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.
Showing posts with label Economic freedom. Show all posts
Showing posts with label Economic freedom. Show all posts
Sunday, February 10, 2008
Thursday, December 20, 2007
Koreans opt for the 747
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.
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.
Tuesday, November 20, 2007
Sunday, November 18, 2007
The bankruptcy of the "alternative development" paradigm: an outline
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.
Friday, November 16, 2007
Thoughts of a young economist
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.
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.
Wednesday, November 14, 2007
The price of oil is telling us something
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.
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.
Tuesday, June 19, 2007
The breast of intentions
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.
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.
Friday, May 11, 2007
The good, the bad, and the ugly
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.
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.
Tuesday, August 01, 2006
Triumph of rent-seeking
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.
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.
Monday, June 12, 2006
The economics of independence
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 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.
Tuesday, February 28, 2006
Economic versus libertarian provisions of the Constitution
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.
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.
Friday, February 24, 2006
"State of emergency" in the Philippines
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.
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.
Tuesday, January 17, 2006
Underground economy and flea markets
I'm due for a post tomorrow, but I'll be on travel again (to Tawi-Tawi, southernmost part of the Philippines, my first trip there!), so I'm posting early. A reader, Michelle Go, a student from UP Diliman, asks me the following questions:
1. What do you think does this tiangge (flea market) popularity says about the state of Philippine economy and consumer behavior?
Flea markets are a fixture in the Philippine (and many other) economies. As a matter of routine, they do not give receipts, hardly any sort of registration, and hence belong to the underground economy. The underground economy as a whole constitutes over forty percent of Philippine output. Fancy that.
What the undergroundization of the economy tells us (and flea markets is one sign of that) is that cost of going formal is high. According to the World Bank, the Philippines is ranked 113 out of 155 countries in terms of the ease of doing business. Incredible. Who are the best? New Zealand, Singapore, US, Canada, Norway, Hong Kong, in that order. We are 89th in terms of starting a business, 91st in terms of dealing with licenses, 82nd in terms of ease of hiring and firing workers, 92nd in terms of registering property, and a whopping 121st in terms of getting credit. Just to start a business, the average waiting time is 48 days, whereas in developed countries it is only 19.5 days; the cost of starting is up to one-fifth of per capita income, whereas in the latter it's below 7%. Now should we wonder why the informal economy is so large? And why the informal economy in New Zealand is less than 13% of its national output?
2. Does this rise in tiangges reflect a harder life for most Filipinos with buyers and sellers opting for cheaper (although sometimes lesser quality) goods and the informal economy?
Harder life? Hardly. I'm one of few people who think that social well being correlates roughly with per capita income, so since the latter has been going up, well... It's not a demand side thing. It's a supply side thing, as I argued above. Is the cost of going formal getting higher? Not really - the cost of not going formal is getting lower. The risks facing tax avoiders, the risk of getting caught without the right papers and licenses, is going down. I think this is a sheer case of deteriorating governance.
3. Does this rise in flea markets bode well or ill for the economy? (seeing that it provides jobs, income and brings cheap good s to those who can't afford expensive ones but also that a lot of the goods are cheap, imported Asian products and the BIR is claiming the government is losing millions in taxes)
It's not really what's wrong; it's a symptom of what's wrong. In general as the economy becomes more formalized, the better, subject to low cost of formalization. Of course we can get cheaper goods from the informal sector, but it's should not be because bureaucracy is artifically driving the price of formal goods up.
4. Do you think this rising trend will continue in the next years? Or will it all depend on the performance of the Philippine economy?
The BIR is cracking down on flea markets. Well and good; but government should realize it's not just a victim here, but also a perpetrator. In short, it will all depend on how government reduces the cost of formalization and raises the cost of informalization. We need government, but we do not need all of these procedures and fees and regulations from slow motion bureaucrats, who are apt to play favorites (or finagle the entrepreneur for grease money). I am not portraying business as the hero here; very often it is big business that lobbies for all these regulations to keep competition out. Why is it so hard to import identical drugs from India or other countries in ASEAN, like Malaysia and Vietnam, where drugs are much cheaper? No real medical reason - just good (or bad, depending on your viewpoint) old commercial interest. It sucks.
1. What do you think does this tiangge (flea market) popularity says about the state of Philippine economy and consumer behavior?
Flea markets are a fixture in the Philippine (and many other) economies. As a matter of routine, they do not give receipts, hardly any sort of registration, and hence belong to the underground economy. The underground economy as a whole constitutes over forty percent of Philippine output. Fancy that.
What the undergroundization of the economy tells us (and flea markets is one sign of that) is that cost of going formal is high. According to the World Bank, the Philippines is ranked 113 out of 155 countries in terms of the ease of doing business. Incredible. Who are the best? New Zealand, Singapore, US, Canada, Norway, Hong Kong, in that order. We are 89th in terms of starting a business, 91st in terms of dealing with licenses, 82nd in terms of ease of hiring and firing workers, 92nd in terms of registering property, and a whopping 121st in terms of getting credit. Just to start a business, the average waiting time is 48 days, whereas in developed countries it is only 19.5 days; the cost of starting is up to one-fifth of per capita income, whereas in the latter it's below 7%. Now should we wonder why the informal economy is so large? And why the informal economy in New Zealand is less than 13% of its national output?
2. Does this rise in tiangges reflect a harder life for most Filipinos with buyers and sellers opting for cheaper (although sometimes lesser quality) goods and the informal economy?
Harder life? Hardly. I'm one of few people who think that social well being correlates roughly with per capita income, so since the latter has been going up, well... It's not a demand side thing. It's a supply side thing, as I argued above. Is the cost of going formal getting higher? Not really - the cost of not going formal is getting lower. The risks facing tax avoiders, the risk of getting caught without the right papers and licenses, is going down. I think this is a sheer case of deteriorating governance.
3. Does this rise in flea markets bode well or ill for the economy? (seeing that it provides jobs, income and brings cheap good s to those who can't afford expensive ones but also that a lot of the goods are cheap, imported Asian products and the BIR is claiming the government is losing millions in taxes)
It's not really what's wrong; it's a symptom of what's wrong. In general as the economy becomes more formalized, the better, subject to low cost of formalization. Of course we can get cheaper goods from the informal sector, but it's should not be because bureaucracy is artifically driving the price of formal goods up.
4. Do you think this rising trend will continue in the next years? Or will it all depend on the performance of the Philippine economy?
The BIR is cracking down on flea markets. Well and good; but government should realize it's not just a victim here, but also a perpetrator. In short, it will all depend on how government reduces the cost of formalization and raises the cost of informalization. We need government, but we do not need all of these procedures and fees and regulations from slow motion bureaucrats, who are apt to play favorites (or finagle the entrepreneur for grease money). I am not portraying business as the hero here; very often it is big business that lobbies for all these regulations to keep competition out. Why is it so hard to import identical drugs from India or other countries in ASEAN, like Malaysia and Vietnam, where drugs are much cheaper? No real medical reason - just good (or bad, depending on your viewpoint) old commercial interest. It sucks.
Monday, August 15, 2005
Underground economy in the Philippines
Cielito Habito (whose Inquirer column every civic-minded Filipino should read) has a piece on the underground economy. He describes how official statistics on GDP are capturing the informal sector. Briefly put, the method uses labor productivity figures in the formal sector, and applies it to informal sector employment captured in the labor surveys. Neat. The underground economy accounts for about 43% of GDP, it seems.
I have a couple of issues with this:
1. A "commodity" is something we are willing to pay for. How far are we going to extend the social recognition of a "commodity"? Suppose there is an underground outfit which provides consultancy services (for a fee) on bomb-making and placement. Of course your favorite terrorist organization is on their client list. Should their "service" be something the wider community should recognize as a commodity?
2. More pedestrian, but maybe more important: wouldn't we expect informal sector activities to be biased towards the low and stagnant productivity occupations? Simply because as the productivity climbs, there is a tendency to be organized formally. For example a backyard piggery that becomes a large farm becomes the object of attention of the municipal agriculturist; the fishball hawker who finishes his commerce degree becomes a formal sector sales rep. And so on. So wouldn't this method overestimate the size of the informal sector? (I suspect there may be an adjustment somewhere being made. I just wonder how this adjustment is being estimated officially.)
I have a couple of issues with this:
1. A "commodity" is something we are willing to pay for. How far are we going to extend the social recognition of a "commodity"? Suppose there is an underground outfit which provides consultancy services (for a fee) on bomb-making and placement. Of course your favorite terrorist organization is on their client list. Should their "service" be something the wider community should recognize as a commodity?
2. More pedestrian, but maybe more important: wouldn't we expect informal sector activities to be biased towards the low and stagnant productivity occupations? Simply because as the productivity climbs, there is a tendency to be organized formally. For example a backyard piggery that becomes a large farm becomes the object of attention of the municipal agriculturist; the fishball hawker who finishes his commerce degree becomes a formal sector sales rep. And so on. So wouldn't this method overestimate the size of the informal sector? (I suspect there may be an adjustment somewhere being made. I just wonder how this adjustment is being estimated officially.)
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