documentation as the real property tax. Of course safeguards would need to be introduced: the PALT Bureau can institute its independent documentation of landholdings (in cases where local assessors are incompetent, ignorant, or corrupt); it can introduce a tax on idle lands and conversion from agriculture to nonagriculture (to prevent landowners from evading the tax); revenues can be shared between local and national government (the latter earmarked for infrastructure spending to benefit Agrarian Reform Communities); and so on.

What have I gotten wrong? Let me know. Otherwise Congress should pay heed as the debate on extension of the agrarian reform heats up.

JPEPA in the bag

2008-01-17T16:56:00.000+08:00

While surfing for JPEPA (Japan-Philippines Economic Partnership Agreement) updates, I came across the blog of Senator Miriam Defensor-Santiago. Entries are almost certainly written by her staff, but presumably with her imprimatur. Would it be premature to say that JPEPA is in the bag?

Opponents continue to trot out tired arguments. These are the same prophets of doom, who predicted economic disaster after trade liberalization started in 1986, after the 1994 WTO agreement, after the AFTA-CEPT, after the APEC, etc. Their record of success: exactly zero.

Listening to them, it would seem that the Philippines would be neck deep in hazardous waste after the JPEPA is ratified. Given their prophetic accuracy, excuse me if I ho-hum.

What if we could live forever?

2008-01-05T11:55:00.000+08:00

The pious believer already believes this. But what if secular science could indefinitely extend this present life? This Economist article talks about a few who think breakthroughs are within sight. Moreover it presents the intriguing concept of the longevity escape velocity - if you could live long enough to benefit from life extension innovations, and these innovations come about more rapidly in the future, then conceivably some people alive today may experience hitherto unknown lifespans (over 150 years).

I wonder what the social and economic implications would be if life expectancy could say achieve early Genesis scale (a millenium). My biggest concern is to contain population growth. At such prolonged lifespans, I think the environmental carrying capacity requires very low annual fertility rates. With very little reproductive selection going on, genetic erosion in homo sapiens may accelerate. This may render us vulnerable to population shocks - pathogens, climate shift, asteroid collision, whatever. (Technological optimists would think that a fix may be possible for this.)

And think about it - a world where children are as rare as, say, 2 m tall people are today. What would the quality of life be in such a world?

Economy year ender

2007-12-27T16:59:00.000+08:00

Unlike in politics or even business, it is difficult to identify distinct "events" in an economy and say, "that's important, should be in the list of top ten stories." The economy after all is a system of billions of interacting parts, with each transaction in itself trivial, but adding up to an incomprehensible whole. Hence, for instance, GDP going up is not literally a single "event". But for convenience I'll just point to some top "developments" in the economy and business, which I think will have a widespread and lasting impact on the economic system. Three are external, and the rest internal; some are distinct political events which I think are portents of deep economic change.

Collapse of the Doha round - again: The Doha development round stalls, over as usual over OECD farm subsidies and market access. The US, EU, India, and Brazil remain at loggerheads. But I betcha the rest are just hiding behind the behemoths , waiting to throw up dust again whenever a settlement approaches.
Climate change and what the world is doing about it - the UN IFCC confirms a scientific consensus linking global warming to greenhouse gash emissions and, with Al Gore, wins a Nobel Prize; the world gathers in Bali to talk about solutions, as the Kyoto protocol approaches its end in 2012.
The US economy flounders on the subprime crisis - the exposure of bad debts in the subprime mortgage sector and the related drop in housing prices was financial debacle, eventually sending the US dollar reeling worldwide. The US economy itself teeters on the edge of fiscal and current account imbalances; and Greenspan talks of even odds of recession.
The Philippine peso surges - in a spectacular run, the peso gains 19% against the dollar, making it unusually strong even in a year of the declining dollar. Some gainers, some losers; I think mostly losers.
Favorable macro figures sustained - inflation remains low, even unemployment drops, and GDP surges to dragon territory at 7.1%, continuing its steady rise from 2000. Is the boom-bust over? Let's see. Oh, and the fiscal balance was kept (as foreign debt payments dropped, thanks to #4); the Bangko Sentral continues monetary easing over the year. Not bad, not bad at all, but not all good.
The country joins the biofuels bandwagon - on January 12, the government legislated the Biofuels Act, which requires mandatory blending of gasoline and diesel with biofuels and incentives for biofuels investment. All without the superfluous luxuries of a feasibility study. Meanwhile to dig a hole in the ground you need an Environmental Impact Assessment. Go figure.
The Comprehensive Agrarian Reform Program enters its last year - after the Sumilao drama, hope we don't forget, the CARP is about to end. (Or rather, the mandatory appropriation from the Agrarian Reform Fund is. But let's not split hairs.) Already lawmakers are filing their bills , consultants are submitting their studies, and buzzards are circling their prey.
Decentralization at the forefront in Pampanga - the historic upset win of priest-on-leave Ed Panilio is heartening; his political will to finally collect resource rent (in this case, the quarry fees) sets a precedent for a cowardly national government; and his loud whistle blowing against venal politics is rousing. Hip hip!
The ODA scams - ah yes, corruption. Anomalous deals taint the NBN, the CyberEd, even the World Bank roads project. I elevate this above the others, because of its international scope - it can't be just the Filipinos who are being flip with the law. Remember the Bataan Nuclear Power Plant? Expect tightening up of accountability on both sides after this.
Estrada pardon - institutions are now entering empirical analysis of economic growth. The Estrada pardon (after a 7 year plunder trial and conviction) !!! is one remarkable approach to the rule of law. You don't need a storm to tear down a house - letting the termites in will do the job equally well.

Koreans opt for the 747

2007-12-20T10:06:00.000+08:00

In their just-concluded election, Koreans went for the gut, rather than abstract issues of engagement with the North, and all that. Korea has the world's eleventh biggest economy, but its ascent to new economic heights has been stymied in part by sclerotic policies. The new president promises to change all that.

A business executive background has burnished President-elect Lee's market-friendly persona. I just hope that being "business-friendly" does not translate to being friendly to "some business" - the mistake of booty capitalism. A real pro-market policy is friendly to "any business", even of businesses that do not yet exist. (That's my neoclassical-rationalist koan for you, grasshopper.)

Here is the President-elect's English language homepage, containing his platform and bio. The bio was especially interesting, covering his famous rags to riches story (but more of the rags, actually). I could say that this suggests the following hypothesis: inculcating values among juveniles conducive to respect for property rights, desirability of commercial exchange, and low valuation of leisure time creates an intergenerational pathway out of poverty. Anecdotal evidence:

The beggar family had a son of my age, and I became friend with him. I envied him so much. Although my parents worked hard at the market every day, I and my brothers and sisters often had to skip meals. Often, we would drink from the water pump to fight the hunger. However, my friend had somewhat different life. Every morning, after his beggar parents make a tour all around the town, Then his family would sit together and eat rice. It was not a corn soup. It was not a dreg, it was rice. How much I envied him as I watched through the open doors! I thought ‘Ah, my family is not even better than a beggar.’

I came across this friend after decades have passed since then. One day, when I was serving my country as a member of the assembly, I visited Los Angeles of United States. ‘Hey, Myung Bak!’ Somebody called my name after I finished a ceremony. It was that beggar friend next door. I was totally surprised. Living in LA, he came to visit me as soon as he knew I came here. For all night long, we talked; sometimes with tears, sometimes with laughs. It is then he told me his history. ‘When we were still kids, I thought my family was better off because we had rice every day.’ Then he said he found out later That his parents raised their children not by working but by begging. Eventually, all his brothers and sisters lead poor lives now, And only he has managed to fly over to the States and barely make living. He told me ‘Now I have all grown up, I realized why your parents always worked hard and never sought others’ property.’ I felt ashamed for myself, who envied the ‘Meals of my beggar friend’.

This is the set of values that Koreans have voted for. See you on the runway.

Too much fancy stuff on Rational Choice

2007-12-06T10:52:00.000+08:00

According to this meter, I am being too fancy, contrary to my motto. (Hat tip: New Economist). Since you are a genius, tell me how I can improve. I want to dumb it down without treating you like an idiot.

Surely there is an optimum somewhere - where I transmit the gist of an idea or finding, subject to a constraint on readability and my time-effort for writing this blog. (Or given that set-up, maybe I am already at it? Heheh.) Look, if this post requires a genius, then I'm still faithful to my motto.

Women with higher salaries do less housework (duh)

2007-12-04T17:39:00.000+08:00

This paper published in the Journal of Marriage and Family has been drawing a lot of attention lately (see this Yahoo video). Like it's a big discovery.

Hmmm. Higher wage = higher opportunity cost of time (spent in housework) = economize on housework. To an economist this is soooo obvious. Note that this prediction works even if the household makes choices like a single decision-maker (i.e. women and men are not autonomous, but make choices as if a single mind). Of course empirical work like this on quantifying the size of the predicted effect is welcome. Still, the real mystery to me is why this and not some other (more surprising) study made the rounds in the press.

Disclaimer: have only read the abstract and some media reports. But I doubt if I'll change my mind if I ever get to read the whole thing.

How best to reduce greenhouse gases in the air

2007-12-04T09:13:00.001+08:00

A big round of talks are on in Bali right now on climate change. Kyoto is set to expire by 2012 and a new treaty is in the making - or is it? I think the discussion about the link between GHG emissions and global warming is over, at least in direction. (More GHG = warmer earth.)

No consensus exists on:

How much global warming is expected
What are the costs of global warming
What kinds of carbon reduction efforts should be implemented and
How much to invest in these efforts.

Env-econ has an interesting post on the role of forests in carbon reduction. Basically forests act as a carbon store (for protected areas) or a carbon sink (for managed areas being routinely harvested). The latter is a bit complicated: timber needs to be harvested, but if the tree is valued also for its ability to take carbon out of the air, then (if there are carbon reduction payments) forest managers would have to take this into account in timing their harvest and replanting. One interesting point: it would take about $200/ton carbon price for managers to cease harvesting - way beyond realistic estimates of maybe $20-30/ton.

Papers I have written or coauthored

2007-12-01T14:10:00.000+08:00

Webpage containing copies of some of my papers, and URLs to others. Copyrighted material available only in working paper version. Updates this page.

PUBLICATIONS IN REFEREED JOURNALS

Briones, R. 2007. “Eating for a Lifetime: Filling the Policy Gaps in Philippine Fisheries.” Asian Journal of Agriculture and Development 4(1):25-40. Esnips download. Link to download.

Briones, R. 2006. ”Projecting Future Fish Supplies Using Stock Dynamics and Demand.” Fish and Fisheries 7(4):303-315. Esnips download. Abstract.

Briones, R. 2006. “Employment Generation for the Rural Poor in Asia: Perspectives, Patterns, and Policies.” Asian Development Review 23(1):89-118. Esnips download. Esnips download.Abstract; Free download.

Dey, M., R. Briones, and M. Ahmed. 2005. “Disaggregated Analysis of Fish Supply, Demand, and Trade in Asia: Baseline Model and Estimation Strategy.” Aquaculture Economics and Management 9(1/2):113-139. Esnips download. Esnips download.Free download.

Briones, R., M. Dey, M. Ahmed, I. Stobutzki, M. Prein, and B. Acosta. 2004. “Impact Pathway Analysis for Research Planning: the Case of Aquatic Resources Research in the WorldFish Center.” NAGA – The WorldFish Center Quarterly 27(3/4):48-50. Esnips download. Esnips download.

Briones, R. 2002. “Interlinked Credit, Relational Contracting, and the Spread of Rural-Based Manufacturing: the Case of Garment and Metalcraft Industries in the Philippines.” Philippine Review of Economics 39(1):103-120. Esnips download. Abstract.

Rodriguez, U-P, and R. Briones. 2002. “The Ateneo Macroeconomic Forecasting Model.” Philippine Review of Economics 39(1):142-178. Esnips download. Abstract.

Briones, R. 1996. “Calorie Intake Responses to Macroeconomic Adjustment.” Philippine Review of Economics and Business 33(2): 319-344. Abstract.

OTHER PUBLICATIONS

Briones, R., Tran Thi Huyen Trang, Nguyen Cong Dan, Nguyen Huu Ninh, Pham Van Khanh, Nguyen Hien Thi, Don Griffiths and Trinh Quoc Trong. 2007. “The Business Approach to Operating National Broodstock Centres: An Innovative Strategy for Developing the Freshwater Aquaculture Seed Industry in Viet Nam.” NACA Aquaculture Asia12(4): 18 – 21. Esnips download. Free download.

Fawcett, C., R. Briones, and A. Tafgar. “Jobs for the 21st Century: Synthesis Paper”. EDC, Newton, MA. Esnips download. Abstract.

Boardman, G., R. Briones, C. Fawcett, A. Hamid, and Y. Rostiawati. “Jobs for the 21st Century: Indonesia Assessment”. EDC, Newton, MA. Esnips download. Abstract.

Briones, R., and A. Garcia, eds. Poverty Reduction through Sustainable Fisheries: Emerging Policy and Governance Issues in Southeast Asia. SEARCA, College, Laguna, Philippines (Forthcoming book).

Briones, R., and A. Garcia, “Introduction and Synthesis.” In: Briones, R., and A. Garcia, eds. Poverty Reduction through Sustainable Fisheries: Emerging Policy and Governance Issues in Southeast Asia. SEARCA, College, Laguna, Philippines (Forthcoming book).

Briones, R., R. Gerpacio, and M. Ahmed. “Regional Cooperation.” In: Briones, R., and A. Garcia, eds. Poverty Reduction through Sustainable Fisheries: Emerging Policy and Governance Issues in Southeast Asia. SEARCA, College, Laguna, Philippines (Forthcoming book).

Briones, R., 2007. “Projections of Supply and Demand for the Trade in Live-Reef Fish for Food.” Economics and Market Analysis of the Live Reef-fish Trade in the Asia–Pacific Region. Brian Johnson, ed. ACIAR Working Paper No. 63. Esnips download. Free download.

Briones, R., L. Garces, and M. Ahmed (2006). “Climate Change and Small Pelagic Fisheries in Developing Asia: the Economic Impact on Fish Producers and Consumers.” Climate Change and the Economics of the World’s Fisheries: Examples of Small Pelagic Stocks. R. Hannesson, M. Barange, S. Herrick Jr., eds. Edward Elgar, Cheltenham. Esnips download. View product.

Briones, R., 2005. “Public Works Employment and Rural Poverty Alleviation in the Philippines.” Reducing Rural Poverty in Asia: Challenges and Opportunities for Microenterprises and Public Employment Schemes. Nurul Islam, ed. Haworth Press, Binghamton NJ. Esnips download. View product.

Briones, R. 2005. “Property Rights Reform in Philippine Agriculture: Framework and Review Of Experience.” Special Issues in Agriculture, Eliseo Ponce, ed PIDS, Makati.

Dey, M., U-P.Rodriguez, R. Briones, O. Chen, M. Haque, L. Li, P. Kumar, S. Koeshendrajana, S.Y. Tai, A. Senaratne, A. Nissapa, N. T. Khiem, M. Ahmed (2004). Disaggregated projections on supply, demand, and trade for developing Asia: preliminary results from the AsiaFish Model. 2004 Proceedings of the Biennial Conference of the IIFET. IIFET, Corvallis, Oregon. Esnips download.

Dey, M., R. Briones, and M. Ahmed. 2004. “Global trade and the poor: impact of product standards in major importing countries.” 2004 Proceedings of the Biennial Conference of the IIFET. IIFET, Corvallis, Oregon. Esnips download.

Habito, C., R. Briones, and E. Paterno. 2003. Investments, Productivity, and Land Market Impacts of the Comprehensive Agrarian Reform Program (CARP). CARP Impact Assessment Studies vol. 4. Department of Agrarian Reform, Quezon City.

Dey, M., R. Briones, and M. Ahmed. 2002. “Modeling the Asian fish sector: issues, framework, and method.” 2002 Proceedings of the Biennial Conference of the IIFET. IIFET, Corvallis, Oregon.

Briones, R., et al. 1999. “Food security: household perspective.” In Food Security in the Philippines. L. Cabanilla and M. Paunlagui, eds. Institute of Strategic Planning and Policy Studies – UP CIDS, Quezon City.

Briones, R. et al. 1994. “An integrated analysis of past and existing programs and policies directed towards poverty alleviation and improving income distribution.” Understanding Poverty and Inequality. P.S. Intal, ed. National Economic and Development Authority and United Nations Development Program, Manila.

SELECTED UNPUBLISHED PAPERS

Briones, R., M. Dey, M. Ahmed, M. Prein, I. Stobutzki. “Priorities for international research on aquatic resources.” Esnips download.

Shut up and eat your genetically modified corn

2007-11-25T17:18:00.000+08:00

In conventional breeding, the biologist promotes good genes (genes that express physical traits that make the organism economically more valuable) through natural reproduction. The breeder though gets to choose who mates whom. The end product is a genetically modified organism.

In genetic engineering, the biologist shortcuts the reproductive process. She isolates the gene of interest, and inserts it (I'm an economist, don't ask me how) into the DNA of a subject organism. The end product is a genetically modified organism.

So should you eat your genetically modified corn? Your already are!

Now a mad scientist could set up an experiment where, by conventional breeding, he develops a really tough termite that resists the usual pesticides. Or he could try to do the same thing using genetic engneering. If he has access to facilities and personnel, the latter would probably be faster. But the end productive is the same - an unusually destructive termite that could inflict billions of dollars of untold damage.

Now suppose our biologist grows a conscience and instead chooses to develop a type of corn that resists pests. Similarly the latter would probably get her there faster, but with similar results.

But wait! Isn't genetic engineering dangerous? Might as well ask: is conventional plant breeding dangerous?

Actually, YES - the products of conventional breeding have inflicted great costs on the environment. Monocrop agriculture is the global norm, with the resulting erosion of genetic variability, intensification of chemical application, etc. Not good. But yields are up, way up. Not bad. We take the bad with the good. That's why even environmentalists don't paddle a canoe to attend their global confabs.

And genetic engineering? A faster way to get the benefits - and costs - of conventional genetic modification.

Don't believe me? This Reason page has plenty of links to get you started on the science of GMOs. Happy enlightening!

Jaw-dropping JPEPA analysis

2007-11-24T20:23:00.000+08:00

Browsing through Inquirer I saw this. So would the proposed free trade agreement with Japan lead to free entry of Japanese fleets into Philippine waters? I'd never heard of this argument. Intrigued, I downloaded the full text here (care of PCIJ). I even went to the Junk JPEPA blog to see where I could find fishing access anywhere in the Agreement. The claim is bodacious:

"JPEPA through Articles 28 and 29 of Chapter 3 allows unhampered access Japanese fishing industry to Philippine EEZ."

In reality, Chapter 3 is about defining "rules of origin", i.e. how does a product get to be classified as "made in the Philippines" or "made in Japan" and get free trade treatment. (Given that a lot of foreign inputs may be used, the classification is not trivial). Article 29 says we can classify goods like fish as Filipino-made, even though they were caught outside our territorial waters, as long as a Filipino fleet owns them. It adds furthermore: "Nothing in this sub-paragraph shall affect the rights and obligations of the Parties under International Law, including under the United Nations Convention of the Law of the Sea." Absolutely, the Philippines retains its rights to the Exclusive Economic Zone under the UNCLOS.

So why the qualification? Simple: when we import a fish from Japan caught in say Chinese waters, and give it duty-free status because it was caught by a Japanese ship, we don't want to be entangled with legal problems with China who could dispute the legality of Japan's incursion into Chinese waters. We don't accept the fish was caught legally, but under the treaty we would still give it duty-free status.

What is behind this staggering falsehood of natural resource plunder by Japanese fleets? I don't know. I just hope the debates in the Senate are not conducted at this level of analysis. If this is the norm, we're done for.

If the Pilgrims couldn't handle commun(al)ism, who could?

2007-11-20T17:52:00.000+08:00

Thanks to Eclectecon, I am now a fan of Carolyn Baum. Another sample.

Love ko 'to!

The bankruptcy of the "alternative development" paradigm: an outline

2007-11-18T23:20:00.000+08:00

I've always wanted to write a definitive essay refuting the "alternative" development paradigm adopted by leftwing intellectuals and pseudo-economists. But I seldom write long essays for fun, mainly because they aren't. And this kind of paper cannot possibly have an original bone in its body. So I haven't gone beyond the outlining stage, as follows:

Thesis

The axis of evil: fascism, feudalism, capitalism. Global capitalism as imperialism. The faces of domestic oligarchy. Alternatives: protection, nationalization, expropriation, industrialization.

Antithesis

The critical dichotomy: exchange relations and property relations. Booty capitalism and transformative capitalism. Pitfalls of the alternative strategy.

Synthesis

Transformative capitalism. Equity as a necessity. Conclusion: the grave irony.

Pragmatic considerations regarding the death penalty

2007-11-18T00:22:00.000+08:00

One of the reasons for opposing the death penalty is the probability of executing an innocent person. Suppose our policy choice regarding the death penalty has the objective of minimizing wrongful deaths, which is the sum of private murders and mistaken executions (which is tantamount to murder). A numerical example will help fix ideas: consider a population of 10 million identical persons. Over a given period, the probability of any one committing murder is = 0.00002; then the expected number of murders is 200. With a death penalty, the probability of comitting a murder drops, say to 0.00001; then the expected number of murders is 100. Suppose the probability of obtaining a conviction is 0.5, for which the probability of a mistaken execution is a high 0.1. Then without the death penalty, the expected number of wrongful deaths is 200 + 0 = 200; with the death penalty, the expected number of wrongful deaths is 100 + (100 * 0.5*0.1) = 105. The deterrent effect would have to be really small, i.e. a difference of 0.0000009 in the probability of committing murder, for the expected avoidable deaths to be equal between the with- and the without-death penalty scenarios. In short, wrongful execution requires an actual murder and a conviction, hence this will be a very small number relative to the population, and a small number even relative to the expected number of murders.

Put in another way: by not imposing the death penalty, the State is allowing 95 more wrongful deaths, but itself inflicting none. State without a death penalty would seem to be one in which the weight of a publicly-sanctioned wrongful death is much, much greater than the weight of a privately-committed wrongful death. Is there a good justification for such a weight?

Thoughts of a young economist

2007-11-16T23:03:00.000+08:00

Written just after the contentious period of debate on approval of the Uruguay Round. These days the term "booty capitalism" is more common. Otherwise, still my thoughts on the matter.

Oh yes, if you know the joke, this means that I have no heart.

With the issue of the GATT, the fragmented Philippine left found reason to unite. A common theme in their arguments against ratification was the specter of global capitalism tightening its hold on less developed economies with their integration into the world trading system. Instead of integration, they advocate a return to the "nationalist" strategy based on extensive State intervention, emphasizing controls on imports and foreign investments, selective and generous incentives for heavy industries (steel is a special favorite), cheap foreign exchange, and similar measures.

Unfortunately, their critique of global capitalism and their program of State-sponsored industrialization suffer from a complete misunderstanding of the foundations and dynamics of capitalism. The recent approval fo the GATT is thus regarded as a betrayal of "the people", rather than what it truly is: an opportunity for economic advancement.

Capitalism operates on the dynamic of exchange or market relations made possible by stable property relations. These exchange relations, as they are voluntary, are to the mutual benefit of the transacting parties. If I buy imported sugar, it is beneficial to me, as well as to the foreign sugar grower (but probably not to the domestic sugar planter). Naturally, the process of exchange organizes and improves production. For example, with free trade resources devoted to import-competing sugar may be reallocated export crops, which are sold in more lucrative foreign markets.

However, to teh extent that the State engages in market restrictions, there is an opportunity to accumulate wealth, not by innovating a superior organization of production, but by appropriate the coercive power of the State. For example, domestic sugar planeters may lobby to restrict the entry of cheap foreign sugar; Filipino consumers are coerced into accepting less beneficial trades with these planters. Capitalism, in its free exchange form, organizes and advances production and is therefore a benevolent force. (It's distribution of society's output is, however, only as equitable as the existing property relations.) On the other hand, capitalism which employs State coercion is the foe of economic progress; it is the backbone of a backward conservatism.

It is this reactionary conservatism of a protected few which is most interested in rejecting agreements which restrain State coercion, as the GATT. Ironically, this conservatism is precisely what radicals unanimously advocate, whatever their differences on other issues. All this in the name of "the people."

I do not question the sincerity of the radicals; what they suffer from is a mistaken identification of capitalism in the Philippines as a manifestation of exchange capitalism, rather than what it truly is - coercive capitalism. Mass poverty and underdevelopment are blamed on exchange capitalism, rather than coercive capitalism and unjust property distribution (the heritage of a feudal and colonial past).

In a world where central planning has been totally abandoned, trade barriers are falling and exchange capitalism is replacing structures of coercion, perhaps it is not only the veteran ideologues who are victims of this tragic irony. Unfortunately, the youth and studentry by and large remain captivated by an obsolete mode of analysis (one needs only read many of the other column pieces appearing in this space. If instead the energies of these idealists were directed toward opposing coercive capitalism, as well as toward advocating justice in property relations (such as redistributive land reform), they might yet live up to their vehement profession of being "pro-people."

- Philippine Daily Inquirer, Youngblood, 27 December 1994, p.7; byline corrected December 28, p. 8.

Much later I had another column in Business World, August 20, 2002. But that one has an electronic copy. I've had a few other columns, but the rest are crap.

The price of oil is telling us something

2007-11-14T09:52:00.000+08:00

The record levels that oil price has recently hit is surprising; the fact that oil price has been rising over time, is not. Way back in 1931, the economist Harold Hotelling argued that prices of exhaustible resources should be rising over time. His fundamental equation (in modified form) states that:

Growth rate of net resource price = discount rate.

The net resource price is simply the market price of the resource, less the marginal cost of extraction. The discount rate is the "rate of time preference". It is the amount by which the subjective value of one peso falls if it is received next period, rather than now. This can be proxied by the interest rate. An alternative way to express this is:

Net resource price now = (1 + discount rate) x (Net resource price last period).

Extracting one unit of the resource now rather than a while ago, requires that the net price now exceed the previous net price by the rate of time preference. If the marginal cost of extraction is constant, then the net price will rise only if the market price rises.

Short-run price increases can be explained by rising demand, or rising marginal costs of extraction, or both. Because of this, the oil market appears to have undergone a permanent upward shift in the trend line. Speculative forces also introduce short-term volatility in oil prices. Nevertheless, Hotelling's equation supposedly captures the slope of that long term trend line.

The story however does not end there. Rising prices signal to consumers (and producers) to adjust their activities by searching for relatively cheaper substitutes. Hence the search for renewable energy sources to replace oil, at least at the margin. The price signal - and consequent behavior adjustment - is precisely what averts a "collapse" in consumption as the resource is finally exhausted.

Unfortunately our baser instincts drive us to interfere with this economic process. Through our government, we want those greedy oil companies to profit less. We also accept interventions to impose "energy conservation", like banning this or that "frivolous" use of energy (Christmas lights, driving at the speed limit, etc.) This is a lot of wasted energy (pun intended). And taxing away those profits tells oil companies to shy away from risky ventures like oil exploration - precisely the set of activities needed to keep price growth in check. Ultimately some want the government to own all the oil companies - yeah, like that's gonna work.

I'm not saying that all intervention is bad. Market failures may justify some interventions, say in research and development, setting up infant renewable resource industries, imposing a tax on carbon emissions, and so on. But the distinction between bad and good intervention is subtle. Too often it vanishes in the scramble to appear to do something, anything, against $100 oil. Folks, let that $100 sign tell you what to do.

The scarcity of oil runneth over

2007-11-07T18:50:00.000+08:00

Once energy was cheap - cheap enough that the idea of growing plants for their energy seemed absurd. Obviously, plants are grown mostly for food. For thousands of years thus it has been, so shall it ever be.

But now energy is dear - dear enough that some plants in some places can be profitably grown for energy, creating biofuels. This takes space and other resources away from growing plants for food. The old conventions are being abolished. The agricultural landscape has been permanently altered.

Much to the discomfort of many. The idea of farming to feed cars is somehow deplorable compared to farming to put food on the table. But this is knee-jerk alarmism. Consider:

1. If the criterion is getting the most quantity of food out of given farmland, then even now we are not doing it. The reason? We eat animals. And animals need to be fed. Either with plant feed - which often takes away land for growing food for direct consumption - or worse, other animals, which themselves need to eat plants. And the feed conversion ratio is (aside from poultry) is much higher than 1 (reaching up to 8 in the case of ruminants). Anybody complaining about the corn we feed to hogs rather than directly to people?

Come to think of it, everytime we set up a shopping mall, a parking lot, a school, a laboratory, we are taking away land that could be used for farming. Bad for "food security". Tsk, tsk.

2. There are a lot of distortions introduced by policies. Particularly notorious are the biofuels incentives in the US, which artificially makes it profitable for some US farmers to plant for energy rather than food. Take away these incentives and we'll see a lot less of this diversion from food to fuel. Rather other options may be explored, such as growing energy crops on marginal lands. (There is some promise from crops such as sweet sorghum and Jatropha plant for such options.)

3. Food will get more expensive. Bad for consumers. But this is good for farmers. Without deeper analysis, we can't tell whether the net effect is anti-poor.

My best guess is, biofuels will play a role in the overall energy mix, but not a major one (at least within the energy sector). However within the food sector the emergence of biofuels will have long term implications for the trend in future food prices. The era of cheaper and cheaper food is over, as well.

"Mechanism design" is not about making clocks

2007-10-27T23:39:00.000+08:00

I was waiting for the Economist to put in its obligatory piece on the latest Nobel Memorial Prize in Economics. (The qualifier "Memorial" is there to pay tribute to the hardcore sciences of physiology, chemistry, and physics, which are the original Nobel Prizes.) At last I have something to free-ride on.

In my line of work "incentive compatibility" crops up frequently - it means that we should expect an agent to behave consistent with her incentives. Incentive compatibility is one of the keystones of mechanism design. It may sound trivial, but responses to incentives are naively ignored, say, in government policy. If for instance government is so distressed by rampant smuggling, perhaps in ought to wonder whether all those import restrictions actually spawned incentives for evasion (i.e. by creating a premium of the domestic price over the world price). Or that tax exemptions on dependents is not going to help curb the fertility rate. Examples can be multiplied. And don't get me started over the pardon of former President Estrada.

Trauma

2007-10-20T17:04:00.000+08:00

Many in Manila consider Glorietta one of their favorite haunts. Years pass without incident, and soon, like our own home, such places acquire an aura of impenetrability. That is gone now. Horror has pierced clean through. You go down an escalator, ponder over the items you've seen on sale, match the colors and parties in your mind, blink, and the blast changes everything. On one end your life is taken - and so it was for nine people. On the other, you flee for your life at the crumbling debris. In between is a spectrum of injury. Some of you will need only stitches. Others will lose an arm, a leg, an eye, a face.

But whoever you are, you are a victim - unless you played a part in this, you lowlife piece of shit. For the rest of us there is only sadness, rage at evil men who did this, and fear. Fear that comes with the violation of sanctuaries, and with the swift deadliness of strangers.

The only cure is ordinary life. Malls that bustle, trains that run, crowds that mill; even an economy that continues to gallop with nary a pause, as I expect it would. Our routines are the most fitting rite of remembrance for this day of infamy.

In praise of the cheap peso

2007-10-11T15:15:00.000+08:00

The peso is getting more and more expensive relative to the dollar. Since about this day in 2005 to the present, the peso's value in dollar terms has risen by about 27% (from P56 to P46.23 per $).

This is to a big extent due to the overall weakness of the dollar, causing it to become cheaper against all currencies. Aside from this though is specific high demand for Philippine pesos from dollar-denominated funds, basically from foreign remittances and portfolio investment. The timing though is beyond explanation - for all we know this is the result of forces set into motion months or even years back.

The era of the cheap peso arrived after the Asian crisis, as hot money blew cold on emerging markets, and the Central Bank shifted more credibly away from exchange rate targeting to inflation targeting. Filipinos have since gone global, working overseas in droves, seeking foreign customers (both inside and outside the country) to earn suddenly valuable foreign currency.

So is the dearer peso a market-driven correction? Partly. I don't believe in a return to a P56 per dollar regime. But the current trend is disturbing, to say the least. At least one prominent economist is taking up the cudgels for a cheap peso, and a major businesss daily (Business Mirror) is backing him up.

Bringing back the cheap peso makes eminent sense. (Coming from Professor Fabella, we can expect no less.) No, capital controls and exchange rate caps are nowhere near the table. The target is policy choices that may be artificially propping up the peso. Government should now shift towards dollar-denominated options (borrowing, investment, debt pre-payments), in line with the cheaper dollar. (But no bilateral deals in the dark, please.)

But if I may be too malice-minded, perhaps our policymakers are relucant to return to the cheap peso. Their rhetoric of a strong peso being the sign of good macrofundamentals is particularly off-putting. Let's hope they keep an open mind about the concerns of our dollar-earners.

More evidence for a downward sloping demand curve

2007-06-28T06:55:00.000+08:00

When I was teaching I often heard the canard, "Gas is so essential it doesn't have downward sloping demand."

Here is evidence to the contrary. Not in any way rigorous, but fairly convincing to a college sophomore!

The breast of intentions

2007-06-19T19:24:00.000+08:00

Another controversy with strong implications for economic freedom: the breast milk advertising controversy. (See this news item.) The Philippine government wants to fully implement the National Milk Code (full text
here.)

The Code is well-intentioned. Yes, breast milk is really best for babies. As with tobacco products, I agree that mandatory labeling can help balance the subtle cues inherent in product advertising.

But extremists advocate an outright advertising ban. That is going too far.

I have a better approach: tax it. The analogy with tobacco (and alcohol) is very precise. And don't call it "sin" tax or some such pejorative term: call it a "health tax". Set it at an ad valorem rate say equal to or even double the VAT (now at 12%). Watch the money roll in and the breastfeeding rates go up! Earmark the money for maternal and child health services of the LGUs (Local Government Units). LGUs would be happy. Maybe they'd even pressure the Congress to approve of it.

The egghead disconnect

2007-06-06T10:05:00.000+08:00

The Philippines and Japan are in the process of ratifying a bilateral free trade agreement. In principle I am no fan of bilateral agreements - broad multilateral is more of my thing. But (as usual) I am bothered by the remarks of a Philippine Senator calling for"safety nets", because "Thousands of Filipino workers in factories making garments and electric appliances, and assembling automobiles stand to lose their jobs."

Now where did that figure (vague though it is) come from? The analysis is thought-provoking:

The chair of the Senate committee on economic affairs said his studies showed that 20 percent of Philippine products covered by the JPEPA would be adversely affected because the deal would reduce duties on Japanese exports to the Philippines to zero from between 10 percent and 30 percent.

“The domestic industries that would be affected are in garments, electronics such as toasters, washing machines and cooking ranges, and automobiles and spare parts,” said Roxas.

He noted that the three sectors were the country’s top dollar exports.

Now let's get this straight: these sectors are competitive enough to be able to export. But somehow they are threatened by the fact that we are repealing our tariffs? It boggles.

What's really happening? Well it's this cross-hauling thing: while we export a lot of these industrial products, in the same aggregated categories we are importing. So in some finer categories we are competitive, in some we are not. The latter is threatened by Japan's exports.

So how big is the threat and what to do about it? As a matter of fact the first part of the question has been answered, "not much." A bunch of eggheads have already done that study. See here. In short: Gains on the Philippine side mostly arise from lower prices and higher imports. Increased export is minimal (except services exports) because our main exports are already charged low to zero tariffs on Japan's side. Output adjustment on the Philippine side ranges from 0 to a whopping -0.04%. (Yeah, that's right, it's already in percent.)

By some awesome display of nonchalance, this research is ignored.

Well at least the good Senator didn't call for abrogating the agreement! Just putting safety nets. But then demanding these safety nets could be a ruse to put an end to the whole thing. In any case, such "safety nets" would use public funds, putting them in real danger of being wasted or worse, stolen.

(For an informative discussion about the bilateral trade agreement - which I mistakenly characterized as "free" - read here.)

English or Filipino?

2007-06-01T18:07:00.001+08:00

English as a medium of instruction is a hot topic again these days. Philippine Commentary has posted several times, this being the most recent.

As with many other issues, the market-oriented approach seems best. (Which allows me to get away with using my comment as a post in this here economics blog):

It's time to depart from the rhetoric of cultural imperialism and legalism, and shift towards a pragmatic approach to this issue. I was intrigued by Tan's claim that students learn faster with the mother tongue. Not being an education language expert, I did a little googling and found that, voila (Pranses iyan, uy), there is good evidence that mother tongue teaching is associated with better education outcomes, compared to second (or third) language teaching. However there is by no means a consensus - mainly because the "all other factors constant" condition is difficult to meet.

The best paper I've read about the subject is found here. Paper No. 9 argues for a "market-oriented" approach. Rather than a dogmatic, one-size-fits-all approach, why not devolve the language issue to the schools? (And that's not the only choice that needs to be devolved. I happen to think the entire public school system should be privatized and education support extended through school vouchers. But that's another debate). Public resources can indeed be devoted to production of mother tongue learning materials. But there should be no ridiculous language quota one way or another. And note that I am not talking about Tagalog. All the studies have been about the "mother tongue" - which for most Filipinos, is certainly NOT Tagalog (which is my mother tongue).

Why are Filipinos most skeptical of globalization

2007-05-26T23:59:00.000+08:00

According to the Social Weather Stations, most people surveyed in 18 countries believe that globalization is mostly good for most people. This is quite an eye-opener - all along I thought most people were, at the very least, wary of globalization.

The highest "approval ratings", as it were, for globalization are found - unshockingly - in China and South Korea. Export-dependent countries both. (Goes to show you the legendary antiglobalist Korean hotheads demonstrating in every possible ocassion, are not quite representative of their countrymen.)

Interestingly, the lowest approval rating is in the Philippines. Perhaps it's the level of education - after all, it's the Philippines and India who are least approving of globalization.

However the result for the Philippines, despite low educational level of the population, should still be surprising. After all, 1 in 5 Filipino workers is employed overseas. Does the export of labor turn the remaining citizenry off of globalization, unlike the export of goods? I conjecture, "yes." The export of labor is attended with great ambivalence, from which the export of goods is spared. The latter separates the worker from the labor (which is then embodied in the product) - the product then undergoes the slings and arrows of xenophobia, while the worker takes off at five o'clock and goes - home.

Of course I'd be the last to oppose free market choices to migrate. But I'd be the first to admit - yes, my ambivalence.

Bayan ko, nahan ka
Ako ngayo'y nag-iiisa
Nais kong magbalik
Sa iyo, bayan ko
Patawarin mo ako
Kung ako'y nagkamali
Sa landas na aking
Tinahak

(My country, where are you?
I am now alone.
I wish to return to you, my country.
Forgive me,
If I have erred
In the way
I have taken. )

Game theorists speak

2007-05-25T09:37:00.000+08:00

Pointing you to a new book about Game Theory. Unlike other references, which present specific game theory models, this is really about the theory, its key areas, progress, empirical application, and future prospects. It is based on interviews with top scholars in the field. I have only the online excerpts to go on, but it is already mostly fascinating. The most interesting of these are of Ken Binmore, Tom Schelling, and Bob Sugden, which are all about the real world applications of game theory. Let's hear from Nobel Laureate Sugden:

Conventional game theory presupposes that each player’s motivations can be represented by numerical payoffs, assigned to the outcomes of strategy profiles, and that the combined behaviour of the players of a game can be explained by using solution concepts that use these payoffs as data. But what entitles game theory to claim that this strategy of explanation will work? It is not a self-evident truth that players are motivated by individual payoffs, or that standard solution principles, such as dominance, hold when defined relative to such payoffs.16 To know if this strategy works, we need to be shown that there is a method of assigning payoffs to real-world games such that, when it is used, the solution concepts of game theory lead to successful predictions. If this strategy doesn’t work, game theory is at fault and needs to be changed. If progress is to be possible, the first essential is that game theorists recognise that it is their job to make their theories fit the world. That is what science is all about.

The good, the bad, and the ugly

2007-05-11T17:31:00.000+08:00

The Philippines is holding its local and legilative elections this May 14. Which of the senatorial candidates exhibit the most libertarian leanings? Let's consider their answers to a question on the importation of low cost medicines (Philippine Daily Inquirer, May 6, 2007). I've divided their answers into three categories.

The categories cut randomly across partly lines. Unlike the recent runoffs in France, where the drama was resolved in favor of the more libertarian party, there is practically no ideological distinction between the contending elements in Philippine politics. Both favor good governance and unity; each claims itself as authentic. Product differentiation descends to the level of personalities, rather than philosophies. Perhaps, in the Philippine context, this is a good thing - when products are unstandardized, there is hardly a point to reading the label.

Of the three categories, of course I favor the first; in that category I have awarded the Man-With-No-Name award for the first two. Most of the other answers are blah-blah-blah-blah, blah-blah, blah-blah-blah-blah-blah-blah-blah, blah-blah-blah, blah.

In the final category are answers I have included for your enjoyment.

***************************************************************

PRO:
Vicente Magsaysay, administration: I am for importation of low-cost medicines.

Antonio Trillanes, opposition: I support the importation of low-priced medicines.

Benigno Aquino, opposition: Im in favor of legislative initiatives seeking to amend the Intellectual Property Code to allow parallel importation of medicines as the first step toward broader access to quality health care.

Manuel Villar, administration: Under my watch as Senate President, the Senate approved the bill lowering the prices of medicines by amending our Patents Law to allow the importation and early development of patented medicines to greatly alleviate the health care needs of our people.

PRO BUT PROLIX:

Edgardo Angara, administration: Caring for ones health is a personal responsibility for most people but for me, it is my public duty. I have helped institutionalize a National Health Insurance Program thru PhilHealth, pushed for the creation of the National Institutes of Health to promote health R & D, and rallied behind the Generics Act. Ill push for the increase in the elderlys discount privileges for medicine to 34 percent by proposing amendments to the Senior Citizens Act. Ill support measures that will make available health support to an even bigger public even if it means importing quality low-priced medicines.Alan Cayetano, opposition: The Arroyo administration has neglected the health needs of the people. The cost of medicine is now beyond the reach of most Filipinos. I support the bills in Congress that call for importation of cheap drugs and for the institution of price control on certain drugs. Government purchases of drugs are also mired in corruption. This can be addressed by allowing patients to purchase medicine directly from private drugstores by issuing vouchers instead of the usual bidding that is practiced today.

Panfilo Lacson, opposition: Health is a priority in my advocacy as I have delineated in my HOPE legislative agenda. I, therefore, squarely support the policy allowing importation of low-priced medicines to enable Filipinos to have easier and fuller access to more medicines. Government, however, must ensure that unscrupulous parties that import low-priced but fake or substandard medicine are quickly punished.Luis Singson, administration: I am totally in favor of the parallel importation of low-priced medicines as it redounds to the benefit of the great majority of our countrymen. However, I also believe that we must resolutely pursue a comprehensive health program that includes allocation of substantial research and development funds for alternative herbal-based medicines or drugs made from indigenous materials that abound in the Philippines. We must develop our local pharmaceutical industry to lessen our dependence on imported medicines.

Juan Zubiri, administration: The high cost of medicine affects the poor more than the rich. Thus, it is only right and in the interest of the Filipinos for the government to find ways to lower medicine prices. This could be done by buying low-priced medicines abroad, fostering the local generic medicine industry, eliminating the monopoly of big medicine manufacturers, and placing prices of essential and life-saving medicine under government control. Not only manufactured medicine can be imported. Technologies in the manufacture of medicines with expired patents can also be adopted in the country by drug companies, so we can make cheaper medicines.

Francisco Pangilinan, independent: Because its economically beneficial for the country and people, importing low-priced medicines is a boon. If it poses a challenge to the local pharmaceutical industry, it should be taken as a chance for the industry to be more competitive. The benefit of having cheap but quality medicines for our people should prevail. These are thereasons the Senate passed the patents bill on the third reading before we ended session in February. The House of Representatives should give immediate attention to this bill when we resume session in July.

EVASIVE
Anna Dominique Coseteng, opposition: While I am not against the importation of low-priced medicines, we must ensure that these are of the same high standard of safety and potency as medicines from established drug firms. One way to lower medicine prices is to require manufacturers to put in big enough text, the manufacturers suggested retail price on the package so that consumers will know how much a drug outlet is making, over the manufacturers cost of production.Mike Defensor, administration: One of the priority programs of the government is to bring quality but affordable medicine to the public. Notwithstanding, the implementation of the generics law, we have not been successful in reducing the price of medicines. We are implementing the Botika ng Bayan and the Botika ng Barangay in coordination with theDepartment of Health and the PITC. I agree to the importation of medicine if this will benefit the public.

Francis Escudero, opposition: I am in favor of such a move if indeed it will redound to the benefit of our people. Safety nets would have to be provided, however, in connection with quality control and intellectual property rights.

Loren Legarda, opposition: The manufacture of pharmaceutical products in the Philippines is a virtual monopoly. This makes the price of medicines costly in our country, even if manufactured locally. India produces a lot of medicines comparable to those manufactured here. If importing medicine will bring down the cost of health care in the Philippines, then importation should be undertaken. Unrestricted importation, however, does not sound good. Only medicines which are genuine and which have not yet gone beyond their storage life should be imported.

Tessie Oreta, administration: The cost of medicine in the country is one of the highest in Asia. The high cost becomes a major stumbling block to improving the well-being of Filipinos. Importing low-priced medicines may be one option to address the problem. However, we must ensure that standards of quality are met. In addition, we need to strengthen the capacities of regulatory bodies such as the Bureau of Customs and Bureau of Food and Drugs in order to prevent the entry of fake and substandard medicines.

Prospero Pichay, administration: There should be a balance between the importation of low-priced medicines and the need to let the local drug industry continue to be viable. We need to import low-priced medicines to help our countrymen cope with the high drug prices but we dont also want to kill the local drug industry. So there should be a balance.

Vicento Sotto, administration: Importing low-priced medicines is a major step in addressing the problem of access to affordable and quality medicines. However, we must ensure that standards of quality are always met and are constantly kept updated. In the case of low-cost imported medicines, quality must be a priority. We also need to explore and develop more alternative and traditional medicines, which may be more affordable to the majority of our people. In addition, we need to strengthen the capability of regulatory bodies such as the Bureau of Food and Drugs in order to prevent the entry of fake and below-standard medicines.

HUH?
Sonia Roco, opposition: Are the multinationals providing reasonably priced medicines? Is the distribution of imported medicines democratized? Is the use of herbal and traditional medicine and methods sufficiently promoted and supported by the government? The 54-percent self-rated poor badly need cheap, unexpired medicines. Can they be bought at the Botika ng Bayan?

Ralph Recto, administration: Like the medicines we take, importation should be of the right dosage and kind. The challenge is not to import from India, but to copy India, which has been able to provide cheap medicines to its people by manufacturing essential drugs, to the extent of skirting patent limitations.

Cesar Montano, administration: Thats a good idea. But another option is to support locally made drugslike herbal medicines. In doing so, we are also providing jobs to our countrymen.

Richard Gomez, independent: All Filipinos should be given access to cheap medicines. Poverty is a major problem in our country. Thats why my priority is to raise the salaries of Filipinos.

Jamalul Kiram, administration: Expand the program and increase the budget allocation consistent with WHO standards and health services budget.

John Osmena, opposition: I am in favor of low-priced drugs.

Joker Arroyo, administration: No answer.

Trivial economics of time allocation as applied to blogging

2007-05-02T10:22:00.000+08:00

Why do I blog? Blogging is a matter of self-expression, mostly, along with the hope that some reader may be entertained or informed (in that order of difficulty). This is consistent with a model in which the number of posts in my blog appears as an argument in my utility function, alongside consumption of rice, housing services, transport services....

As Becker argued, utility is actually a production process involving commodities purchased in the market, as well as time. Time however is also a factor in producing the income to purchase the market goods. So the choice of time allocation and choice of goods is a compromise between competing ways of generating utility. For example, in deciding to buy a DVD, the biggest factor is time (for the dollar-per-disk variety, cost is rather trivial.)

And similarly for posting in the weblog. It is relatively easy to trace a life history of my schedule over the past couple of years. In general during months where the frequency of posting would be higher, the value of my time for income-generation was rather low (deadlines farther away).

Now is as fairly convoluted an explanation as you can get for a posting hiatus.

The new institutional economics (2)

2007-05-02T00:41:00.000+08:00

As discussed earlier, early development economics tended to ascribe irrational and inefficient behaviors to the traditional agrarian economy as a reason for its underdevelopment. But analysis by economicsts such as Ted Schultz and Steve Chung began a quest for elaborating the hidden rationality underlying traditional agrarian structures and behavior. For example, the new theory of share tenancy notes that when insurance markets are imperfect or missing altogether, the tenancy contract acts as a partial insurance device. Under sharecropping, any loss is shared by both owner and tenant.

In general, according to Otsuka and associates, there is no evidence that share tenancy keeps employment of labor or other resources less productive than warranted. Agrarian contracts are found to adapt to real world enforcement problems; hence, share tenancy is more frequently observed in cases where monitoring is less costly, i.e. in closely-knit communities and families.

The need to provide work incentives and closely monitor labor to prevent shirking reveals an important advantage of the family farm as a production unit. Because of this, it is now commonly argued that economies of scale in agriculture are largely non-existent. However we do observe considerable land consolidation; such patterns may be due to market failure. Under imperfect credit markets, tenants face constraints in raising working capital from commercial sources. Banks may be more willing to lend to affluent landowners – who have collateral and a credit history – rather than to cultivators with no assets and no credit history in the formal sector. From a dynamic viewpoint, land serves as a store of wealth to smooth expenditures during income or consumption shocks. Because of these failures, the price of land remains artificially high . Furthermore land transfers are frequently motivated by “distress sales” rather than reallocation of land to more productive uses, leading to cumulative asset inequality.

To some extent, land rental markets offer an important means for improving asset inequality, as landless workers are able to climb the “agricultural ladder” of share tenancy, leasehold, and ultimately ownership.

From this perspective, land reform may have both positive and negative impacts. Conferment of ownership to cultivators may accelerate capital accumulation among the poor towards a more egalitarian and efficient distribution of assets. However redistributive land reform may incur high administrative cost; moreover, incentives to invest may be crippled during the interim period during ownership rights is yet to be transferred. Finally, controls on the rental market, including proscription of share tenancy, may deprive cultivators an important means to for sharing risk as well as foreclosing opportunities to the landless to climb the “agricultural ladder”.

Land reform: the new institutional economics

2007-02-05T23:07:00.000+08:00

Neoclassical economics has the advantage of strong theoretical foundations, in terms of individual constrained maximization and market equilibrium. However it suffers from a narrow representation of economic institutions. On the other hand, institutional economics addresses a wide variety of agrarian structures, but without deeper theoretical underpinnings. The new institutional economics or NIE seeks to ground the analysis of a wide variety of economic institutions on neoclassical foundations. This is done by broadening the types of constraints and costs, and relaxing competitive market assumptions. Key considerations in NIE are transaction costs, risk, imperfect contract enforcement, and asymmetric information.

Oliver Williamson distinguishes between first-order, second-order, and third-order economizing. First – order economizing covers the institutional environment that determines the “rules of the game”, in the areas of property rights, polity, judiciary, and bureaucracy. Second – order economizing involves governance structures and contract design. Third – order economizing is straightforward resource allocation subject to marginalist efficiency conditions, which is the traditional subject matter of neoclassical economics. Hence, while neoclassical theory specializes in third-order economizing, NIE specializes in the first two.

(To be continued)

Land reform - institutional economics

2007-01-30T22:22:00.000+08:00

Neoclassical theory may be seen as a highly idealized representation of markets. A more realistic perspective, inspired by institutional economics, departs radically from this idealization. Institutional economists treat markets as one of numerous social constructs or institutions within a historical process. “Private property”, which is taken as a given in neoclassical theory, is merely one of possible configurations of property rights observed throughout history.

The task of applying institutional economics to developing country agriculture was taken up by early development economics. One important dichotomy in this literature is between traditional and modern institutions and cultural values. The classic paper of Johnston and Mellor (1961) describes possible impediments to agricultural modernization in terms of the traditional group constraints, attitudes towards change; perceptions of personal gain from the adoption of modern technologies, availability of market exchange outlets, and so on. Tenurial reform is identified as “the most essential requirement” to modernization, as traditional tenancy is the main obstacle to the formation of market – based agriculture.

Traditional tenancy is characterized by patron – client relationships and sharecropping, which are seen as institutional impediments to commercialization. Under the patronage system, the landowner offers an output share to the tenant in exchange for cultivation rights. The landowner also provides consumption loans, with effectively a transfer during times of emergency; this effectively guarantees a minimum subsistence to the tenant. The patronage system meanwhile obligates tenants in various ways, such as in rendering miscellaneous services as well as political support. These institutions characterized the manorial or feudal system in medieval Europe as well as agriculture in Southeast Asia.

The persistence of traditional structures is a serious obstacle when more commercialized transactions are superior ways to organize production. For instance, under share tenancy labor is paid below its marginal product, hence we expect a below optimum level of effort – the “Marshall critique”. A move towards either a straight wage contract or a fixed lease contract would pay factors their marginal product and improve allocative efficiency.

Between these two - neoclassical economics and institutional economics - who has a better approximation of reality? Or is it something in between?

Impact of land reform: neoclassical perspective

2007-01-22T06:23:00.000+08:00

To understand the impact of land reform, you have to view it from a theoretical perspective. The neoclassical perspective is one most familiar to economists. The neoclassical school treats land like any factor of production. The entrepreneur – an individual decision-maker - combines land, labor, capital, and material inputs, to produce output. The services of the factors of production must be purchased from other individuals who possess private property rights over the factors (unless the entrepreneur herself is the owner). The entrepreneur receives the proceeds from the sale of the output. The difference between revenue and cost (payments for all factors of production) is profit. The relationship between factors and outputs is represented by a production function, which expresses a particular state of technology. Entrepreneurial decisions are motivated by maximization of profit.

Markets are assumed to be perfectly competitive. Now suppose we define an "efficienct" allocation as follows: an allocation is efficient if any reallocation would inflict at least as much harm to losers as benefit to gainers. Neoclassical theory concludes that the way the market allocates resources, such as land, is efficient.

This all sounds very abstract. What are some practical predictions of the theory?

1. A government-administered reallocation of land from landowners to cultivators would likely reduce agricultural output.

2. Rent ceilings and transfer restrictions on agricultural land will reduce investments in land improvement, and encourage conversion to non-agricultural land.

The first opposes the claim that land reform would lead to a more efficient allocation of land. The second hypothesizes that agricultural land productivity and supply of agricultural land would decline under land reform.
Obviously the blokes who thought about land reform were not reasoning from a neoclassical perspective. What was the theoretical underpinning of land reform? Next week.

University of the philistines

2007-01-14T22:40:00.000+08:00

The raging issue in my alma mater is the increase in tuition fees. Long held at 300 pesos per unit (a little over US$ 6), in real terms this is now a little less than a third of its value when it was first set years ago. The proposal therefore is to raise it to about P1,000 (in the largest campuses) and thereby recover lost value. (Please check out this page and links to learn more about this issue.)

Of course, I should not expect the buyers (students) to take this lightly. It is an opportunity to rehash tired old bromides as the following:

Mr. Alfonso, has been quoted as saying that it is wrong to use students as a “source of income” for the university. “They tell us that it’s not the government’s role to subsidize tertiary education, but we believe otherwise.” (PDI, 24 November). During the congress of student councils held in Davao, which I personally attended, Mr. Alfonso declared that the difference between the students’ position and that of the UP administration was “philosophical.” In other words, their position is that tertiary education should be entirely subsidized.

Me too! It is my position that economists be entirely subsidized. Heck, it is my position that people who blog should be subsidized, as well as people with a fondness for Booksale pocketbooks. Furthermore, I demand as my unique inborn right to be subsidized because I am, er, in my mid-thirties. Yes, I demand to be subsidized because I take the MRT and I don't have a pet! That's my philosophy. Now if I can just round up a posse to lynch opponents of my sacred subsidies, I would demonstrate the depth of the values inculcated into me by my alma mater. So let us sing our school song:

UP naming mura, pamantasang hirap.
Ang bariya namin,
Sana'y iyong tiisin.
Malayong lupain,
Hasikan man ng lagim
'Di rin magbagago ang palamunin (2x)

Luntian at pula
Sakim kami kailanman
Ipagdiwang natin
Bulwagan ng hangal.
Humayo't ipagkait
Ginto at katapatan
Mabuhay ang pagpapakasasa sa pondo ng bayan (2x)

Doctors, nurses, economists, and fools

2007-01-08T07:50:00.000+08:00

An old story (dating back to 2004) has been picked up and updated in the major US news services (example). It's about the medical exam topnotcher, Elmer Jacinto, who is now working as a nurse in New York.

The article draws attention to a major Filipino daily, who called Elmer a "sellout," and a columnist who condemns his "deplorable ambition". (Parallel Universes excerpt from these reactions.)

Such condemnation is foolish, ignorant, and stupid. Elmer is simply exercising his right to make a living, wherever and however he sees fit, without exercising fraud or violence. To say that he is "depriving" the Philippines of his medical skills, presumes that Filipinos have the right to demand Elmer to supply his services to them. There is no such pre-determined right. The right to demand Elmer his services belongs solely to his buyers, because of his standing promise to exchange services for fees.

It does however appear odd that a very bright medical doctor is spending his time dressing wounds and sticking needles into buttocks. Elmer is very likely to be more capable than many of the doctors ordering him about. Are markets stupid? No - government intervention is. The modern professional licensing system, firmly entrenched everywhere (including the United States), is preventing Elmer from being deployed in the job where the value of his service is highest. That's all there is to it. Contrary to popular belief, the United States is not an apostle of free markets, but rather a major heretic.

I am very thankful I belong to a profession that does not have licensing requirements. On the downside, a lot of fake "economists" though are getting away with pretty idiotic public pronouncements. Still, we seem to be doing pretty well even without the market distorting props of professional licensure.

We economists like to practice what we preach.

The transformation of Negros

2007-01-01T17:12:00.000+08:00

Last month I visited Negros island, in West-Central Philippines, the country's "sugar bowl". The west part especially (Negros Occidental) is covered with vast sugarcane areas, previously organized into haciendas, large estates under one landowner. Here enormously rich hacenderos accumulated enormous wealth, while poor resident workers lived on their vast estates. These workers grew to depend on the hacendero for their daily needs, depending on the vale (cash advance) for medical emergencies and other consumption needs. Sometimes the workers formed communities (complete with church and school) right on the hacienda. Meanwhile the hacendero class grew to wield great political power, entrenched itself at the forefront of the traditional elite of the country. It was a textbook example of modern-day feudalism, alive and kicking in the developing world.

In 1988, the Philippines embarked on its last and most extensive program of land reform, the Comprehensive Agrarian Reform Program (CARP). The CARP implements a law imposing a five hectare limit to total agricultural landholdings, with the excess to be distributed - with compensation - to tenants and other qualified beneficiaries. Unlike previous programs, the CARP would cover everything - including the hitherto untouchable haciendas.

The modern feudal lords have battled the redistribution program. Negros Occidental, which has the country's largest potential area for land reform (over 280,000 ha), has the lowest redistribution accomplishment (about 55%). Yet land reform has gone farther than most had expected in the late 1980s, forever transforming the face of the Negros countryside.

Not always for the better. First, land reform prohibits the transfer of land from beneficiaries to other parties (except by inheritance), for ten years after award of the land. In the medium term this has taken land away from enterprises with access to working capital (the haciendas) to enterprises without such access (the beneficiaries' farms). Sugarcane yields have reportedly dropped, as ideal input intensity cannot be achieved in the beneficiaries' farms. Second, the miscellaneous consumption financing offered by traditional sugarcane landlords did serve a useful function - which is completely disabled by land redistribution. Post-feudal forms of finance (i.e. the commercial banking system) has so far failed to deliver adequate financing to the new class of landowners.

But has land reform been a complete catastrophe? Far from it. Sugarcane yields do not seem to have seriously suffered owing to land reform. Check out the following graph, which shows the average yield in tons of cane per ha per year in the Philippines. Despite all the problems, somehow the sugarcane industry, post-CARP, is still doing well. That means the new landowners are probably enjoying a higher standard of living than without the program – they receive the profits from the land, rather than just wages. I am getting much of this information from my land markets study, a sub-component of a bigger study assessing the impact of agrarian reform in the Philippines. I can confirm that many of the new landowners do lease out their lands to big sugarcane planters, and end up earning wages from the leased out land. Despite the apparent irony of the situation, it is clear that they are better off than before the program, because they receive lease rental in addition to wage. Furthermore, most who practice this do not in fact lease out all their land, and seldom is this practiced on a permanent basis.

So are the sugarcane workers better off with than without the Program? I wouldn’t know the answer to that – yet. But I do know that a lot of distortions is poisoning the discussion about the future of land reform. The last thing this country needs is policymaking by hyperbole.

Update

2006-12-25T02:35:00.000+08:00

Kindly update your bookmarks. Got a new title. Why change? Because I can.

Edmund Phelps: Bank of Sweden Winner for 2006

2006-10-09T22:47:00.000+08:00

No honor in economics is more prestigious than the Bank of Sweden Prize, a.k.a. the "Nobel" prize in economics.

Winner for 2006 is Edmund Phelps (one of the rare single winners).

Frankly I just dimly recall Phelps from the "Friedman-Phelps" expectations-augmented Phillips curve. Then after reading the press release, I remember his name associated with the "golden rule" of growth theory. To summarize: he won for examining long-run trade-offs, between inflation and unemployment, and between consumption and investment.

For the inflation-unemployment trade-off he said: no such thing in the long run. Rather unemployment is held at the "natural rate" (later defined by Friedman as the unemployment rate "ground out by Walrasian equilibrium"P.

For the consumption-investment trade-off he said: if you don't believe in intergenerational discounting, you can adopt the "golden rule" in which equalized per capita consumption is maximized forever. Neat. This was a direct inspiration of the "sustainable development" idea of current consumption that does not sacrifice future consumption.

Just one problem: Phelps' prize is way overdue, and therefore dated. He could have won with Friedman, or Lucas, or some other monetarist-RBC type; or like Hayek and Myrdal, share it with Taylor or Modigliani (except he shared it with Miller already) or some other Keynesian-type.

The Committee should have been more forward-looking and rewarded recent work. Bhagwati, Krugman (trade), Fama (finance), Roemer (growth), Williamson, Baumol (industrial orgn.) I guess they tired of that already with the past 3 or 4 years of Bank of Sweden prizes.

Nevertheless my warmest congratulations.

Agriculture, development, and the Green Revolution

2006-10-05T21:45:00.000+08:00

Johnston and Mellor’s vision of a broad-based yet labor-intensive technological change in Asian agriculture was to materialize in the form of the “Green Revolution”. The ex post impact of the Green Revolution have been evaluated by Evenson and Gollin (2003), in a Science paper. The Green Revolution began with the introduction of varieties of wheat and rice that could respond to greater application of fertilizer and water with much higher yields. Dissemination of improved varieties of rice, wheat, and corn became widespread in the 1960s and 1970s, while varietal improvement programs also began for other crops.

Yield of cereals, roots and tubers, and pulses jumped dramatically. From 1961 to 1980, production of these crops grew by 3.65% per year in developing Asia; only 14% of this can be attributed to area expansion – the rest is due to yield increases. Of the latter, the contribution of the improved variety was 22%, and the remainder is attributed to input intensification.

Food model simulations indicate that in the absence of a Green Revolution, crop yield and production in developing countries would have been much smaller compared to the actual figure for 2000, and agricultural area higher. Conversion of natural habitats to farm area would have had adverse environmental impacts: Lower supplies would have meant more expensive food and decreased calorie intake.

Agriculture optimism and pessimism: the perrenial debate

2006-09-26T22:11:00.000+08:00

I dusted off a copy of the classic article by Johnston and Mellor in 1961 on The Role of Agriculture and Development (in the American Economic Review). Reading it now I realize how remarkable it was - much of the later insight on agriculture and development were presaged in its pages. The emphasis on broad-based technological change; the possibility of financing industrial investment through agricultural savings; and the compatibility of high labor use with a modernized, high-yielding agriculture (departing from the Western model of highly productive, but also highly mechanized farms).

Just to let you know: there is an ongoing debate in the literature between agriculture optimism (or agriculture fundamentalism) and agriculture pessimism (or agriculture skepticism). The former advocates an agriculture-led strategy of growth; the latter holds that in some (or perhaps many) cases agricultural development can essentially be bypassed in the process of economic development. Johnston and Mellor themselves were not so fundamentalist in their advocacy of agriculture (though later Mellor was to turn hardcore).

Updates

2006-09-23T16:40:00.000+08:00

As I promised, I got around to updating my home page. I've uploaded some of my new papers, including my latest, coming out in Fish and Fisheries, "Projecting Future Fish Supplies Using Stock Dynamics and Demand." That's where I argue that economists' supply-demand models should be synthesized with biologists' ecological models; I sketch a prototype model with numerical simulations to show just how this might be done. Another recent paper is a "Eating for a Lifetime: A Policy Assessment of Philippine Fisheries."

Check it out and download to your heart's content, as long as it's for personal use.

The importance of a good analogy

2006-09-21T21:40:00.000+08:00

When I was a college student (even in economics!!!) I took it for granted that industrialization is the key to development. Agriculture is backward and plays no role in development, except to give up its workers for manufacturing (and thereby shrink). What a shame if we can't produce our own hammers, screwdrivers, cars, computers, and all that marvellous stuff made in those big macho factories.

Now as a professional economist I find myself arguing otherwise: in most cases, development of agriculture is a prerequisite to industrialization. What changed my mind? A lot of research, thinking, and exposure to data. Lots of data.

And a good analogy. Some analogies have become abused and have led to catastrophic policies. Like the Big Push and the Take-off, or the analogy between national power and economic power.

One good analogy is "flying geese." Succinct and accurate. A better analogy (and perhaps the best): the "ladder" of development. What better way to encapsulate the idea of accumulating physical and human capital and know-how? How else to demonstrate the folly of getting to the top without passing through the rungs in between? So is economic development. You don't get there by making cars and buses and computers at once, and all by your lonesome (without those pesky foreign investors, who are sooooooooo demanding about your roads and bridges and power supply and sticking to your policies and...)

The first step up involves: rice, corn, coconut, chromium, and all that unsexy stuff. But then this allows a country to accumulate wealth and know-how, and climb up. At the end of the ladder: cellphones, MP3 players, medical instruments, even smart missiles, passenger jets, and sattelites. And last, but not the least, the end of poverty. One rung at a time.

Less is more

2006-09-19T20:20:00.000+08:00

Here is a column by Federico Pascual from the Philippine Star, about fisheries in the Philippines. Since the Star is not known for permalinking, let me reproduce the column below in full (except for those pesky asterisks).

Full disclosure: I have just written a policy paper on fisheries in the Philippines, for the Economic Policy Reform and Advocacy Project of Ateneo de Manila and the USAID. Plenty of what I've written disagrees with the column. (When I have time I'll revamp my personal site and upload that paper.)

First, a few minor points: The writer blames the depletion of fish resources on "lazy Filipino fisherman." So it's possible to overfish while being lazy? That sounds fishy. The truth is a fisherman's life has usually been hard, because they are competing with other fishers to catch the limited fish. Therein lies the abuse of fish stocks, that is by no means unique, either to Filipino fishers, lazy fishers, or diligent fishers. Also: the net method is limited to small tunas. The large tunas - which is the bulk of tuna catch in the country - are caught by handline (fishing reel and rod) or longline (a long fishing line with a series of hooks).

Okay moving on to something more substantive: market-wise, isn't aquaculture obviously a threat to capture fisheries? This seems to have been completely missed by the writer. Farmed fish and wild-caught fish are substitutes. Now if fishers are able to switch to fish farming, then aquaculture would simply be a continuation (or even improvement) of their livelihoods. In practice though the skills for fishing and for fish farming are very different; one is neither a necessary not a sufficient preparation for the other.

Is fish marketing dominated by powerful traders dictating the price? A study by the ADB suggests that, contrary to this knee jerk opinion (the typical newspaper columnist sees monopoly power always and everywhere), fish trading is a competitive market.

Finally we get to the main point of the article, which has been provoked by a recent rationalization plan (which I have read) for the Department of Agriculture (DA). The plan calls for streamlining the DA bureaucracy as a whole (not specific to the fisheries bureau). That is, the principle is getting the DA out of private sector functions and local government functions. Now in the Philippines, fisheries management of inshore waters (0 - 15 km from the shore) has been delegated to local governments. Furthermore agricultural extension - including for aquaculture - has similarly been devolved. The rationalization simply calls for a structure more consistent with these realities. Moreover the DA will be renamed the Department of Agriculture and Fisheries, the more to emphasize the parity between crops/livestock and fish in the various functions of the reorganized Department.

The writer belongs to the all-too-common school of thought, that "more government" is the answer to every problem. Consider this telling quote: "The way to do it is certainly not to shrink BFAR. On the contrary, we should expand it and assign it food and industry targets commensurate to its upgraded status." Man oh man does that make me wince. Unfortunately this perspective misses the fact that government is often part of the problem. One of the best things that could happen to a society is breaking this culture of control.

**********************************************************

Upgrade fisheries bureau to dep't, not downgrade it

BIG JOB AHEAD: Instead of downgrading the Bureau of Fisheries and Aquatic Resources (BFAR) as planned by supposed experts at the agriculture department, the administration should upgrade it into a full-fledged department.

Humanity having despoiled the land, the future of the world’s food supply is the sea. There lie in our waters untapped resources that far exceed the food (among other) requirements of the growing population.

Surrounded by one of the world’s richest marine food banks, and with a rice-and-fish-eating population facing a coastline twice as long as that of the United States, we cannot overemphasize the need to conserve and develop our fisheries and aquatic resources.

The way to do it is certainly not to shrink BFAR. On the contrary, we should expand it and assign it food and industry targets commensurate to its upgraded status.

The Arroyo administration may want to have the distinction of having originated a two-pronged approach to the stubborn food problem -- agriculture (land-based) and aquaculture (water-based).

AQUA VERSION: In agriculture -- as in farming -- we prepare the soil, plant, tend to the crops, wait, then harvest. That takes time, and time is not always an element that we can compress.

Out there in the open sea (at least in those areas still teeming with fish), our fishermen simply go out, throw their nets and pull in the fish. No planting, no waiting.

The simplicity of the operation is probably one of the reasons why many lazy Filipino fishermen had taken the sea for granted and abused it. Now the children of these misguided fishers have to sail out farther to catch anything.

Aquaculture is akin to agriculture in at least one sense: We also prepare a fish farm or aquatic site, choose the seedlings, plant, wait and harvest the fish (or such crustaceans as crabs and shrimps or some shellfish) after caring for them over a certain period.

The fish (used here as a generic term to include crabs, shrimps, shellfish and the like) are taken care of or cultured in man-made cages, pens or ponds or some other controlled enclosure.

The fish farmer operates in a controlled environment that more or less ensures predictable results -- provided no extraneous elements such as pest, poisoning, or such weather disturbances as typhoons wreck the plans.

RIVERS OF TUNA: The case of tuna fishermen is one good argument for giving our fisheries industry the attention and assistance it deserves.

Countless tuna swim together like a giant current, like a surging river, in known paths or patterns in the open sea. Their number is so great it defies counting.

It so happens that that great river of tuna passes right through our territorial waters! Allah is good, indeed!

Our fishermen know where these rivers of tuna pass in an endless current. If properly-equipped, all that our fishermen have to do is go to the site, throw their nets across the passing tuna and haul in as much as their boats can carry.

These fishermen do not have to plant and wait -- like farmers -- before they can harvest to their satisfaction.

But this Pinoy operation is almost primitive from the point of view of modern-day deep-sea fishing. For one, while our fishermen know the sea intimately, they are handicapped by their lack of adequate vessels, gear and marketing network.

A full-time fully-empowered aquaculture department can do wonders in making our fishermen fishers for the region and beyond.

PUEDE NA?: Inland, where we have lakes, rivers and impoundments, we have scattered family-owned farms that raise hito, tilapia, crabs, shrimps and other common species sold in wet markets and served in restaurants.

On their own, they may be “puede na” with their small-scale operation, but there is a dearth of research and development and state assistance that could enable them to improve techniques, increase yield and boost their income.

These small operators do not get the assistance and protection they deserve as contributors to the national food supply. This is just talking from an inward perspective, not yet dreaming of having these producers grow into exporters.

They cannot go into research as there is no time or money for that. Many of them just ask around, attend seminars and generally play it by ear. There should be a better organized government effort to reach out to them so they could become more productive.

LAKE PENS : In Laguna de Bay, the biggest lake in the country and the closest to the national capital, a confusion of fishpens and corrals is choking it.

Small fishermen whose families have depended for generations on the lake for their livelihood have found themselves shunted away from their traditional grounds.

Efforts to remove illegal and improperly built or located fishpens have failed, because some operators are too powerful to be touched.

I do not know if this is still true, but there was a time when even presidential guards were being used by some people close to Malacanang to guard their fishpens.

Environment and Natural Resources Secretary Angelo Reyes said days ago he was serious about restoring sanity to the lake, meaning he would remove pens that should not be there. But until we see results, we should treat that as just one of those plans.

LESSONS LEARNED: As in agriculture where most farmers do not have the means to take their produce to the market, small fish farm operators have to depend on middlemen to buy their catch at prices that the merchants dictate.

This is not to say that the government should usurp the role of private middlemen, but there should be some way to enable small operators to develop a marketing network of their own.

A full-blown aquaculture department will be in a better position to devise ways to give small operators access to easy credit, better seedlings (fry), better techniques. A department can help them work out a more efficient marketing scheme.

A new aquaculture department can learn many parallel lessons from the agriculture department under which it now functions.

VILLAFUERTE OBJECTS: In Congress, Camarines Sur Rep. Luis Villafuerte, chairman of the House committee on fisheries and aquaculture, has rejected the plan to downgrade the BFAR, calling the idea “ill-considered and foolish.”

“Our sense is that diminishing BFAR would be highly counterproductive,” the Bicol congressman said. “We may in fact have to eventually upgrade the agency and establish a new, full-grown department dedicated entirely to developing fisheries.”

He added: “Being an archipelago, fishing and allied industries are of strategic importance to the national economy. By our geographical nature, thousands of coastal communities also subsist daily on our marine resources.”

“In fact, in terms of value, fisheries now account for almost 25 percent of our total agricultural output. And going forward, we are counting on the sector to further enlarge its share (of gross agricultural yield).”

Data from the Bureau of Agricultural Statistics indicate that the country’s fisheries production grew rapidly from just 2.6 million metric tons in 1998 to over four million MT in 2005.

BFAR UNITS: Villafuerte pointed out that less and less land is becoming available for farming. “Thus, we really have no choice but to increasingly rely on fisheries and aquatic resources to produce adequate food supply, fight hunger and ease poverty.”

The agriculture department earlier disclosed a plan to lower BFAR from a line to a mere staff bureau, and to transfer its regulatory services to a new, smaller office. Its field offices, now self-operating, would be put directly under DA regional directors.

The Fisheries Code, also known as RA 8850, upgraded BFAR from a staff to a line bureau in 1998.

At present, BFAR also oversees the Fisheries Technology Center, National Freshwater Fisheries Technology Center, National Inland Fisheries Technology Center, National Marine Fisheries Development Center, National Integrated Fisheries Technology and Development Center, National Seaweed Technology and Development Center, Fisheries Biological Center and the Mindanao Freshwater Technology Center.

Collapse - of economic logic

2006-09-13T07:21:00.000+08:00

There's another collapse going on - in economic policymaking of the Philippine government. Under the watch of a Ph.D. economist, no less.

For decades the Philippines had pursued a regime of "financial repression" involving interest rate ceilings, mandatory lending for private banks, and direct lending by government. In the mid-1980s this regime went on a phase-out. One of the last nails on the coffin was Executive Order 138, which prohibited direct lending by government agencies. The main credit intervention of the government (aside from Central Bank regulation) is now relegated to government financial institutions, such as the Land Bank and the Development Bank of the Philippines.

The advantage of such institutions is that they are specialized financial intermediation companies, whose objective is the bottom line - maximizing net present value. Of course that objective is undermined by the "soft budget constraint" i.e. they have the implicit fallback on government subsidy; moreover they receive preferential treatment (for example, the Land Bank is the official government fund depository). This arrangement though remains vastly superior to having the Department of Agriculture dishing out loans to farmers. For the latter, there is essentially no mechanism for accountability should financial disaster happen. And it has happened, as this columnn discusses.

Now the President has repealed the prohibition, opening the floodgates to direct lending by government agencies. Where is the logic, nay the sanity of this?

The bang versus the whimper

2006-09-08T06:28:00.000+08:00

There are two ways to die. One is by the gradual deterioration of bodily function in terminal illness or senescence. The other is by suffering a trauma that causes a sudden collapse in bodily functions. The neomalthusian notion of an ecological collapse of modern civilization follows the latter analogy.

The collapse is deemed to be self-induced, hence the related notion of "overshoot": a society is able to exhaust its resource base at high levels of activity and consumption; then exhaustion is reached, leading to a sudden drop in consumption and population size. The standard reference for this phenomenon is still the 1970s work The Limits to Growth , which has recently been updated.

Economic theory isn't very welcoming of the concept of overshoot-collapse. Rather, the price system would ration out a disappearing (exhaustible) resource. As it gets scarcer, it gets harder to extract, so the cost and price go up, making people skimp on it more. More than that: if conditions of scarcity become certain, such that future prices are sure to increase, owners of long-term rights to the resource would (as rational decisionmakers) hold off on extracting a lot today in anticipation of better prices next year (or decade or...)

Think of oil. It is said that the Saudi's are just extracting the oil as fast as they can, to create the illusion of big reserves. Nonsense. If peak oil has been reached then oil prices are on a long term upward trend. The owners would therefore keep their oil extraction in check. (If you held reserves to a trillion barrels of oil, wouldn't you?)

Now two things can happen: either technological change succeeds (under the whip of high resource prices) in finding abundant substitutes; or it fails, and society lives with escalating prices, converging to what would in practice mean zero extraction of the resource. (Think of petrol at US$ 1,000 per liter.) The latter scenario is the whimper version of society's demise - a long slow adjustment back to near pre-industrial levels of production, consumption, and population. (Hey, nearly two billion people in the planet are already at this standard of living!) Interestingly, the whimper version gives a lot of time for society to undertake the social and technological innovations to deal with tightening resource scarcity. The bang version obviously doesn't.

So how will our civilization end?

Between the conception
And the creation
Between the emotion
And the response
Falls the Shadow

Life is very long

Between the desire
And the spasm
Between the potency
And the existence
Between the essence
And the descent
Falls the Shadow
For Thine is the Kingdom

Rehabilitating the neomalthusian nightmare

2006-09-05T20:45:00.000+08:00

I'm finally getting around to reading Jared Diamond's Collapse. Unlike his earlier Guns, Germs, and Steel, this one apparently has had mixed reviews from economists. I'm a big fan of the latter, and was drawn in to the former by the same enthralling and deceptively simple style. Now I'll just have to see whether the Diamond's arguments stand firm or fall over. One question: is it a Malthusian book as many decry? Just after reading the first chapter I know it's not that at all.

Back to the future in energy: biofuels

2006-08-31T21:51:00.000+08:00

Bioenergy is obtained from materials originating from living or newly-harvested organisms. These include oils, fats, fibers, residues, wastes, and the like. The International Energy Agency (IAE) points out that two hundred years ago, virtually all energy consumption originated from bio-energy. However this was displaced by a more readily available and low cost source, namely fossil fuels (which originate from long-dead organisms, and are therefore non-renewable, except in a useless sense on a geologic time scale.)

However, recently, rising global demand for energy and all-time high nominal prices for petroleum are causing a large-scale shift towards alternative energy sources. Also driving the search for alternatives is are the numerous environmental problems linked to fossil fuel use, including global climate change.

In Asia, renewable energy accounted for as much as 24% of total energy usage in 2003, over ninety percent of which originated from combustible renewables and waste. The rural poor in developing countries are highly dependent on bioenergy. Four out of five households without electricity are found in rural areas of developing countries (FAO, 2005); such households rely on fuelwood and charcoal for most of their energy needs. Large sections of the rural poor have been bypassed by modern, centralized, energy generation and distribution systems. Bioenergy opens exciting opportunities for more accessible technologies for meeting the energy needs of the poor.

Back in college, for a group paper I and some classmates had a most enjoyable trip to Maya Farms in Rizal, Laguna. (Incidentally, my groupmates were all nice ladies, which played no small role in the recreational value of the experience - at least on my part.) Maya Farms - you may recall seeing its products in the supermarket - is a leader in integrated biogas generation. It is energy self-sufficient, with all its electricity internally produced from pig manure. Not an ounce of excrement flows out to pollute the adjacent river leading into Laguna Lake, unlike so many livestock enterprises (both large and small) dotting the perimeter of the Lake. Now that's a large scale, hi-tech operation. Perhaps small scale options, appropriate for rural communities and households, are feasible for decentralized power distribution among the energy-deficient rural poor. The future may well be in fats, fiber, detritus, and dung.

The IAAE

2006-08-23T23:28:00.000+08:00

I did get back from Brisbane last Saturday, but spent the next few days recuperating and attending to some backlog. During the IAAE conference I had concentrated on attending the symposium on Sustainable Development in Fisheries and Aquaculture: Challenges for Economists, which ran for a couple of days in the afternoon. I had a presentation, mostly on my engagements in supply-demand modeling for fisheries for the WorldFish Center. Interestingly, that was the only conference session on fisheries and aquaculture for the IAAE.

Aside from that I was in several plenary sessions, including the opening one with the Presidential Address by Prabu ("Agricultural Development through the Globalization Lens") and the Elmhirst Lecture by Hans Binswanger (on empowerment of the rural poor). Both interesting and stimulating, but not the best. Prabu I think should have devoted some time discussing whether the conventional arguments for the priority role of agriculture in development (Johnston-Mellor-Kuznets-Chenery, et al) still hold water in an open economy setting. Hans should have focused on his main topic, but his second half got diverted into agricultural investment and the usual issues favored by economists (market-led development, getting prices right, focusing on public goods, etc.) Another interesting session was the Impact Assessment of Integrated Natural Resource Management in the CGIAR, chaired by Herman Weibell. (Yes, the soft stuff can get some increasingly "hard" treatment from the econometricians and modelers.)

So that was pretty much it for me. (Oh, I got to see sheep shearing in the field trip. Fun, in a tourist trap sort of way!)

It was my first IAAE meeting, and it was said to be the best. It may well have been. Congratulations to the organizers, especially the Program Committee led by Kei Otsuka (that enormous program must have induced much vertigo). Here's to a thought-provoking - and healthy! - conference in Beijing 2009.

Down time

2006-08-17T14:12:00.000+08:00

Most unfortunately, I am down with a fever and a cough while attending the IAAE Conference. Have been halfheartedly attending, but today I opted to just rest in my hotel. Bummer. Just so you know why my posts have been stuck at (1) for a week!

IAAE meeting (1)

2006-08-12T15:31:00.000+08:00

I scrolled down the economics roundtable and found no one blogging about the 26th International Association of Agricultural Economics Conference. Not even John Quiggin, who chairs a session. Perhaps I'm the only one who thinks this is interesting? I'm not even a member. (My previous memberships, aside from local associations, were with the IIFET and the Asian Fisheries Society, but alas both have lapsed.)

Today is just the preconference workshops (for which I haven't registered). So the actions starts tomorrow.

Contributions of agricultural economics

2006-08-10T23:13:00.000+08:00

The International Agricultural Economics Association (IAAE) holds its triennial conference in Gold Coast, Brisbane, Australia. Numerous luminaries will make their appearance. Needless to say, plenty of juicy topics to bite into - just check out their site.

Unfortunately as some of you may have noticed, I've been a bit remiss with this weblog in between deadline pressures and preparing papers and presentations for conferences like this. (And this weblog - for the second time - is being prepared in Changi airport. Free internet is fabulous!) Though no question, it's a great opportunity for me to attend. Anyway, lemme see if my posting can pick up with this.

Triumph of rent-seeking

2006-08-01T10:57:00.000+08:00

In economics, "economic rent" has a special meaning of "income received by a factor in excess of its opportunity cost." From this came the famous concept of "rent-seeking", which is the allocation of resources to produce rent. In a competitive market rent is dissipated by competition, hence rent-seeking typically involves some type of market restriction.

The Doha Round has gone into stupor, collectively chloroformed by myopic trade negotiation. At the heart of this myopia is naked, insolent rent-seking. Rent-seeking cuts a wide multi-sectoral swath - industralists, farmers, union workers. This motley crowd is earning more than they would under free competition (sans subsidies, tariffs, and quotas). The difference is all rent, and they feel born to this entitlement. Buyers of foreign goods of course must contend with narrower choices and more expensive goods. Their well-being - and of those better able to supply them - be damned.

Rent-seeking is alive and thriving even in countries where free market liberalism is most widely accepted. Its forces are most entrenched in agriculture, the arena where the Doha round bit the dust.

Since WTO decisions are by consensus, I frankly see very little hope of resolution. Nearly every two-bit country like the Philippines is bringing a hardline stance to the bargaining table. It's only the big sexy countries that are hogging the headlines now. Even if their disputes could be resolved, there is a practically endless succession of countries waiting to show how stubborn they are.

Maybe I'm too pessimistic - negotations between rent-seekers may yet end up compromising on more liberalization, as demonstrated by the earlier GATT rounds, culminating in the Uruguay round. On this score I'll be glad to be mistaken.

Dynamic ambitions

2006-07-27T09:23:00.000+08:00

A common criticism of the State of the Nation Address (see previous post) is that there was little detail on how the grand public investment plan was going to be funded. This criticism is ill-founded. It was already a long speech, without all those financing details (which could get bloody).

Furthermore, thinking about financing when formulating a strategy is bad planning. Strategy is all about ambition ("vision" is the MBA-speak these days). While I don't recommend throwing reality entirely out of the window, it's healthy to be optimistic about the possibility of relaxing constraints.

So the first question is: are these projects worthwhile? If the answer is yes, only then does one ask: how am I going to pay for it? Because once you have reasonable expectations of value for money, then you can go and persuade someone to give you the money. In the context of government, that's either borrowing, or exacting tax revenue.

In evaluating a public investment plan, the level of analysis is important. It is easy to get mired in a micro, case-by-case evaluation. It may be that a project in isolation yields smaller benefits than a bunch of projects together making up a coherent development strategy. The reason is that there may be "dynamic externalities"; this is just fancy way of saying that in the long run a critical mass of the right investments could deliver proportionately greater benefits than individual projects.

Rural development is an important example. Perhaps an irrigation project by itself can't hack the required social rate of return (say, 15%). But what if it's part of a grand strategy of agricultural development? Suppose a widespread boost in agricultural incomes dramatically improves human capital formation - which investment did not take place previously because of poverty and various institutional failures. The human capital then becomes the base of a sustained industrialization drive. (If you think I'm dreaming, think "East Asian miracle.")

A similar issue is related to city formation. The interesting thing about a city are the so-called "agglomeration economies" - there must be some value in many producers and consumers all bunched up in a small space. That value seems obvious - proximity makes transactions easier for everyone - but on second thought it's not so obvious: because the "everyone" had to be there in the first place! ( Consider the problem of building a city in the middle of nowhere - there is little value in just one person making the move; some type of coordination is definitely required.) Once the critical mass of producers and consumers are clustered, then dynamic agglomeration economies take over, and we get increasing urbanization (economic growth) over time.

So how do you get that critical mass for a "take-off"? Some private sector developer consortium might do it. So could government. Rather than twiddling thumbs waiting for the market, why not support the ambitious State?

Zona

2006-07-25T22:27:00.000+08:00

The State of the Nation (SONA) address of the President of the Philippines yesterday was long on specifics and short on generalities. (Full text of the speech is here, sans the Powerpoint.) What it could have used was a bit more abstraction on this "mega-region" approach to public investment. As it is, it came off more like a sound-bite to organize the existing Medium Term Public Investment Plan (download here, large file).

The mega-regions are: Northern Philippines, Metro-Luzon (that is, Greater Manila), Central Philippines (Visayas), and Southern Philippines (Mindanao). The North and South specialize in agribusiness, Central in tourism, and Metro-Luzon in industry and services. (There is a fifth, the "cyber-corridor" cutting across regions. But that detracts from our story). Regional specialization is not of course exclusive (there is plenty of manufacturing in Central and South Philippines, and tourism in Metro-Luzon), but for planning purposes the designation identifies the geographic targeting of public investment. The idea is that each region has its competitive edge, which requires further strengthening through infrastructure support. The enabling environment for private enterprise would stoke economic growth in the long term.

I would have liked to hear more about agricultural development from that speech, but if everyone's baby was in there she would have talked the whole day. The approach is essentially sound - question is if the President's political base remains sufficiently resilient to push these projects through. Her last budget proposal already tanked in the Senate, without all these mega-projects.

Oh, one more thing: she mentioned some startling tidbits like:

"Even before this, Metro Manila firms paying bribes for public contracts declined from 57% in 2003 to 46% today. Congratulations, Metro Manila."

Also:

"Helping our infrastructure upgrading, is the fall in bribery for public sector contracts in Metro Cebu, from 62% of companies in 2004 to 47 today. Congratulations to Cardinal Vidal for shepherding his flock and to Metro Cebu Mayors Osmena, Ouano and Fernandez, and Metro Cebu representatives del Mar, Cuenco, Gullas and Soon-Ruiz."

So previously nearly 3 of five public contracts required bribery; now it down to a tad less than one out of two.

Speaking about the glass being half-full...

Rice quotas forever

2006-07-19T22:08:00.000+08:00

According to this report, the Philippine Department of Agriculture has bucked (again) a recent call for rice import liberalization. The proposal mind you is far from free trade: it simply proposes to convert current import quotas to tariffs from July to September, which is the cropping season (waiting time for the rice harvest). The move will earn government some much-needed revenue. It would also extend practically the same protection to our precious "food security" as the current restrictions.

The DA opposes it ostensibly because it would send a "mixed signal", undermining our WTO negotiating stance. What exactly is the position our negotiators are defending? That of quantitative restriction on rice right up to 2012 (under the Uruguay Round, the right to impose quotas for the basic staple expired in 2005). Of course it begs the question of whether the position is right in the first place - if not, then it is only proper to correct the position as early as possible.

Incredibly, the reporter swallowed the line right up to the sinker: "Volume limits are intended to protect farmers especially during harvest seasons, as imports may result in a glut that would cut selling prices." And I thought that the very rationale of importing was to take advantage of a cheaper foreign price!

Now what's the real reason why the DA is opposed to the innocuous move? Simple - the removal of quotas would transfer the monopoly rents earned by the National Food Authority to the general revenue fund. Now since the NFA is government-owned, one would think this should hardly matter. In fact though the distinction matters the world for the NFA. Incidentally, negotiations towards continued rice quotas are led by - surprise - the NFA chief.

In the Philippines, dogs (and monkeys) have tails - but the body is the one wagging.

Soccernomics

2006-07-14T22:29:00.000+08:00

Well, between my Africa trip, beating a couple of deadlines, and watching the World Cup games, I've been passing the days blog-free - both reading and writing. Speaking of the World Cup: that's what got me back. Some news items - like this one - talking about "soccernomics", how the World Cup is supposed to give the economy a boost. What???!!! So I checked out the original report from ABN AMRO here. It doesn't take a lot of subtlety to string these business journalists along. Some soccer fans (who happen to be economists) "have way too much time on their hands". Which is exactly what you need - to watch all those games in the first place!

Where coffee first addicted man

2006-06-19T23:31:00.000+08:00

Due to insistent public demand (?), I am taking time to post about my host country here.

Ethiopia is known for many things. It is the birthplace of coffee, as well as possibly the birthplace of humanity. Lucy is here in Addis Ababa. Ethiopia has been free of colonial rule, except for a brief occupation by Italy under Mussolini.

Unfortunately Ethiopia is also known for its poverty. It is the second biggest in Africa in terms of population (75 million), but is one of the poorest countries in the world. Life expectancy here is below 50 years.

Ethiopia also experimented with socialism when their last King Haile Selassie was deposed in 1974. However a successful uprising replaced it with a government more sympathetic to markets and free enterprise. However you can still see the iron hand of government intervention everywhere - exchange rates are tightly controlled, though I am told there is a flourishing black market. There remain many obstacles to open trade and business investment. The value-added tax rate is 15%.

As I walk the streets I have an impression, despite the large number of beggars and street children (not that Manila has already inured me to the sight), that economic activity is starting to pick up. If they can move more rapidly in terms of market reforms, it can be a great experiment to check whether a move away from a planned towards a market economy can make a big difference in terms of human development. Fingers crossed.

Into Africa

2006-06-15T00:57:00.000+08:00

Don't be surprised if this blog shows little activity until the end of next week. I'll be off to Addis Ababa, Ethiopia, for a workshop organized by the Poverty and Economic Policy Network. Looking forward to it, as it is my first visit to Africa.

The economics of independence

2006-06-12T21:24:00.000+08:00

Government is essentially an instrument for the delivery of public goods (including social order. What would motivate a subset of a territory under one government to desire self-government?

The motivation arises when there is a failure in the existing government, and a reasonable hope that self-government may improve matters. In the status quo, public goods may fail to be delivered. Common pool resources may be mismanaged from the parochial perspective; minerals, forests, fisheries, and the like may be mined out to benefit the larger territory with little benefit to the local economy. Third, the local populace may find themselves on the short end of coercive resource pooling - as in the taxation system (the story of the US of A), and other levies such as wartime draft. Such failures can be attributed to deliberate design to exact surplus, or to sheer neglect due to the demands of maintaining a government bureaucracy over a large territory.

National security (a public good provided by government) implies protection of the state not only from external threat, but also internal division. Sheer exertion of force is costly, hence other means of maintaining social order are desirable. The most ubiquitous of these is the cradle-to-grave socialization into the body politic. (Iniibig ko ang Pilipinas. Ito ang aking lupang sinilangan. Ito ang tahanan ng aking lahi....)

Was the independence of the Philippines from the United States beneficial to the country? (Incidentally what Filipinos celebrated today was Independence from Spain.) I think the issue is moot: the United States would have granted independence anyway, after doing a cost-benefit analysis. Maintaining control over the country (despite its known natural treasures) would have been a net drain of American resources, for dubious benefits (on their part). I doubt whether US administration would have been able to replicate the rapid improvement of living standards of the East Asian high performers, given American niggardliness at providing subsidies, welfare, and capital outlays for backward regions.

Filipino self-rule really had a better chance at poverty reduction. Unfortunately we have so far flubbed it by remaining stuck in a blame-mongering, backward-looking, insular mentality. There's a sort of historical inertia, where earlier realities are expected to prevail until Kingdom come. So if the colonial masters were oppressing us before, heck our backwardness now is because of continued dominance by the US-IMF-WB-WTO evil imperalist neocolonial structures.

Real independence starts with critical thinking.

The power of positive sum thinking

2006-06-07T23:54:00.000+08:00

A congressman attributes opposition to the proposed 125-peso wage increase to a pro-business bias. This is a classic sign of "zero-sum" thinking: that business generates a fixed income, which is divided at will by the business owner into a labor share and a profit share. Of course the greedy business owner would leave only the barest minimum for the labor share; hence such greed must be restrained by benevolent government intervention.

However the zero sum formulation is incorrect. Running a business is a positive-sum game. That means the combination of exchanges between factor owners and entrepreneur, and between entrepreneur and consumers, generates a value in excess of what existed prior to the combination. Capital acting alone, or labor acting alone, or households acting alone, would not be able to realize the total benefit realized through the market. Think of it this way: if you are just acting alone, magtanim ka na lang ng kamote (just go plant sweet potatoes).

Forcing the business owner to pay higher wages would reduce the total value generated by the whole process. Artificially higher costs mean they will cut back on production as well as hiring labor. Lower production means fewer goods for consumers and fewer jobs for workers. This brings us closer to a world where all we can do is plant kamote.

Zero sum thinking is pervasive and pernicious. Positive sum thinking on the hand allows us to see the truth behind the following equation: antibusiness = antilabor.

A wage too far

2006-06-05T21:08:00.000+08:00

The Philippine Congress is getting itself way over its head with its latest plan to hike wages by 125 pesos. In terms of the minimum wage that's nearly a 40% increase in Metro Manila. NEDA is against it, and for good reason. I think their projections are believable. I mean for heaven's sake, take a look at this chart: the high end of the minimum wage (presumably in the capital) is a whopping US$6.30 in the Philippines, two-and-a-half times that of China (whose per capita income is above ours). It's also far in excess of Thailand (double our per capita income), Indonesia, and Vietnam (a fast-rising Asian tiger economy.) Earlier I have written about what it really takes to help the working man and woman. I have little to add to that, except to wonder in disbelief how brainlessly we approach economic policy. Can the law of the downward-sloping demand for labor be repealed? Do causes have effects? Can something be had for nothing? Is there such a thing a free lunch?

Speaking of free lunches, read this if you're interested in interpreting the latest economic figures. I also have little to add to it, except to say, more important that expertise is common sense. Precisely what is the scarcest resource in the body politic.

Presidential versus parliamentary system

2006-06-03T08:21:00.000+08:00

Professor Winnie Monsod reviews the academic literature comparing the presidential with the parliamentary systems. Read them here and here. Conclusion: no clear evidence in favor of one or the other system, whether in terms of corruption or economic performance. Parliamentary systems though are more readily associated with structural reform, but also with greater government spending. Professor Monsod concludes that we avoid "indecent haste" in pursuing a shift in system.

When the data is ambiguous, we need to substitute intuition and experience for number-crunching. Look at the recent history of this country. After three People Powers, and nearly a fourth, shouldn't we rethink the idea of a fixed term for the President? Lay to rest the persistent calls for "snap elections" by (con/in)stitutionalizing the "snap election"?

Parliamentary systems are of course fraught with their own risk and sources of instability. It's no magic bullet. Nothing is. But perhaps it would, overall, hasten the pace of development. What do you think?

Population damnation

2006-05-31T15:28:00.000+08:00

When Keynes wrote about slavery to the idea of some defunct economist, he may well have been referring to Malthus. The idea of population growth outstripping food supply has had a long life, retaining great vigor even in its advanced age.

In its modern version, the Malthusian idea is that population growth is driven by high fertility (and low mortality), eventually outstripping the carrying capacity of the environment and natural resources. Physical scarcity will eventually force a stable population outcome, while producing plenty of human misery by war, disease, and famine. (Ever watch Soylent Green?) The most oft-cited essay on modern Malthusianism has got to be "The Tragedy of the Commons" by Garret Hardin, published in Science. Hardin's argument is that the world is an open access resource ("commons"), and population growth forces an inexorable pressure upon it. Individually rational behavior from the growing population causes a depletion of global resources. Solutions offered - appeals to conscience in restraining demands on resources, or privatizing the commons - are all impractical. Hardin's recommendation? Do away with the idea that families have the fundamental human right to determine their own size. Implement population controls by "mutual coercion, mutually agreed upon."

Written as it was in 1968, the essay is now very seriously dated. What really happens when we allow households to determine their own size voluntarily? It depends. In wealthier nations, households tend to be smaller. In fact in many countries the fertility rate is below 2.0 (the absolute minimum for population replacement), hence without migration, these populations will shrink! These countries include: Canada, Japan, Korea, France, Germany, Greece, Norway, Portugal, Sweden, Spain, Italy, Singapore, Germany, and the United Kingdom. Why? A host of reasons - educated, working, socially assertive women, access to modern contraceptive technologies, all correlated with developing country status, are the key reasons. Growth to a developed country status would be the long term cure for overpopulation, averting the dire Malthus-Hardin prognostications.

In the medium term though, I don't deny that rapid population growth is itself a drag on per capita income growth. One reason may be through diminished household asset formation: the more children, the lower the savings (Orbeta, 2006) and the lower is schooling per child.

So there is an argument to providing incentives to limiting household size. Tax exemptions based on number of dependents have the perverse effect of encouraging larger household size (simply by lower the cost of bigger families.) Subsidies on contraceptives and information drives on their responsible use will also play a role. Now if your religion doesn't allow you to avail of these technologies, then of course you are not to be coerced. But neither should the state allow its population policies to be hijacked by the values of one or two religions, however widely held.

Ask the economist: foreign remittances and domestic inflation

2006-05-29T13:19:00.000+08:00

I am aware of only one professional Filipino economist maintaining a regular weblog. (Ehem. I would be glad to know that I am mistaken.) With little power comes a little responsibility. So I am open to answering questions readers may have about the economy. Just post it as a comment, or email me (roehlbriones@yahoo.com).

A fellow blogger writes:

I really dig your blog. Learn a lot from it. Although I am not an economist (I'm a pol sci major), I am interested in reading about economics.

Anyways, the reason I'm writing is because I want to get your views on the following: I have this "theory" that OFW dollars, while they support our economy, are in the long run harmful because it promotes inflation and sort of "warps" the RP market. The reason I say this is because it is getting harder and harder for an ordinary salaried employee here to support a family. For example, residential real estate prices are up not because salaried people here are buying. Rather, it is fueled by OFW dollars.

I dunno if my suspicions have basis in reality... YOur thoughts?

Iloilo CIty Boy
www.iloilocityboy.blogspot.com

Thanks, Iloilocityboy. That is one issue other readers may be wondering about. Inflation is as you know the general rise in the price level. Inflation increases are either permanent or temporary. It can arise from a permanent increase in the growth of money supply, in which case it is permanent; or it may be caused by an increase in demand over a significant range of goods and services, in which case it is temporary.

Unless the BSP actively intervenes in the forex market (which apparently it does not), foreign exchange inflows do not in general cause an increase in domestic money supply. Inflows would only affect the exchange rate - which we are already observing these days. (There is a rather complicated and indirect mechanism in which foreign exchange inflows would affect domestic money supply, but I think it is in practical terms immaterial to this issue). This leaves us with a demand-increase explanation.

I believe you are concerned with the (temporary) inflation among "nontradables" arising from the sudden increase in income of families with overseas foreign workers (OFWs). When I say "nontradables", I mean those goods and services which are unavailable outside the country. Real estate (obviously), retail services, personal services (haircuts, car washing, medical care) etc., are examples of nontradables. This are most likely the targets of an increase in domestic demand. These goods and services will bear the brunt of the demand surge.

Now we have to be careful about what we mean by "warped" or "distorted" or "harmed". Clearly when price rises, someone is harmed - namely consumers who used to purchase at lower prices. If price had been stable for a long time and the price changes, we are tempted to say that the market got "warped" or "distorted" somehow, by some aberrant demand or supply force.

Now let's deal with this issue carefully. A "harm" to someone may be beneficial to someone else. An increase in price of real estate harms the real estate buyer but is beneficial to the real estate owner, developer, and brokerage industry. In fact this incentive is precisely what is needed to encourage greater supply of developed and marketed real estate in the long run. In the absence of a price increase the available supply of real estate may stagnate. Scarce real estate may have to be rationed by non-price means; say, first-come, first served. How would the late-comers fare under this arrangement?

A similar argument can be made for the other nontradable goods and services for which domestic demand increases. So in total is society harmed? That is a hard question to answer because it entails deep questions of what is "fair". It may seem unfair that I, a native of Laguna, may find real estate prices in my hometown out of reach because of a demand spillover from people who work in Metro Manila.

Using the principle "a peso is a peso is a peso" - that is a peso loss to me exactly offsets a peso gain to you, whoever you are or I am - society is not harmed by the influx of foreign remittances. The increase in purchasing power of OFW families is expressed in, er, more purchases. We who are competing with them for the same set of goods and services have to match the higher prices they are willing and able to pay.

Is this a distortion? Note that change is at the heart of the free market system. Price adjustments constitute a system of incentives to reallocate resources as supply and demand conditions change. Unless someone demonstrates a superior system, my money is on the free market.

Technological change and the Almighty Corporation

2006-05-26T00:14:00.000+08:00

John Kenneth Galbraith, recently deceased after a long and full life, was the most potent popularizer of the Almighty Corporation. Galbraith argued that the "new industrial state" is fundamentally a planned economy - driven not by decentralized competition, but consciously directed by a business oligarchy. A linchpin of his thinking was the manipulative power of advertising, which brought consumers in line with the planning objectives of the Almighty Corporations.

Now go sell this theory to Eastman Kodak. How the big bosses there wish this were true. Digital cameras? Make it disappear with a savvy advertising campaign. That will save the company's core business, now 125 years old - the manufacture of films, to catch those "precious moments".

From Galbraith's fantasies, let us look at the facts: Kodak has been in travails over the last five years. Its prospects for 2006 are negative (bad pun intended). Its only hope is that its recent transformation into a digital camera company would succeed - and fast, before skittish stockholders start dumping, big time.

Ahh, suddenly these all-powerful corporations look helpless against technological change. It all started when a couple of Bell Lab scientsts invented the Charge-Coupled Device (CCD), essentially an instrument for converting light into information. The rest is techno-history. Now the camera film industry is in a total meldown. How the Almighty have fallen!

When you walk around malls and supermarkets and convenience stores, take a good look at these camera films. Store your film cameras in a safe place. They'll be memories and museum pieces. Sooner than you think.

Have Koreanovelas washed out Filipino soaps?

2006-05-23T14:31:00.000+08:00

Via the PCIJ is the following PIDS study on the Philippine audio-visual industry. The authors argue that foreign-made soaps are popular for the following reasons:

Consequently, there are several factors why Korean dramas are successful in the international market. One is its urban appeal. Most of the dramas are shot in the cities. Beautiful settings and background music also helped the programs penetrate the international market. For instance, Endless Love was commended for the luscious/lavish use of music (including Western classics such as Romance d'amour), which makes the drama even more unforgettable. The more poetic and imaginative ways of expressing love also makes Korean romance dramas outstand other dramas. Almost all Korean dramas circulated around the overseas market are romance dramas. Romance stories have been a universal genre in TV dramas, reflecting the appeal of fantasized love relationship in audience' everyday life, and the relationship between TV dramas and viewers. Many viewers seem to prefer Korean dramas in that they deal with romance in a way that stands them out from other counterparts. The melodramatic effect of the Korean dramas also captured the viewers. Whereas other romance dramas tend to spoil the audience with happy ending, many Korean dramas are infused with unrequited love, rivalries between families, and failed romance. Tragedy seems to be a defining feature especially in Korean dramas, in which the male and female leads often suffer from sickness, and even death.

C'est la vie. So why is local entertainment fare so abysmal? I'm not talking about why we don't crank out the artsy-fartsy stuff. (Not that I don't like 'em - sometimes.) I'm talking about competent entertainment, decent escapist fare for the masses. (That includes me.)

Well don't ask me about cultural reasons. Let me just point out the following:

The industry is also among the heavily taxed entertainment industry in Asia. Among such taxes is the amusement tax which the local government imposed on the theater owners. This tax amounts to 30 percent of the gross receipts from the ticket sales. Aside from the amusement tax, there are also 10 percent VAT on film shares and post-production costs; P0.25 per ticket for cultural tax; P8,000 to 10,000 classification fee per film by the MTRCB, custom duty on imported unexposed films needed for filming and exhibition; and 32 percent corporate tax. In addition, there are also taxes for importing equipment and machineries needed for shooting films and printing the advertisements. On average, importing these machineries is subject to 6 percent tax rate but since these equipments cost thousands of pesos, the import costs sum up to a significant amount.

Meanwhile, what was India doing?

In addition to tax reduction, the government can also provide tax incentives for the investors and theater owners in upgrading their cinemas. The Indian government did these measures precisely to help its domestic industry. With the advent of digital technology and the identification of Bollywood as a priority export sector, the Government reduced the basic import duties on certain digital studio equipment, benefiting the content producers and other media companies in India. The government also initiated various tax incentives to investors investing in multiplexes in the rural areas. Bank and institutional funding was made available to single screen owners to upgrade their existing theatres to multiplexes. Over 100 cinema halls have been converted into digital theatres over the past 2 years.

Yep - whether art, culture, soap operas, economics is everywhere. Question is: is the growth of a quality domestic film industry worth the foregone revenue and cost of providing incentives? Don't know the answer to that one. And watching the wasteland of local shows these days, somehow I really don't give a damn.

The population growth circus

2006-05-17T18:08:00.000+08:00

I think it all started with the title of the unfortunate link title of the NSCB press release: "Philippine population growth slows to 1.95 percent by 2010." (This is already incorrect, but the newshounds started tracking.) The content of the press release itself clearly states that the 1.95% figure, covering the period 2005-2010, is a projection.

Somehow reporters got stuck with the link title and dropped the "estimate" part.

Reality check: the only way to check for sure whether population growth really slow down is to conduct a census. The last one was in 2000. The next one is scheduled for 2010. There is no way to check the actual population growth per year in between. (Censuses are expensive.)

The confusion has gone way out of hand, as discussed in the NSCB clarification. Even NEDA chief Romulo Neri got carried away:

Romulo Neri, director general of the National Economic and Development Authority (NEDA), noted that the latest population growth rate was nearing the government’s medium-term target of 1.94 percent. Neri said slowing down population growth to 1.94 percent a year was necessary to enable the Philippine economy to feed and sustain its entire population.

Unless of course he was misquoted, which is perfectly possible.

Solita Monsod finds the projection unbelievable, and so does Dean Jorge Bocobo. Essentially both are arguing that the decline simply does not square with historical data. (I should hat-tip DJB for getting me to post on this topic.)

However, the population projection method is not based on fitting to past data. It uses projections of fertility rate and mortality, using baseline data from the 2000 Census, combined with certain scenarios. For the mortality rate, the projection applies life expectancy, with an assumed upward increment over time (about 2 years for every quinquennium). For the fertility rate, three assumptions are made, regarding the year in which net replacement fertility (approximately zero population growth) is reached: 2030 for the low assumption, 2040 for the medium assumption, and 2050 for the high assumption. The estimates cited by the NSCB pertain to the medium assumption.

I am not a demography expert. However I would agree with DJB and Mareng Winnie that some consistency be observed with experience. To my amateur eyes, I would think that pushing the target dates of net replacement fertility backward would maintain the official method, while satisfying critics. Perhaps by ten years? DJB has a graph showing that using the "high" as the working assumption leads to a better fit with historical data.

Lessons learned from this brouhaha:

1. Journalists are seldom to be trusted for accuracy in reporting crucial technical details. If possible one must always go back to the source document (often a technical report, or a journal article).

2. A fantastic amount of saliva and ink can be spilled, largely on inane discussions by politicians and other "concerned citizens", about population programs, birth control, public investment priorities, the Roman Catholic church, and so forth, on the basis of what is essentially an urban legend.

3. Be careful about naming your hyperlinks!!

The biggest charity of them all

2006-05-15T20:28:00.000+08:00

I thought the biggest charity would by far be the Bill and Melinda Gates Foundation. It's certainly the most famous. But The Economist found the biggest of them all - the Stickting Ingka Foundation.

The what? Amazingly, it's the nonprofit foundation that operates all the Ikea stores. Meanwhile the Ikea brand is owned by another company, which is owned by another company, etc. The brand-owner earns money by franchising the trademark to Ingka Holdings. The article reports that in 2004, these complex of entities earned 553 million euros, but paid less than 20 million euros in tax - mainly by exploiting various tax avoidance clauses in different jurisdictions.

Ingenious. As ingenious as the retail innovations that have made Ikea the global giant in home goods and furniture retailing. Among it's many great ideas is flat pack furniture, one of major logistic innovations of the 20th century, along with the shipping container.

Here's how Businessweek describes the Ikea shopping experience:

What enthralls shoppers and scholars alike is the store visit -- a similar experience the world over. The blue-and-yellow buildings average 300,000 square feet in size, about equal to five football fields. The sheer number of items -- 7,000, from kitchen cabinets to candlesticks -- is a decisive advantage. "Others offer affordable furniture," says Bryan Roberts, research manager at Planet Retail, a consultancy in London. "But there's no one else who offers the whole concept in the big shed."

The global middle class that Ikea targets shares buying habits. The $120 Billy bookcase, $13 Lack side table, and $190 Ivar storage system are best-sellers worldwide. (U.S. prices are used throughout this story.) Spending per customer is even similar. According to Ikea, the figure in Russia is $85 per store visit -- exactly the same as in affluent Sweden.

Wherever they are, customers tend to think of the store visit as more of an outing than a chore. That's intentional: As one of the Harvard B-school studies states, Ikea practices a form of "gentle coercion" to keep you as long as possible. Right at the entrance, for example, you can drop off your kids at the playroom, an amenity that encourages more leisurely shopping.

Then, clutching your dog-eared catalog (the print run for the 2006 edition was 160 million -- more than the Bible, Ikea claims), you proceed along a marked path through the warren of showrooms. "Because the store is designed as a circle, I can see everything as long as I keep walking in one direction," says Krystyna Gavora, an architect who frequents Ikea in Schaumburg, Ill. Wide aisles let you inspect merchandise without holding up traffic. The furniture itself is arranged in fully accessorized displays, down to the picture frames on the nightstand, to inspire customers and get them to spend more. The settings are so lifelike that one writer is staging a play at Ikea in Renton, Wash.

Along the way, one touch after another seduces the shopper, from the paper measuring tapes and pencils to strategically placed bins with items like pink plastic watering cans, scented candles, and picture frames. These are things you never knew you needed but at less than $2 each you load up on them anyway. You set out to buy a $40 coffee table but end up dropping $500 on everything from storage units to glassware. "They have this way of making you believe nothing is expensive," says Bertille Faroult, a shopper at Ikea on the outskirts of Paris. The bins and shelves constantly hold surprises: Ikea replaces a third of its product line every year.

Then there's the stop at the restaurant, usually placed at the center of the store, to provide shoppers a breather and encourage them to keep going. You proceed to the warehouse, where the full genius of founder Kamprad is on display. Nearly all the big items are flat-packed, which not only saves Ikea millions in shipping costs from suppliers but also enables shoppers to haul their own stuff home -- another savings. Finally you have the fun (or agony) of assembling at home, equipped with nothing but an Allen wrench and those cryptic instructions.

I can't but agree. My wife and I got a lot of furniture and decor from the Ikea store in KL. The most memorable part was when I got back home, and I spent several days poring over the instructions, hammering, jamming, screwing, swearing, but finally getting it all together. Three beds, two tables, several shelves, a workstation, and a few other items. The stuff may look cheap - and it is cheap - but don't knock it: it has the decent, middle-class, mass-produced look, and after three years everything is fine (except for the parts I warped or scratched.)

No Ikea in Manila yet, nor do I expect one for many years. Even if the retail industry were sufficiently deregulated - which I doubt - sheer market size would probably not be up to snuff for the next couple of decades. Still, I wonder how much I would save - or not! - were one to open in, ah, Fort Bonifacio?

The right way to promote "fair" trade

2006-05-12T09:35:00.000+08:00

Here's the right way to promote fair trade: bring your case directly to the consumer. Don't go the state and rely on its powers of coercion to restrain foreign competition. Appeal to consumers exercising their voluntary choices in the market.

That said, I still object to the misleading arguments being made to promote fair trade. The idea is that these cheaper foreign-made goods are a threat to domestic livelihoods. This may be true for some sectors in which the country has no comparative advantage. However this cannot be true for all sectors of the country. There will always be something the Filipino producers can offer foreign buyers - that's why it's called "trade". (One might think even a nitwit would understand this implication.) Otherwise foreigners will be happy to sell us their goods with nothing going back to them except useless Filipino currency. If so then we should shaft them to their limit!

One can however appeal to our sense of loyalty to Filipino-made products. Hey if that's something consumers go for voluntarily, who am I to object? Ultimately though one has to observe a trade-off: there is only so much price difference between domestic and foreign-made goods that one can tolerate out of patriotic loyalty. And if there is a high patriotic value for Filipino-made, it would be a great incentive for Filipino producers to conceal the foreign component of their products. For example, they can limit themselves to the final stages of processing and call the product "Filipino-made" whereas import content is actually quite high. Filipino-made laptops, anyone?

Nevertheless, except for the dissemination of economic illiteracy, this form of product promotion is largely harmless. I say let these fair traders vent their feelings in as many fair trade fairs (they themselves fund) as they please.

Consumers will know what to do.

Price gouging oil companies redux

2006-05-10T13:05:00.000+08:00

When will this ever end? From the Business Mirror:

Oil firms’ bottomline unscathed

WHILE consumers grapple with the skyrocketing fuel prices, multinational oil firms have been raking in huge profits as shown by their income statements submitted to the Securities and Exchange Commission (SEC), a senior administration congressman disclosed Tuesday.

Liberal Party Rep. Abraham Mitra of Palawan made public the income documents submitted by Pilipinas Shell and Petron Corporation, two of the country’s biggest oil firms, “not to accuse the oil giants of price gouging or excessive profiteering, but to let the public draw its own conclusion from what the cold numbers present.”

Mitra, vice chairman of the House Committee on Appropriations, said that based on the statements furnished by the SEC, Shell’s net profit jumped by 102 percent in 2005, while Petron’s surged by almost 50 percent in the same period.

Shell reported a net income after tax of P5.672 billion last year, more than double the P2.846-billion profit it pocketed in 2004. As a result, its earnings per share doubled too, from P4.12 to P8.34.

The firm’s net sales jumped 17 percent from P126.7 billion in 2004, to P148.9 billion in 2005.

Petron, which is partly owned by the national government, saw its income after tax surge to P5.765 billion, up from the P3.886 billion profit it reported in 2004. This represents a 48-percent increase in profits.

In its income statement, Petron declared that its gross sales soared to P191.2 billion, up by 29 percent from the P147.5 billion in 2004. With this, Petron’s earning per share improved to 61 centavos from 41 centavos in 2004.

Again some basic economics (this is easier done with graphs, but then I realize some of us may not be that familiar with the use of supply-demand diagrams). A price increase occurs either because either costs go up, or demand goes up. If costs go up, producers pass on the increase in cost to the consumer; however they are not able to do so completely, because consumers cut back on their purchases. In the end their profit falls, even as prices paid by consumers increases. On the other hand, if demand goes up, then consumers are willing to pay more to get extra units of output. The firms are thereby persuaded to increase their production, but of course in the process, the market price goes up. What happens to their profit? Of course, it goes up! The increase in profit is precisely the incentive that is required to increase production and therefore satisfy the extra consumer demand. We should find it a remarkable mystery to observe firms obliging consumers' higher demand, without requiring any extra incentive to do so.

However, it is not a mystery that legislators would want their names in the news by pandering to popular mythology.

Does globalization help the poor?

2006-05-08T19:36:00.000+08:00

Angry Bear has an old post summarizing some recent papers linking trade and growth. The author concludes:

So let me amend my summary of the emerging consensus as follows: sometimes trade causes faster growth, and sometimes it doesn't. But protectionism is never good for growth.

Trade is good for growth, and growth is good for the poor, ergo trade is good for the poor. This is a conventional way for arguing the positive effect of trade liberalization on poverty. Globalization though is broader than trade liberalization, and "the poor" are not some homogeneous mass of people whose well-being move in the same way. Pranab Bardhan's article in Scientific American provides good overview of globalization and the poor. A more technical discussion is found in this forthcoming volume on Globalization and Poverty from an NBER Conference.

My answer to the question: yes, on the whole; sub-sectors though will suffer from increased global competition. Globalization is neither the catastrophe that critics decry, nor the panacea that some proponents profess. This may help explain why the Philippines, despite two decades of trade liberalization, has failed to reap the expected reform dividends. (On the other hand, it is almost certain that the economy would be even worse off had the status quo on trade been maintained; moreover in many industries there has been significant flip-flopping on liberalization, especially in agriculture.) To end with a quote from Easterly (from his contribution to the abovementioned volume):

Globalization is less important for the wellbeing
of the poor than the (unfortunately more mysterious) process of productivity growth.

The box that opened world trade

2006-05-03T10:46:00.000+08:00

The box that changed the world just celebrated its 50th anniversary. I'm fascinated with these erstwhile nondescript innovations that turn out to have revolutionary impacts on the global economy.

A Wired article discusses how things were, pre-1956:

But look back to the 1954 film On the Waterfront and you'll get a good idea of how things used to be. New York dockworker Terry Malloy (played by Marlon Brando) climbed into the rusting hulls of cargo ships and used brute muscle to move freight using nets and grappling hooks. Loading and unloading was so slow, ships might remain in port for days, even weeks. Only four decades ago, contemporary photos of Singapore's port showed shirtless workers stumbling down wooden gangplanks carrying enormous bundles of bananas on their backs. It was called break-bulk shipping.

This inefficiency irked Malcom McLean, a crusty North Carolina trucker who defied convention to spark a logistics revolution that continues to reverberate today. Dubbed the Father of Containerization, he laid the foundation in the 1950s for what would arguably become the world's first truly packetized transport network.

McLean reckoned there had to be a better way of loading and unloading ships than the clumsy, slow, and theft-prone process of break-bulk. His first brainstorm: stacking sealed truck trailers on flatcars for long train journeys, trucking them only the few final miles to their destination. But the railroads weren't interested, so in 1955 he bought a small tanker company named Pan Atlantic and modified two of its ships to carry 58 detachable trailers. In order to stack the trailers, he removed the wheels and strengthened the sides. In April 1956, the first of these converted ships sailed from New York Harbor to Houston, and containerization became a sunrise industry.

The Wikepedia article describes the advantages of containerization: first, it allows a trucker to load cargo in sealed containers directly onto a ship, and unload cargo directly back onto a waiting truck. No more messy loading and unloading of individual packages or boxes. Second, the use of sealed boxes greatly enhanced cargo security, helping eliminate the "falling off the truck" problem.

So important was this simple innovation that "it is very unlikely that we would all be buying Japanese TVs, Costa Rican bananas, Chinese underwear or New Zealand lamb. In fact, globalisation would probably not exist and the World Trade Organization would have a lot less to talk about," according to this BBC article.

Simple ideas that change the world. Wish I could think of one.

The real pro-labor approach

2006-05-01T11:51:00.000+08:00

Today is Labor Day. As the rest of us honor the day of the working man and woman, unions use the opportunity to press for more stringent regulations on the labor market. At least two come to mind: first is the demand for an across the board minimum wage increase. Second is the demand for elimination of the contractual labor category and provision for security of tenure.

Bulatlat.com provides a good summary of these demands from the labor perspective (Bulatlat article):

Citing government data from 1990-94, a research by the Asia-Pacific Research Network (APRN) in 2000 revealed that the combined share of casual, contractual and part-time workers in total enterprise-based employment was between 14-15 percent. It went up to 18.1 percent from 1994 to 1995. By 1997, the figure has reached 21.1 percent, meaning that for every five workers one is a casual, contractual or part-timer worker.

For example:

In the more than 20 branches of Shoe Mart (SM), one of the biggest chain of shopping malls in the country, in 2002, nine out of ten workers are contractuals, hired either through an agency or by a concessionaire, said Maristel Garcia, spokesperson of the Sandigan ng mga Manggagawa sa Shoemart, the union of SM employees.

Contractuals abound in export zones and industrial parks around the country, such as those in Baguio City, Cavite, and Laguna. A survey of APRN covering 14 unions under the Kilusang Mayo Uno (KMU or May 1st Movement) in the National Capital Region revealed that contractual workers comprise 67 percent of the workforce at the time. This is despite KMU’s efforts at protecting job security and benefits.

“It is true that contractual labor is now really extensive. Easily seven in every 10 companies practice contractualization,” Donald Dee, president of the Employers Confederation of the Philippines, told Manila Times in 2003. “We know for a fact that contractualization is meant to avoid regularization,” admitted Dee.

Today the share of contractuals in the total workforce may even be bigger. For example, after SM management practically crushed the union by terminating all striking union workers in 2003, Garcia said, it stopped regularizing workers and was able to employ more contractuals.

In other large firms, threats of retrenchment complemented by early retirement schemes resulted in a stripped-to-the-core number of regular workers. The Philippine Long Distance Company (PLDT), the country’s largest telecom company, was able to reduce its workforce from 14,000 to 10,000. Its rank and file union membership has dwindled from 7,000 to 4,100. It was also able to reduce the 3,000-member supervisory union to just about 2,000. The rest of PLDT’s required manpower comes from contractual workers who are paid piece meal, per phone installation or telecom services sold.

In Japanese-owned Asahi Glass Corporation, the ranks of regular workers have been decimated after a wave of forcible retirements. Retired workers were subsequently rehired as contractuals. At present, there are five contractual employees for every regular worker.

The benefits of higher minimum wages and greater worker security are clear. However, are there any negative consequences we should know about? (That is the problem with such ideologically slanted analysis. We are told of all the benefits of this or that anti-market imposition, but any attempt at analyzing cost is slammed. So much for critical thinking.)

Okay the negative effects are:

1. Higher minimum wage means more expensive workers. More expensive workers means, within a market economy, capitalists will higher fewer workers. (The alternative is to go the planned economy route and eliminate capitalists altogether; all productive capital would be owned by the state. Then the government becomes one big employment agency. It can pay all the higher wages it wants. Heck it can even print money if there's no budget for it. Worker's utopia indeed!)

2. Enforced security of tenure means firms have less flexibility to deal with economic change. If the market for their product sours, they are forced to produce less. In the absence of worker security, they can cut costs, in part by laying off workers. However with worker security this is difficult. Enforced security of tenure also means that removal of individual workers because of poor abilities, mismatched skills, low productivity, and so forth requires a lengthy adjudication process (i.e. the termination "for cause" provision in the Labor Code.) Finally with security of tenure comes a long list of costly but compulsory worker benefits. Because of this, firms either decide to higher fewer workers, or hire workers who can easily be removed - i.e. the casuals.

3. The "casualization of labor" cited in the Bulatlat article is therefore a consequence of regulations enforcing security of tenure, particularly on workers hired for a year (Labor Code provision) or more than six months (a guideline that is being increasingly used as a cut-off to determine which worker is becoming "regularized."). However this is going to create a lot of "churning" in the labor market. Ever wondered why some salespersons in SM are rather inept? It is likely that by the time they became familiarized with their duties their six months is up. To be replaced by someone who has to learn the ropes all over again. This is probably going on also in many factories. Once you learn the skills on the shop floor, you have to be removed. This is not the best way to develop a quality labor force!

Note finally that the benefits of higher minimum wages and enforced worker security are ultimately enjoyed by those who are currently regular workers. No wonder they have a strong interest to fight for them. Even if this would cause misery among the ranks of those who are outside this group - mainly the unemployed, or casual workers.

(More detailed arguments for reforming labor markets are found in this paper by Gerry Sicat. It's a great read.)

That is, the real pro-labor approach would be: fewer regulations, rather than more. Not only that: it would be pro-growth as well.

Seeing those demonstrations and strikes and pro-labor legislators and bureacrats in the Department of Labor and Employment, I wonder: who will protect us workers from our protectors?

The oil price stabilization tax - US version

2006-04-28T10:07:00.000+08:00

Amadeo has pointed out in a comment entry in this weblog that some US legislators are also pushing for their version of the oil price stabilization tax. The issue has been picked up by US econobloggers. Manuel Lora of Mises.org is rendered speechless by the plan, which combines a $100 rebate plus stronger anti-price-gouging measures.

James Hamilton has a thoughtful post on the Chief Executive's policies towards the oil price hikes. He says:

There is currently an almost religious conviction by many Americans that the price of oil, rather than being determined by world markets, is controlled by a few big oil companies, as if the 2.5 million barrels of crude oil per day that ExxonMobil produced last year somehow give it the ability to control the price of the other 82 mbd that got sold. The certainty with which people hold this conviction seems directly related to the complete absence of any supportive facts..

Indeed. Even the fact that OPEC countries control 40% of oil exports is no slam dunk case for international "price gouging". OPEC has been around for about thirty years; did they all just get their act together all of a sudden, just when China and US ratcheted up their oil demand? Does not compute.

And:

I think there is an overwhelming political instinct in the current situation to do something huge, drastic, and ultimately quite harmful.

This is exactly how the average grandstanding politician would act. When something this big is going on, one must give the appearance of activity, inasmuch as passivity is the ultimate political crime. Hippocrates was right: a physician confronted with a baffling ailment is tempted to apply all sorts of mysterious nostrums. So he said: First do no harm!

Greg Mankiw also gives advice on how not to deal with higher gas prices. One interesting point: the US deficit is on a unsustainable path, so a tax rebate would be most unhelpful in moving towards fiscal sustainability.

What is a "sustainable deficit", anyway? There are several definitions, but two are most easy to remember: first is the "no Ponzi game" definition. In a Ponzi game, interest payments on debt can only be financed by borrowing. The analogy to pyramid schemes is perfect: in a that scheme/scam, the scammer's promise of high returns can only be met by new investors also chasing high returns. Insidiously, government may be playing a kind of pyramid scam with its deficit management. Second is that the public debt-to-GDP ratio must be constant or decreasing. The idea is that the GDP is the base from which to extract revenue, and therefore service the debt. The debt itself must not grow out of proportion of this tax base. Both these definitions are long run definitions; in the short run some violation of these rules is possible, but these violations cannot be pursued indefinitely. The creditors will eventually wise up, the way scammed pyramid investors do, and the whole thing comes tumbling down. The government becomes insolvent. Or it pays its debt by printing paper - fueling hyperinflation.

This time the message is: between taxes and excessive public borrowing, which one does less harm?

Oil Price Stabilization Tax

2006-04-25T09:25:00.000+08:00

What's going on? As oil prices go up, legislators in the Philippines are again calling for suspension of the value added tax on petroleum, which is 12%.

I remember the good old days of the Oil Price Stabilization Fund. (This is what passes for sarcasm among economists.) It worked as a variable subsidy: at a given domestic price, when the foreign price went up, the oil firms would be subsidized by the fund; when the foreign price went down, oil firms would put money back into the fund. Well it might work if the regulated domestic price equalled the long run equilibrium price. It doesn't take an ijit to guess that the regulated price was set way lower than that, so that the "fund" was perpetually in the red, burning holes through government coffers.

What the legislators are proposing is in effect a variable levy. Foreign price up: suspend tax; foreign price down: impose tax. It is more feasible to implement because government doesn't actually have to cough up financing for a subsidy. But the idea is as flawed as the Stabilization Fund, and the effects are more insidious.

First, does anyone really know the long run trend in the world price of oil? Is US$ 65 per barrel it, as Rep. Salceda is guessing? Nobody knows. If anyone did, they would make a killing in the futures market. (If it were different, that is.) Suppose the oil price hold steady at today's high levels. Does anybody seriously think this tax can be reimposed?

Which brings us to the second point: suspension of the tax would forego, by some preliminary estimates, revenue of about 40 billion pesos. Representative Salceda recommends restrictions on spending and the scrapping of the rationalization program. But these are truly lousy ways of meeting government borrowing targets.

How about the "hardship to the people"? Well excessive government borrowing, or restrictions on public spending, are themselves sources of "hardship to the people." I am pleasantly surprised with Senator Recto, who shows lots of good sense, by claiming that the suspension would hurt people more.

Another way to approach the problem is this: suppose you are foregoing 40 billion in tax revenue anyway. Compared to repealing the VAT on oil, is there a better way to structure the tax system? My (very preliminary) simulations with the updated PhilCGE suggest there is. For example, halving the sales tax rate on petroleum products has about the same revenue loss as removing 5% off the sales tax rate across-the-board. However the latter involves a welfare improvement of about 30% more. This confirms that a more uniform tax structure tends to be less distortionary on the economy. Unfortunately the suspension of the EVAT moves towards a less uniform (and more distortionary) tax regime.

The de facto oil price stabilization tax is only good for one thing: political mileage. Yep, I can hear 'em downshifting to high gear all over.

Blame-thy-neighbor policy

2006-04-23T23:09:00.000+08:00

One of the charges levelled against China is a "beggar-thy-neighbor" policy: keeping its currency artificially cheap, effectively subsidizing its exporters (while penalizing importers). Last week's meeting between Presidents Hu Jintao and Bush provoked a comment from the latter: "There has been some appreciation in the currency. We would hope there would be more appreciation in the currency."

Some review: a currency peg is when one country fixes the conversion between its own and a foreign currency at a given value. It is said to be following a fixed exchange rate policy in contrast to a flexible or floating exchange rate policy. A domestic currency appreciates when the rate at which one unit converts to a foreign currency goes up (conversely, when it takes fewer units of a domestic currency to buy one unit of a foreign currency). A depreciation is the reverse. The real exchange rate, is the market value adjusted by relative inflation (the difference between domestic inflation and inflation in the country holding the foreign reference currency). The idea is that domestic inflation at given market exchange rate is equivalent to an appreciation of the domestic currency. Depreciation accompanied by the same rate of inflation yields an unchanged real exchange rate.

So now we are ready to consider the question: is the yuan undervalued? Most economists would agree: yes, but not by a lot. Certainly not by magnitudes of 27.5% called for by some US Congressmen. (Though revaluation of yuan by that magnitude would do wonders for the Philippines' trade surplus with that country. Whether that's economically desirable is doubtful.)

Since the mid-1990s China has been on a currency peg; based on ADB data, the yuan/dollar exchange rate has fluctuated within a narrow band of 8.3 to 8.28. Using inflation rates in China and the US from 1996-2005, the yuan has only depreciated in real terms by less than one percent. Finally, overall trade surplus of China is only 2.6% of GDP, around the same level as in 2000.

More arguments against the undervalued-yuan claim here. Brad Setser also has plenty of discussion on the China-US imbalance.

It seems that some elements of the US Congress have become very adept at the "blame-thy-neighbor" policy. China-bashing bandwagon, anyone?

The China chance

2006-04-21T19:06:00.000+08:00

China has received blame all around. For rising oil prices. For vaccuming up all the foreign investments. For grabbing markets for consumer manufactures, such as apparel, footwear, textiles, toys...

China - a country of 1.2 billion, where per capita GDP (PPP-adjusted) has risen over tenfold from 1980 to 2002 (reference). Now the second biggest economy in the world, thanks to decades of rapid economic growth.

What's not to fear from China? Lots. (See this link.) It's showing the early stages of the classic Lorenz-curve pattern - with inequality rising initially during growth. Back in 1980, the Gini ratio was 0.2 (quite equal), but now it is 0.45 (about the same as the Philippines.) Not good for social stability. The type of growth that has been pursued showns signs of unsustainability, in the environmental sense:

Rapid industrialization is producing massive environmental devastation. China is the world’s second largest greenhouse gas emitter (the U.S. is first). About 60 percent of China’s major rivers are classified as being unsuitable for human contact. Seven of the ten most polluted cities in the world are located in China. Air pollution alone claims 300,000 lives prematurely per year. Acid rain falls on 1/3 of the territory. More than 1/3 of industrial wastewater and 2/3 of municipal wastewater is released into waterways without any treatment. Over the last few decades, increased industrial agriculture and commercial grazing has resulted in creating over 2.67 million square kilometers of desert land—around 27.9 percent of China’s total territory. Many claim that foreign investment and the introduction of “green” technology will help clean up the environment in China; however, this has not been the case to date. One of the reasons for this is because China’s State Environmental Protection Agency (SEPA) has little authority. SEPA estimates that although water treatment facilities are installed in most major industrial plants under government mandate, round one-third are not operated at all and another one-third operate occasionally. Often the fines it levies are less than the expenses of using the “green” technology. (Business Week, August 22, 2005)

Well I for one am hoping that it's rapid export-oriented growth is sustained. A competitive Chinese export sector means cheaper products which we can import. And a big Chinese economy means a big market to send our goods. In 2000 the export share of China was only 1.74%; in 2005 it was 9.86% and growing. In terms of value, exports to China in 2000 were only US$ 663 million; in 2005 it was over 4 billion, more than a sixfold increase. You may not realize this, but our imports from China in 2005 was only US$ 256 billion. (So what's all that "made in China" stuff? Well it turns out that China exports to other countries, which export back to us the made in China stuff.)

The global economy is not a zero sum game where one country becomes better off only if others become worse off. Simultaneous growth is a very real, in fact very realistic, prospect.

Energy prices up again

2006-04-19T22:40:00.000+08:00

Much has happened while I was missing in action beating a couple of deadlines: the Thaksin problem in Thailand has been resolved; in the Philippines, local governments are pushing for Constitutional reforms, while the President suspends all executions; but the global development I'd like to flag for now is the recent uptick in oil prices. In the past month, prices have gone up by 16%, with Brent crude exceeding US$ 71 per barrel.

While many analysts (cited in the article) point to uncertainties with respect to Iran as a proximate cause, James Hamilton thinks it's still a prosaic supply-demand story: oil production in the US is down, as well as in Nigeria (due to their political problems). "And demand remains strong, with U.S. economic growth resuming at a faster pace than some of us had anticipated, and Chinese use of petroleum continuing to climb. If demand is up and supply is stagnant, small wonder if we see the price continue to rise."

For the Philippines, what is the impact of this? Suppose a high crude price is sustained yearlong, leading to an increase in prices of petroleum products, within the range of say 20%. In 2005 the country's total imports was US$ 44.9 billion, of which about US$ 6.1 billion was in the form of mineral fuels, lubricants, and related products (except coke and coal). This accounts for about 13.6%. Hence the average import price (assuming constant shares) would rise by about 13.5% x 0.2 = 2.72%. For good measure I raised this to a worse scenario of 5%, and ran this average price increase scenario into a macroeconomic forecasting model I am currently working on. Voila, what did I get? The price increase shaves off a little over a percentge point off our GDP growth in 2006. So if the forecast is 5.2% growth for the year, then with the shock, growth is only around 4.2% or so. Interestingly, even if the average import cost was permanently higher, growth would recover to its unshocked trend already by 2007!

So the bad news: higher energy costs are a serious drag on growth. Good news: the economy is not going into a tailspin.

More good news: notice that demand remains a key reason for fuel prices rising, and China and the US remain a major source of this demand boost. And how is that good news? But that's for another post.

Termites in the woodwork

2006-04-03T09:02:00.000+08:00

Interesting that the heads of government in both the Philippines and Thailand are both grappling with credibility crises. Under a Parliamentary system as in Thailand, elections can be called to test the mandate of a sitting government. Under the Presidential system of the Philippines, a President serves a fixed term and can only be removed by impeachment. Both solutions have been tried in each country. In the Philippines the impeachment bid failed in a Congress whose Lower House (where impeachment must be initiated) is dominated by the President's allies.

In Thailand meanwhile the crisis has probably gotten deeper, mainly because of the opposition boycott. This boycott has often puzzled me, given the relatively credible electoral system in Thailand. Why would the opposition intentionally attempt to undermine institutions that have served Thailand well, so far?

Well, as explained in the CNN report, a large bulk of the population remains rural (70%). Apparently agriculture-led development has worked in Thailand, preventing the massive rural-urban migration observed in other Asian countries, such as the Philippines. I hypothesize that the rural population tends to be more conservative in their voting strategy, as long as the sitting government is delivering basic services. Abstract values of governance tend to be dismissed as petty bickerings of a distant urban center. Knowing of their impending defeat at the polls, the opposition organized a boycott among urbanites - deepening the crisis of institutions in that country.

The case of the Philippines is different. In Thailand, there appears to be a strong urban-based constituency towards actively replacing the administration. In the Philippines, a loose oppositionist alliance with vague middle and lower class support has repeatedly called for the President to resign. However these calls have not provoked mass demonstrations. Ironically, an unpopular President continues to rule because extra-constitutional measures are themselves highly unpopular.

As an economist my biggest worry is that political paralysis and pessimissm would extend to economic decision-making, particularly in the area of fixed and financial investment. In the Philippines the "firewall" appears to be holding, but things seem more tenuous in the case of Thailand. Would an economic crisis the magnitude of the 1997 exchange rate debacle hit Thailand, again? Maybe not soon. But in both cases these credibility problems are simply burrowing deep in the woodwork - like termites.

Immigration supply

2006-03-31T09:09:00.000+08:00

A Reuter's story (through Yahoo) relates a discussion on the supply side of immigration. The context of course is the raging debate on the US on immigration - though Mexican immigrants are the biggest group affected, lots of Filipinos illegals stand to benefit as well.

Per capita income is a good indicator of local wage rates. The disparities are indeed enormous. The case of Spain and Portugal are held up as examples of how tackling the supply side - evening out the income disparities - will do much to ease immigration pressures.

What happened to Spain? Well way back in mid-1980s its US$ per capita income (PPP-adjusted) was 10,435; today it stands at 25,100. That is per capita income rose by a factor of nearly 2.5. That can be done by plodding along at a decent growth rate of about 4.5% per year (in per capita terms). Once your economy is that size, you don't need Tiger economy growth rates (in the rate of 7% and above) to ~~double~~ hit developed country levels in a short time. All Mexico needs to do is to trundle along at about that pace; in fact its per capita growth has been in the range of 1%-2% in the last couple of decades. So the US can expect a lot more migration from the South in the medium term - ~~that~~ how that entry is managed is their call.

What about the Philippines? At about US$ 1,000 per capita, even doubling income will still keep us at a poor country level. If we can make our per capita income grow by 3% per year (around the growth rate last year) then in 20 years we can hit US$ 2,500. Pretty impressive, no? That's about Thai standards now. What we need is really fast growth (Tiger - standard). At 7% per capita growth (9.5% in GDP terms), we quadruple income in 20 years. But that's only about Malaysia standard (these days). In fact, the past couple of decades our per capita growth has been lower than Mexican standard!

So we can expect lots of migration from the Philippines over the next several decades. Slow growth and employment generation at home has been a major "push" factor behind all that worker migration. If we can rack up decent growth rates, there will eventually be a slowdown in the rate of growth of overseas remittance - and even a reversal. I do not believe that overseas remittance growth has contributed in a significant way to slowing down our growth rate - my gut feel is that the effect has been positive.

Experimenting with corruption

2006-03-30T08:51:00.000+08:00

The Economist points to this great study, in terms of scientific approach and relevance to development. The paper (PDF) is mostly nontechnical (and is completely accessible to an economics major.) The study looks at road projects in Indonesia and compares actual expenditure with measured expenditure, working backward from the observed quality of the road. The difference between the two is the effect of corruption (pocketing project money that should have gone to purchasing materials and labor.) The experiment is made by introducing community-based monitoring and central government audit at random across the sample of projects, prior to the conduct of the projects.

It shows that - surprise! - officials respond to announcement of audit. This is observed within a corruption-prone society. More "modern" approaches, which relies on community-based monitoring, is found to be less effective, or effective only for controlling corruption with respect to labor purchases (which are observed by the community). Since only one-fourth of the road project is composed of labor, this is not very effective on controlling overall corruption.

Here's what you take home (from the author's conclusion):

By contrast, increasing grass-roots participation in monitoring the project affected only missing labor expenditures, with no impact on materials and, as a consequence, little impact overall. These results suggest that grass-roots monitoring may be more effective for government programs that provide private goods, such as subsidized food, education or medical care, where individual citizens have a personal stake in ensuring that the goods are delivered and that theft is minimized. For public goods where incentives to monitor are much weaker, such as the infrastructure projects studied here, the results suggest that using professional auditors may be much more effective. This does not mean that empowering community members to discipline service providers has no role in an anti-corruption approach. In fact, the results suggests that the audits were most effective when the village head was up for re-election, which suggests that local level accountability may be an important mechanism for disciplining public officials. However, the results suggest that grass-roots monitoring alone may not be sufficient, and that for detecting corruption professional monitors may also important. The results in this paper present the results from a short-run intervention. If auditors are bribable, over time villages may develop repeat relationships with auditors which may make bribing auditors easier than in the one-shot case examined here. This might suggest, for example, that frequent rotation of auditors – or lower probabilities of audits combined with higher punishments – may be optimal.

One good deed leads to Dutch disease

2006-03-27T10:12:00.000+08:00

Dutch disease manifests in many forms. Here is the latest incarnation from Zambia (via Mahalanobis).

In short: the debt write-off (under the rubric of the MDG) effectively transfers foreign exchange to Zambia, causing a currency appreciation and hurting exporters.

Earlier I had written about a similar Dutch disease in the Philippines. Now I realize that the latter form is less of a problem than that experienced by Zambia, or other countries afflicted by the "natural resource curse".

The reason is simple: remittances wind up in the hands of private individuals (families back home), who allocate the funds based on market incentives. However in Zambia, the transfers are disposed of by the government; similarly in resouce-driven appreciations, state-owned companies typically get the bulk of the bonanza.

I am very suspicious of government acting as if it were a market entity, when it is actually shielded from market incentives. There is no guarantee that the foreign exchange earnings will be used for the right purpose, whether investing in human development directly (welfare programs and safety nets) or indirectly (investing in profit-making enterprises). So the Zambian government (and other recipients of the MDG debt write-off) better be careful that the long-term gains from their investment more than offset the short-term repercussions of the Dutch Disease.

Inane proposals on migrant labor

2006-03-24T23:03:00.000+08:00

Why restrict the overseas Filipino professional? So asks this Inquirer columnist, who talks about a full page ad put out by Fair Trade Alliance. I didn't read the ad myself, but I have a pretty good idea what it would say ... and Mr. Pagalangan relates the gist of it: keep them home.

What the %^&*@#$$?!!!

The skilled Filipino worker gets paid higher wages outside. His or her well-being goes up; as a fellow Filipino this should count for something, no? Even if he or she happens to be living abroad? What is more, he or she remits income back to the Philippines, increasing the well-being of the family. So far so good.

The cost? We back home get deprived of some cheap skilled workers. Well, time to get real folks - other people overseas are willing to pay for our workers. And we pretty well have to learn to match these wages if we want to keep them here.

What about our health care, and all those "critical professions"? Same thing. It's the price system at work. You get what you pay for - whether it's food, drugs, or people. Any suppression of the price system (say, by inane regulations on overseas work), is going to backfire. Probably the regulation won't work as workers, placement agencies, and public officials themselves circumvent its obvious stupidity. Worse still, it may work - and in the medium to long term you will see fewer people investing in quality education and training. (Those prospective high wages abroad have got everything to do with all that studying!)

How about "return service"? I've got a better idea. Why subsidize all that higher education anyway? Do away with tertiary education subsidies entirely. All that money is better spent on providing quality education at the primary and secondary level. Then let the professional - who has invested in their own human capital - make their free choice about where to work.

Disclaimer: I had a brief stint abroad (in Malaysia, 2 years) doing research in an agricultural research center. I probably have a vested interest in this issue. So? The idea is still $%%^&$#!! stupid. And I'm still right.

Fish - one of the most active sectors in agriculture today

2006-03-22T20:35:00.000+08:00

Fish is an important source of food and livelihoods in Southeast Asia. Fish provides a large share of animal protein intake, from 40% in the Philippines and Thailand to 57% in Indonesia and Cambodia. Low value fish in particular is a major component of the diets of the poor. Fisheries are also a significant source of livelihoods for communities on coasts, riverbanks, and floodplains, which cover a large bulk of the populations of Southeast Asia.

Recently the fisheries sector has been undergoing unprecedented changes: production in the region has grown rapidly, averaging 4.2% average annual growth from 1980-2003, compared to a 2.7% average annual growth over the same period for all other agricultural products. Fish has spearheaded the globalization of agriculture, following the reduction in import barriers and duties and the harmonization of food safety standards under the World Trade Organization (WTO) Agreements. The share of fish all agricultural exports reached 20% in 2003, compared to only 6% in 1980. The value of fish exports in 2003 (US$ 8.6 billion) is far in excess of exports of fruits and vegetables (US$3.5 billion), cereals (US$ 2.7 billion), coffee, tea, and cocoa (US$ 2.3 billion), and poultry (US$ 1.2 billion). For example, Vietnam is well-known as a coffee and rice exporter: however the export value of these two crops combined was less than US$ 1 billion in 2003, compared to fish exports of US$ 2.4 billion in the same year.

However rising global demand for fish has placed tremendous pressures on aquatic ecosystems and wild stocks. The "live reef food fish trade" is a case in point: consisting mostly of groupers, snappers, and wrasses, this trade involves exports of reef fish mostly to Hong Kong - China to meet a nearly insatiable demand for live fish. Unfortunately extraction of reef fish is both too heavy, and often done in an unsustainable manner (e.g. reliance on cyanide fishing).

What is the future of global fish trade, given rising demand and dwindling stocks? Not so bright - higher prices are in the offing, including for fish consumed heavily by the poor. (And there are ways to project the magnitude of these price increases, and even the impact of these future trends on economic well-being). But while gloomy, the situation is not hopeless. Yet. (I think.)

Unintended consequences

2006-03-19T18:58:00.000+08:00

A common prescription to save fish stocks is to "throw it back", pertaining to immature fish that have been caught by fishers. Interesting point I didn't think about: well that strategy may have its drawbacks, according to a Scientific American article cited by Mark Thoma (posting in the Environmental Economics blog). The unintended consequence is that fishing selects in favor of small fish - leading to a gradual evolution of populations with smaller individuals. And these individuals seemed to be duller and weaker than those that end up on our dinner table.

The answer? Not throw back any fish at all! Well in tropical Asian fisheries, the entire "trash fish" industry is built on the idea of landing and selling everything. Unfit for human consumption? There's a great big aquaculture industry (shrimp, grouper, milkfish) waiting to gobble it all up.

Of course this is an ecological no-no, so the article suggests throwing back some big ones too. I can imagine environmentally-conscious fishers doing that. Especially those using hook and line, or longliners.

Kidding aside, I think nothing beats cutting down on fishing effort, period, by whatever means - state command-and-control; individual transferrable quotas; community-based controls; whatever it takes. Otherwise we would be looking to a future of - not just smaller and dumber fish - but none at all.

Singapore - after decades of liberal trade and investment

2006-03-13T12:17:00.000+08:00

Okay so I'm stuck here in Singapore on an eight-hour wait for my connecting flight. An airport display informs you of the following factoids:

Did you know that Singapore makes:
1/3 of all hard disks?
1/3 of all hearing aids?
20% of all photoflash lamps?
Oil and gas equipment?

About 26% of GDP is accounted for by manufacturing, of which nearly 40% is in electronics, 26.4% is in chemicals, 17% in mechanical engineering, and 7.6% in biomedical products.

Of course we all know that Singapore is a global transport hub. One-third of the world's oil passes through Singapore; it has the 3rd largest oil refinery hub; it has 50% of the world market for fast ferries. It is the world's number 1 in shipbuilding repair, cornering 20% of the world market. Changi airport exemplifies this excellence: all cargo is cleared within 13 minutes; the airport has been voted best airport by "Business Traveller" for the last 17 years.

Was this achieved because the government closed off the economy to foreign investment and trade? You gotta be kidding. It's one of the freest economies in the world, next to Hong Kong. One of the beauties of the market is how it identifies export winners in such detailed niches that no planner or economic model could possibly foresee. Well okay, a world transport hub, maybe; but friggin' hearing aids? Photo flash lamps?

Okay lots of people are complaining about the repressive political environment. However what is important is total freedom - economic and political. Some countries have lots of political freedom but place plenty of economic restrictions. Time to realize that these restrictions fall within a continuum of repression. So before we say in the Philippines fault Singapore for this and that, tell me, how long does it take for you to register your real property in the Philippines, grease-free, in the Philippines?

Cultural attitudes towards science and pseudo-science

2006-03-09T16:38:00.000+08:00

Answer first:

1. Which nationality is more likely to believe that astrology or fortune-telling is scientific? Chinese, South Koreans, Europeans, or Americans?

2. Which nationality is more likely to support public funding for science? Chinese, South Koreans, Europeans, or Americans?

3. Which nationality is more likely to say that science does more good than harm? Chinese, Europeans, or Americans?

Now peak at the answers here. And read the whole thing while you're at it.

Those silly Confucianists. (Crash!)

Game theory satire

2006-03-06T12:56:00.000+08:00

Whenever I read an article or book on technical economic theory, I often get the impression that I am in a fantasy world no less imaginative than Middle Earth or Narnia. By a long chain of assumptions, we are assured that this is an "approximation" of the real world.

Often this kind of imagineering (to borrow a phrase from Disneyites) is essential. One wonders though whether sometimes economists have gone overboard with it.

Check out this satirical piece on the toilet seat problem. Are some articles in Econometrica or Journal of Economic Theory no less absurd than this piece of toilet humor (bad pun, sorry!)?

BTW, am headed off for a workshop in Malaysia next week (on the live reef food fish trade) and (you guessed it) I am ducking my blogging duties. Expect light posting over the next couple of weeks. (I'll explain what "live reef food fish" is - that's good for at least one post already!)

Economic growth - forever

2006-03-03T11:16:00.000+08:00

Many environmentally-minded people have the impression that fixed natural resources, in principle, makes perpetual economic growth impossible. This seems to make sense from an input-output perspective: growing output requires growing input (true); however some of the required inputs are fixed (true); hence output must stop growing eventually.

However the mistake is this: growing output requires at least one growing input. If the growing input can substitute for the non-growing inputs, then it is mathematically possible for the limiting point (zero natural resources) to be reached at time infinity - with economic growth happening all along the way.

What can be this perpetually growing input? In human history, economic growth has typically been driven by technology. Technology ultimately is based on human intelligence, or information processing.

It seems that the ability to discover new stuff is limitless. That is, it seems that humans will also be able to discover new things that the market values. This is the crucial point: economic growth is not just a matter of piling up new stuff by weight. Then certainly economic growth is limited. Economic growth is a matter of piling up new stuff by market value, based on subjective assessment of individuals, collectively summed up in the market price. This process holds the key to perpetual economic growth.

Scattalaxis has another way of putting it. In addition to the economic sphere and the biosphere is the "noosphere" (was this originated by de Chardin?) The products of the noosphere appear to be limitless, as valued by the noosphere itself.

Now all of these are possibilities are based on theory. On the other hand perhaps humans will run out of innovations, or perhaps inventions are not as substitutable with natural resources as we think. For example, perhaps it is not possible to find a cheap substitute for oil-powered transportation.

In the long run, my money is on the human mind.

Economic versus libertarian provisions of the Constitution

2006-02-28T11:06:00.000+08:00

I don't read the Daily Tribune. It's a yawning abyss of poison news and views. However it's being published in a country which constitutionally protects freedom of speech. So short of direct incitement to violence, this poison is untouchable. If you hate it, just don't buy it.

In this earlier post I linked to Proclamation 1017 and the Philippine Constitution. The latter clearly vests the right for the government to take over a private business during a period of emergency - precisely the principle invoked in the Proclamation.

What the framers (and the people who voted for it) didn't anticipate is that this power could be used to contravene the free speech provision. And it has been so used, in the case of the Tribune. So now the case is under petition with the Supreme Court.

Thanks to President GMA, the latent contradiction is now exposed.

However legal it may be, suppressing the Tribune was a mistake. In cases of conflicting provisions, the government should have erred on the side of civil liberties. In any case it possesess the vast powers of the police - and the military - to suppress armed revolt. Applying it to the dissemination of ideas and opinions is wrong; it also sends the wrong signal about the fragility of democratic and private property institutions.

After all, it is not only military adventurists and insurgents (whether communist or secessionist) which threaten these institutions; the threat can also come from within.

The Constitutional provision authorizing takeover of private business during periods of emergency is problematic and prone to abuse. It should be stricken off. Let some future legislation - which is easier to discuss, debate, and change - take care of potential emergencies.

What should be non-negotiable is the fact that the Strong Republic must be a Republic of free speech.

Keep the marketplace for ideas free and competitive.

Experimental economics is going commercial

2006-02-27T10:30:00.000+08:00

A mainstay empirical method in economics is "econometrics", which has been called a "nonexperimental" method of investigating causal relations. The usual argument is that the economic system is not subject to experimentation; nonexperimental data will have to be subject to different methods of analysis. (The contrast of course is with the natural sciences, where experimentation is standard.)

Increasingly though economics adopting experimental techniques. The latest Scientific American reports on the work of Kay-Yut Chen at Hewlett-Packard. The difference is that direct commercial applications are being explored:

Chen thinks he has solved the sandbagging problem: have each salesperson choose a personal balance of fixed and variable compensation. For example, the salesperson can choose a high commission percentage with no fixed salary or, at the other extreme, a modest fixed salary and no commission--or some combination in between. Each choice implicitly reveals how much the salesperson plans to sell, much as an insurance subscriber's choice of deductible and premium reveals how sick she is. Based on a truth-telling mechanism from game theory, this design works on paper. But as an experimental economist, Chen will keep testing it empirically, comparing the emerging design with other available models, such as the one he is testing today.

Chen has successfully used that approach to help HP managers design good contracts with retailers and resellers, and he is starting to tackle other thorny problems for his employer: figuring out how to protect HP's bottom line against international currency fluctuations and discovering ways for brick-and-mortar retailers and HP's online store to coexist happily.

Econometrics is nowhere near being supplanted by experimental economics, even in the long run. But I'd be glad to see experimentation becoming a fairly common research method in the field in the medium term.

Solita Monsod gives the other side on the Middle Forces

2006-02-25T12:46:00.000+08:00

Economist Winnie Monsod has written a column that is an exact representation of my own analysis and sentiments on the current Philippine turmoil.

Freedom of assembly is indeed a sacred right. However it is the citizenry's responsibility not to abuse that right. I'm not saying that the government ought to enforce that responsibility on them. But one error does not offset another. It's like the Danish newspapers' decision to publish those cartoons - a very bad choice, even if it was one one they had a right to make.

Here, where the atmosphere is heavy with military adventurism and sedition at a hat-drop, a responsible (albeit free) citizenry should think twice about feeding the fire.

Failure of poverty reduction is directly traceable to failure of institutions crucial for a stable and thriving business climate. Institution-builders look ahead. Removal of the President is neither a necessary nor sufficient condition for institution-building. We are now reaping the harvest sown in Edsa 2. Shall we now sow an Edsa 4, some bizarre hybrid of Edsa 2 and 3? God help us.

Calling for Arroyo's "voluntary" resignation is not a membership requirement for the Middle Forces, is it?

----------------------------------------------------------
Get Real : Keeping the flame of Edsa alive

First posted 01:14am (Mla time) Feb 25, 2006
By Solita Collas-Monsod
Inquirer

Editor's Note: Published on Page A10 of the February 25, 2006 issue of the Philippine Daily Inquirer

COUNT ME OUT of the protest actions at the Edsa Shrine and Makati City disguised as a peaceful celebration of the 20th anniversary of the Edsa People Power Revolt. It is not because I don't want to celebrate it -- that event showed not only us, but an admiring world, the best of the Filipino spirit, and is therefore worthy of recall. But I refuse to celebrate it with people who are cynically using the occasion to further their own political or personal agendas by invoking "the greater good." Truly the last refuge of scoundrels.

By doing so, they are destroying all that the Edsa revolt stands for: the spirit of self-sacrifice for the motherland, with no thought of personal benefit. And what is more, they are encouraging military adventurism that may end up at first with a military/civilian junta, but will, if world experience is any indication, surely metamorphose into a military dictatorship, a la Myanmar with its 44-year-old military rule. That will truly be the height of irony:

They want to change Gloria Macapagal-Arroyo (with assertions of her "illegitimacy" that so far has not been substantiated), and will end up with a regime that they may not be able to change at all. Sow the wind, reap the whirlwind.

Those who are calling loudest for Ms Arroyo to make the "supreme sacrifice" and step down for the "good of the country," what kind of sacrifice are they willing to make, if at all? Take the leftists with the red flags who sat out Edsa People Power I and are trying to exploit the event to set up their own government without benefit of elections (to be held only after 1,000 days, if at all). Like the proposed governing council or junta, were they not expecting to be in that self-same governing council themselves?

Take those who resigned their Cabinet positions. Was that really a sacrifice, considering that they seemed to be maneuvering to be in the incoming government (what was that visit to Hong Kong all about, after all)? Or take those who supported them. Weren't they also expecting, and bargaining for plum positions in the successor government?

Take those supposed military "idealists" who want change. What were they doing playing footsies with the New People's Army, whose sworn objective is the violent overthrow of any government that is not theirs? Or people like Scout Ranger Brig. Gen. Danny Lim, who has been in I don't know how many coup attempts, pretended to have reformed and thus rose through the ranks, and now resurfaces as the head of a breakaway group.

Have these people bothered to ask themselves what benefit, or rather, damage, the country has incurred from their activities to supposedly save it?

What about all the hysterical reactions to the so-called "state of emergency," which does not add any powers to the President that she does not already have? It is like the "state of rebellion" declared during -- was it the Oakwood incident? -- that some people immediately described as undeclared martial law. The fact is that there is an emergency situation because there was an attempt by a faction of the military to withdraw support from the government and to solicit participation through the chain of command.

And it is likely that the attempt was made with the support, tacit or material, of others. And it is likely that a few (certainly not all) elements of those participating in the street celebration may want to exploit the situation for their own ends. Provided that the police act with maximum tolerance, what is wrong with taking the necessary precautions to make sure that the assemblies are indeed only peaceful celebrations of a glorious moment in our history?

After all, the spirit of Edsa People Power is not dead, as some people say, perhaps to excuse their inability to mobilize a critical mass in the streets. It is very much alive -- not in those with self-serving agendas or who think of it in the narrow sense of street protests -- but in the quiet heroes engaged in the noble task of nation-building, especially in their own communities, who exercise people power as an instrument to make a better life for themselves, like the parents who work with local officials to improve the education of their children (i.e., Synergeia, about which I have often written), or who make sure that their local officials are accountable for the internal revenue allotments, or who strive to make the justice system work in their "barangay" [villages or neighborhood districts], or who even resort to the recall of non-performing local officials, or who resist projects that endanger their environment.

There are other manifestations of people power at a broader level. Like the private initiative, Gawad Kalinga, that is so purely unselfish in spirit that it has drawn countless people to help build not only homes but thriving communities for the underprivileged. Like government officials both low and high (Gem Carague at the Commission on Audit, and Karina David at the Civil Service Commission) who are engaged in institution-building despite the distractions and politicking around them.

Take those who are disappointed with the impeachment proceedings but know that the ultimate sanction in the accountability process in a democracy lies in elections. Hence, they object to the "no-el" [no-election] scenario and advocate truly credible elections in 2007. A Congress with a different composition can pursue the "closure" of the issue of national leadership.

There are thousands more like them around the country. This year I am celebrating Edsa People Power with them, because of them, for keeping the flame of Edsa People Power alive for all of us.

"State of emergency" in the Philippines

2006-02-24T20:29:00.000+08:00

You can read the state of emergency proclamation (pdf) (hat tip: sassy lawyer). Back in May 2001 the President declared a "state of rebellion" when the pro-Estrada demonstrators got rowdy and marched on the Presidential palace. She got a lot of flak for that one, so this time it's called a "state of emergency."

I'll leave it to the lawyers to sort out the legalities. Two provision of the Constitution have been invoked:

1. Article 18 Section 7 - suppression of rebellion; ("state of rebellion", now studiously avoided);

2. Article 12 Section 17 - from which the term "emergency" actually came.

The latter provision states: "In times of national emergency, when the public interest so requires, the State may, during the emergency and under reasonable terms prescribed by it, temporarily take over or direct the operation of any privately owned public utility or business affected with public interest."

What does this have to do with preventing public demonstrations? What privately owned public utility or business could the administration be thinking of taking over? Broadcast media? Sea and air transport? Beats me.

Because of this kind of possible intervention, the atmosphere for business just got hazier. What can blacken it is bloodshed and a persistent clampdown on peaceful assembly.

The pressing need of the country is a return to normalcy. The sooner, the better.

Dilbert and Dogbert talk about forecasting and oil

2006-02-22T12:14:00.000+08:00

This has been making rounds among econobloggers. Didn't know that Dogbert was the economist in this strip.

But then his parody of making bad business assumptions here, here, and here are hilarious. Terrific reminder for making business plans, and in general any kind of forecasting.

ASIDE on the oil thing, Dilbert could have argued thus with Dogbert -

Dilbert: "But if enough of us buy fuel-efficient cars then that might overall help reduce the price of oil, which could ultimately squeezes oil revenues for whichever states that sponsor terrorism."

Dogbert:"If, might, could, and whichever."

Disasters

2006-02-21T06:14:00.000+08:00

Aside from faulty institutions, the country's economic growth continues to suffer from natural disasters. The recent landslide in Leyte - with massive loss of life and property - is the latest tragedy to command national and global attention.

In 2000 the Centre for Research and Epidemiology of Disasters named the Philippines as the world's most disaster prone country. A major contestant for this dubious disinction is Bangladesh, according to the UNDP (PDF).

There are some interesting statistics on economic loss from disasters (PDF file: bottom of page 1). The most destructive in these terms are the hurricanes hitting the US (Katrina and Rita) just last year, valued at 131 billion. Interestingly but unsurprisingly, economic loss is highest for the developed countries. However loss of life is certainly far greater in developing nations, which aside from having higher populations, tend to maintain population centers in disaster-prone areas, for which mitigating measures are scanty at best. When was the last time a typhoon passed in the country, however minor, without at least one death? These are typically households in makeshift shelters along riverbanks or coasts, who are ill-equipped to fend off floodwaters and heavy winds.

So once more poverty rears its ugly head. While economic growth can by no means prevent disasters, in the long run it can shift the cost from human lives to human commodities. However costly in numerical terms, this would be a very welcome development indeed.

Defending the dollar

2006-02-17T07:43:00.000+08:00

Some University of Asia and Pacific economists want to boost the value of the US dollar:

UA & P Economist says the government must stop boosting peso

THE Arroyo government should take steps to prevent a bigger trade deficit this year by weakening the local currency through more dollar reserves, according to the economists of the University of Asia and the Pacific (UA&P). "The trade deficit will be much larger this year because of the (strong) peso," said Dr. Victor Abola, strategic economics program director of the University of Asia and the Pacific (UA&P), at Wednesday's press briefing. He described the impact of the Bangko Sentral's move in allowing the peso to gather more strength as a "double whammy." He added: "What the BSP (Bangko Sentral ng Pilipinas) is doing is making the OFWs finance the trade gap and at the same time, make industries uncompetitive," Abola said. "Oil prices are going down. You can't allow the peso to strengthen more." To allow the country to withstand the negative effects of the erratic flow of portfolio investments, Abola said the government should intervene by buying dollars to mop up the excess in the financial market.Dr. Emilio Antonio, Abola's UA&P colleague, said that to erase a substantial portion of the deficit this year, the peso should be allowed to go down to as low as P75 to a dollar. However, if the foreign exchange is maintained on the average at P55 to a dollar, the imbalance is likely to reach $8.5 billion. Abola also dismissed fears of perceived government intervention on the foreign exchange, saying, "There is no such thing as a freely floating exchange rate." ... Both urged the government to increase its GIR equivalent to six to 12 months instead of following the conventional standard of three months, which has become obsolete because of the speed of financial transactions.

Well first of all the title is wrong - the government is not "boosting the peso." It is simply doing nothing - allowing the value of the dollar to slide, in peso terms. (Oh for a more perceptive economics journalism in this country!)

I am entirely sympathetic to Vic Abola's argument. It provides a sobering counterweight to syncophant "analysis" on the government side claiming that a strengthening peso is entirely good news. There is some appeal to targeting a weaker peso.

However in principle I skeptical about any kind of policy towards targeting exchange rates. And the fact that India and China are doing it, does not mean it is the right policy. It is indeed possible to minimize intervention in foreign exchange markets. Just because a landlord must monitor the care of his property, does not entitle him to snoop and sneak at whim into the tenant's residence and forbid all manner of use.

There is some legitimacy to the argument of stockpiling a surplus in order to battle speculation. The problem though is whether anyone really knows what "speculation" is. No, "big" trade deficits are not necessarily a sign of speculation. A trade deficit simply means that foreigners are willing to sell more goods to the Philippines (in peso terms) than they are willing to buy from the Philippines. This is an intertemporal (comparison of time periods) decision. Their excess pesos are kept in some form - perhaps in cash, or peso-denominated assets. Think of it as a household with a credit card. The household sells labor services to the outside world. It purchases goods from the outside world. By means of the credit card, the household can buy more goods than it sells in any given month. The outside world is willing to hold onto the excess in return for an interest charge. Maintaining a zero deficit is something like cleaning up your monthly bill everytime - it sounds responsible, but there is a hidden cost somewhere, say the household may be holding off purchasing a new car or constructing a house.

It may well be that big trade deficits now are needed, say to purchase durable equipment. In that case a strong peso would be quite helpful indeed.

My advice to the BSP would be: stick to the basics, which is a low and stable inflation rate. Anything besides that is a distraction at best and a fount of instability at worst.

GDP growth in 2006

2006-02-15T19:07:00.000+08:00

The Ateneo Center for Economic Research and Development (ACERD) forecasts a GDP growth for the Philippines of 4.9% for 2006. This is much lower than the government forecast of 5.7% - 6.3%.

A reader has pointed out that my work as forecaster does not seem to square with this earlier post.

Let me qualify: I do not outright proscribe forecasting. I would however treat forecasts with great caution. They are very useful, but they are always accompanied by some range of uncertainty. The forecaster often doesn't even know how much uncertainty is associated with the forecast. The best a forecaster can do is to provide a sound basis for making choices. Sometimes making a choice requires certain scenarios about the future - how much average income will grow in a country, for example. Based on this scenario a choice can be made - to push through with an expansion project; to enact an annual budget. Forecasting can be a great help to making the scenario.

Furthermore, I would hesitate to make a short term forecast about asset or commodity prices. Such forecasts are prone to the arbitrage objection: if based on public information (that is, past trends), then any systematic pattern that could yield a profit opportunity would have already been exploited. This implies that asset prices move in an unsystematic pattern (more precisely, a "martingale" Hat tip: Amadeo). Long term forecasts though, based on fundamentals of supply and demand, are fine. So is a forecast about a vast aggregate that would be useful for planning but of little value to an arbitrageur - for example, GDP growth. But the exchange rate by end of 2006? Forget it!

Personally I feel that 5.0% or so is a safe conservative forecast. It will all depend on how investment improves this 2006 - and investment by far is the most volatile component of GDP, so volatile in fact that Keynes attributes its swings to "animal spirits". If the recent investment downtrend can be reversed (and the reversal can come very sharply), then the economy may conceivably overshoot even the government's sanguine estimate.

Physician, heal thyself

2006-02-13T15:50:00.000+08:00

The Asian Development Bank, based in Manila, has had to swallow a dose of its own medicine.

The World Bank has also been overtly active in the fight against internal corruption.

What about the bilaterals - JAICA, USAID, AusAid, DANIDA, DFID...? Clue me in if you know.

Perhaps we also need a survey of development clients and practioners, rating the various bilateral and multi-lateral donors for transparency, accountability, and performance. How about it, Transparency International?

Addendum on "rolling stores" as a poverty alleviation tool

2006-02-08T20:47:00.000+08:00

Just a brief follow-up on an earlier post I had about those "rolling stores". The Provincial Welfare Officer in Eastern Samar mentioned that such a method fails to reach the poorest of the poor. Why? Because rolling stores will travel only up to villages where roads are passable with their big trailers. But the poorest dwell in remote villages where road access is difficult or absent. Oo nga naman. (Policy and program evaluation is 99.9% common sense, and 0.01% technical analysis.)

But note that even for these areas there are local stores which sell food patronized by the poor. By whatever means they are able to bring their wares (by mule or horse if necessary). A food stamp system would, unlike the rolling store, be able to reach the hinterland villagers through these intrepid entrepreneurs. There is indeed a better way.