Japan and China courting the Philippines

japHere’s a news report from forbes last January 14, 2017. I think both will win. Both will have greater access to the PH’s

(a) big, young population as consumers or needed migrant labor,

(b) SE Asia’s fastest growing big economy since about 2009,

(c) nice tropical tourism destination for their people,

(d) both have quarrel over a small island that’s obviously closer to Japan than China, so both have issues over international rule of law,

(e) both have ageing population, so both would need an infusion of young migrant labor from the PH, today or tomorrow.

While many support the state-sponsored population control (aka RH law to prevent “unwanted pregnancies” that become “unwanted babies” that become “unwanted workers” and entrepreneurs someday?), the Japs, Europeans, etc. envy the PH’s big, young population. https://www.bloomberg.com/…/japan-turns-to-asia-s

(f) Both have huge, big governments that are heavily indebted (220%+ of GDP for Japan, 40%+ for China but if the debt of their state corporations and banks, local governments, private corporations are included, about 240% of GDP). So both will need the money of middle class and rich Filipino tourists who can afford to travel to more countries around the world.

Top 10 projections for Asian economies

* This is my article in BusinessWorld last January 12, 2017.

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Taking off from the paper by a friend and fellow columnist Romy Bernardo’s “Wishes for the economy in 2017” last Monday, this paper will make some raw projections of GDP size until 2026.

The base document is the IMF’s World Economic Outlook (WEO), October 2016 database. In the table below, GDP size is based on purchasing power parity (PPP) values, not nominal or current values. Actual data for 2006, 2016, and 2021 are IMF projections.

Now this paper will take a longer but very raw view by projecting potential GDP size by 2026. Here is the raw and crude methodology.

(a) Take the GDP multiple or expansion from 2026 to 2021 per country, call it Y.

(b) Assume that the same degree of expansion will occur from 2021 to 2026.

(c) GDP 2026 = GDP 2021 x (1 x Y).

Readers with more advanced data and econometric tools will scoff at this raw methodology but please understand that this is just an attempt and the limitations of the assumption have been stated. So here is what we can project in the next few years.

From this table, we can summarize important projections for selected Asian economies.

  1. In 2016, four Asian countries would remain in the 10 largest economies in the world: China, India, Japan, and Indonesia.
  1. Six of the 10 ASEAN countries would belong to the Top 40 largest economies in the world in 2016: Indonesia, Thailand, Malaysia, Philippines, Vietnam and Singapore.
  1. By 2021, Indonesia will overtake Brazil in the seventh spot and will be in a striking distance to dislodge Russia in the sixth spot.
  1. Also by 2021, the Philippines will rise to the 26th spot and Malaysia will rise to the 27th spot, overtaking Argentina and Netherlands. Malaysia and the Philippines will also belong to the club of trillion-dollar economies by around 2018 or 2019.
  1. Vietnam will rise from its 36th spot in 2016 to 33rd or 32nd in 2021, overtaking UA Emirates, Algeria, and Iraq, and possibly South Africa.
  1. By 2026, assuming that the raw projections will somehow hold, the combined size of China and India will be larger than the combined economies of US, Japan, Germany, Russia, Brazil, UK, France, Mexico, and Italy.
  1. Also by 2026, Indonesia will become the 5th largest economy in the world, overtaking Japan, Germany, Russia, and Brazil.
  1. And the Philippines will rise to the 22nd spot, further overtaking Taiwan, Nigeria, and Poland. It will also be in a striking distance to overtake Thailand and Australia by then.
  1. Pakistan and Vietnam, also having big and young population like India, Indonesia, and Philippines, will also significantly expand their economic sizes and improve their ranking.
  1. While Japan is expanding marginally, South Korea will sustain its growth. Now, a collapse of North Korea (possible within the next six to eight years) and unification of the two Koreas will possibly make them overtake France in the #10 spot.

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Many things will happen in the coming years so those IMF projections for 2021 and the assumptions made in this paper for 2026 can be considered as suggestions with some material basis. We still take actual numbers as they become available as basis for policy reforms.

 

Other Asian governments should take lessons from the experience of Europe and Japan: an ageing population will be a drag in further economic expansion. Policies that control population or heavily restrict migration are wrong, as wrong as trade protectionism, heavy taxation, and stifling business regulations. Governments should avoid these policies.

Economics, politics and inequality

A number of my friends have posted in facebook in agreement with this article from The Economist, “To be relevant, economists need to take politics into account.” so I will post to contradict it. This article or its title is misleading if not wrong because:

(1) It is saying that economists writing about plain economics are not relevant, so to make them relevant, they must write about economics + politics + sociology + anthropology + history + genderology + …?

(2) Consider a simple demand-supply price equilibrium theory. A big storm damaged crops in a major food producing region that substantially supplies food in M.Manila, so the supply goes down, the price goes up since demand remains the same. No need for politics, history, anthro, sociology, gender, etc. to inject into the analysis to make it relevant.

Now comes politics, government imposes price control on food items supplied by other regions not affected by that big storm “to protect the poor.” Things become awful, formal supply goes down, turns to “black market” supply. It is politics inserted into normal economic phenomena that distort things. And people think economists should always factor in politics, history, etc. in an otherwise simple situation. Lousy.

(3) Economists who comment on political issues — politics around the world, political ramifications of federalism and parliamentarism, revamp of the constitution, etc. — then they must insert politics, history, etc. in their analysis.

Consider this paper, “Economics versus Politics: Pitfalls of

Policy Advice” by Daron Acemoglu and James A. Robinson, Journal of Economic Perspectives—Volume 27, Number 2—Spring 2013. http://economics.mit.edu/files/10403

“Our argument is that economic policy should not just focus on removing market failures and correcting distortions but, particularly when it will affect the distribution of income and rents in society…” (last par. of the paper)

Can people, economists “remove market failures”? Wow. Only central planners would think that way. Consider these:

  1. Mr. X and his friends demand a 500 GB USB that is sold for only P1,000. Demand is there but supply is zero, so market failure.
  1. Mr. Y and his friends supply a rice variety that is said to cure 10 types of common diseases and sold at P800/kilo, no one buys their rice. Supply is there but demand is zero, so market failure.

Anyone, anytime and anywhere can create a market failure, as shown by 2 examples above. Some guys like economists (and politicians, etc.) think they can stop or remove that? Wow.

On inequality, it’s part of nature, it’s good. Otherwise people will work only few hours a day and demand that their pay, their house, healthcare, etc should be at least 1/5 that of the privileges enjoyed by Bill Gates and Henry Sy or John Gokongwei, etc. to have equality in society. The world has progressed because of respecting inequality, not forcing equality like socialist countries.

Now consider this drama by Oxfam and many other groups, institutions like the UN. https://www.oxfam.org/…/just-8-men-own-same-wealth-half

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Ok, the incomes and wealth of Bill Gates, Zuckerberg, etc. have expanded up to the troposphere, did they make people’s lives, our lives, poorer and lousier? Do we have lousy and despicable lives because Zuckerberg got richer each year because of facebook?

No. On the contrary, we enjoy more comfortable, more convenient lives because of the inventions of these super rich people. If people think that Zuckerberg et al are creating a more despicable world because of their inventions and companies, they better opt out of fb, youtube, google, iphone, etc because everytime they use those things, they contribute to further enrichment of these super super rich people.

The world enjoys more comfort, more welfare because of the innovations made by these super-efficient, super-ambitious and super-rich people. Soon people will be working only 4 or 3 days a week and still get high pay because of rising productivity (and rising inequality) introduced by those super-efficient people. We should support the expansion of more super rich people instead of demonizing them. The politics of envy is only for the envious, like Oxfam and the UN 🙂

The only way to stop rising inequality is via dictatorship. Put a gun on people’s heads and tell them to stop being too innovative, too inventive, too revolutionary in business, to stop and limit excellence.

Central planners would clap this scenario. They get huge pay and various political perks doing all types of social engineering to force equality in the world.

Top 10 positive news in Asian trade

* This is my article in BusinessWorld last January 04, 2017.

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Global trade has significantly slowed down in 2015 which is ironic because it was the start of significant oil price declines. After recovering from the 2009-2010 global financial turmoil that started in the US, global exports reached $18.3 trillion in 2011, $19.0 trillion in 2014, but declined to $16.5 trillion in 2015.

Nonetheless, there are some good news in Asian trade which battled this global trend in export decline.

Below is my list of these positive developments.

1 China, Vietnam, Hong Kong, and the Philippines did not follow this global trend. Their exports in 2015 were higher than their 2011 levels. For the Philippines, exports reached $58.6 billion in 2015, higher than 2011’s $48.3 billion.

2 Many Asian economies remain leading exporters and importers in merchandise or goods trade, led by China, Japan, South Korea, and Hong Kong.

3 Five ASEAN countries are important players in global merchandise trade with at least $150 billion in exports. The Philippines is playing a far catch up with Indonesia and Vietnam.

4 In services trade (including revenues from tourism and business process outsourcing (BPO) firms) many Asian economies still remain part of the big- and medium-size players, at par or even larger than the average European economies. The $915-billion revenues in 2015 is for all 28 EU economies.

5 Within the ASEAN, the Philippines is a medium-size services exporter while Indonesia did not belong to the top 50 in 2015 (see Table 1).

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6 In some sectors, the Philippines ranked #10 globally in 2015 in the exports of telecommunications, computer, and information with revenues of $3.5 billion, and #6 in exports of computer services with revenues of $3.2 billion.

7 Of the economic blocs and free trade areas (FTAs) in the world, ASEAN is the third biggest next to the European Union and North American FTA (NAFTA). They are followed by the Gulf Cooperation Council (GCC), European FTA (EFTA), SAARC Preferential Trading Arrangement (SAPTA), and Mercado Común del Sur (MERCUSOR).

8 An expanded ASEAN + 6 (China, Japan, South Korea, India, Australia, New Zealand) under the Regional Comprehensive Economic Partnership (RCEP) will easily overtake both the EU and NAFTA in total merchandise exports. Those six partners are huge exporters except New Zealand (see Table 2).

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9 The statement “this is the Asian century” in terms of trade and GDP growth will become true starting this decade. The main factor to sustain this momentum is Asia’s huge and generally young population especially in India, Indonesia, Philippines, and Vietnam, comprising 1.7 billion people with an average age of only 24-25 years old which is one-half of the average age of Japan and many developed countries in Europe.

10 The statement “If America (or Europe) turns protectionist, Asia loses” is wrong. Whoever starts serious protectionism is the loser. Free trade creates good will with other countries while expanding the choices and options for local consumers and manufacturers, which expand their productive capacity.

Should Mr. Trump proceed with his campaign promise to ditch the Trans-Pacific Partnership (TPP), it can be good news for other Asian economies that are outside of the five Asian economies that are part of the TPP. They are expected to suffer some exports decline to big markets of the US, Canada, and Japan due to trade diversion from non-members to TPP members.

Freer trade and fewer restrictions in the movement of goods and people are becoming the norm in emerging and transitioning economies of Asia than in developed Asia, Europe, and America.

Bienvenido S. Oplas, Jr. is the president of Minimal Government Thinkers and a SEANET Fellow. Both institutes are members of Economic Freedom Network (EFN) Asia.

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How to improve inter-island travel, the role of ROROs

* This is my article in BusinessWorld last December 28, 2016.

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The Roll-on, Roll-off (RoRo) boat system of transporting trucks, buses, and cars from one island to another is among the best inventions for archipelagic countries like the Philippines. Vehicles go inside the boat, passengers come onboard, and the boat travels to another island where it docks, unloading passengers and their cars on the way to their destinations.

My first RoRo experience was in the late 1990s when I took the bus from Cubao to Iloilo City. It was an adventure to see for the first time Oriental Mindoro outside Puerto Galera, Panay island from north to south, and the Aklan-Capiz-Iloilo provinces. It was a 25-hour trip because there were few RoRo boats that plied the Batangas-Calapan then Roxas, Oriental Mindoro-Caticlan, Aklan routes. It was exhausting but fun.

My second RoRo experience was in 2003 when I traveled by bus from Sweden to Netherlands via Denmark and Germany. Our bus entered a huge boat somewhere in Denmark, the boat traveled to and docked in Hamburg, then we boarded the bus again and traveled to The Hague, where I visited a friend.

There was a big difference between the Denmark/Germany and Philippine RoRo system of course.

First, since the boats in the former are huge, the vehicles — once onboard — aren’t cramped unlike in local boats.

Second, waiting time at the port in Denmark was short and didn’t take hours.

Last Dec. 21, I drove again like December last year from Makati to Iloilo City with my family, lugging cargo that weighed 300 kilos. Since it was the holiday season, there were lots of travelers who took their cars, unduly extending the waiting time for vehicles to get onboard.

Now there are only three RoRo shipping lines plying the Batangas-Calapan route: Montenegro, StarLite, and FastCat. Last year, there was a fourth player, Super Shuttle, and there was a RoRo boat plying the Batangas-Muelle/Puerto Galera route. Both are gone now.

In Roxas port, a duopoly, Montenegro and StarLite shipping lines, serve the Roxas-Caticlan route now; last year, there was SuperShuttle as the third player.

When I arrived at Roxas port, there were many cars trying to get to the next Montenegro boat while StarLite ticket office was still closed, so I drove one more hour from Roxas to Bulalacao, Oriental Mindoro, to take the Bulalacao-Caticlan route that was served only by FastCat. So FastCat is the third player to serve passengers and vehicles going to Caticlan but it’s on a different, farther seaport.

For those planning to try this adventure for the first or second time, here are the costs to bring your car to Panay island.

  1. Toll fees: Makati to Batangas via SLEx, SLEx extension, STAR tollways about P320.
  1. Batangas port fees: Philippine Ports Authority (PPA) terminal fee for cars P129, for passengers P30/head, children below 12 years old are free.
  1. Montenegro boat: P1,920/car (jacked up from P1,500 due to the Christmas season), passengers P192/head, P120/child from 7-12 years old while children 6 years and below are free. Car driver is also free.
  1. Bulalacao port: PPA terminal fee for cars P129, for passengers P15/adult, P12/child.
  1. FastCat boat: P3,380/car, passengers can take the economy, premium or business classes. The latter is P500/head, P400 for students, P250 for children. Car driver is free but only for economy seat. Upgrade to business class is additional P125.
  1. Fuel/diesel, Makati to Iloilo, 500+ kms, depending on car fuel consumption. My pickup consumed about P1,000.

I spent a total of P9,000 all in all, one way, from Makati to Iloilo, which is cheaper than flying for four people — my wife, two kids, and me — especially in December when fares are high. That doesn’t include the airport terminal fees, baggage check in charges, and taxi fares to and from the airport.

So driving a car via RoRo with about 300 kilos of cargo is cheaper.

Although long car rides tend to be inconvenient, it was nevertheless fun for my passengers, especially for my two girls who enjoyed the boat ride.

Some ugly experiences that one may encounter if driving during the holiday/Christmas season:

  1. Waiting for one or two hours or more outside the gate of Batangas port as there are many cars and trucks queuing to board a boat to Calapan. Cars going to destinations other than Calapan (Abra de Ilog, etc.), they can go in anytime, no long queues for them.
  1. New security bureaucracy at Batangas port. All bus passengers and car drivers must alight and go through a security check along with their hand carried bags, get the signature of an officer, go back to their vehicles and drive to the queue area for the boat ride to Calapan or other destinations. This was not done last year and previous years.
  1. The Roxas, Oriental Mindoro municipal government acts like a typical extortionist. It collects P50 for each car entering and exiting Roxas port. Zero public service for visitors because the port and the roads were made by the national government, and it has a share from the various fees paid by the shipping lines. Many local governments that host ports behave this way too.

Three possible reforms to modernize the country’s RoRo system are the following.

One, consider RoRo system as a bridge, not as a seaport.

Allow unhampered movement of vehicles from one island to another as if they are just crossing a bridge and quickly proceed to their destinations. This implies that RoRo development and streamlining be put under the DPWH, not under DoTr. I heard this proposal during the Manufacturing Summit 2016 last November sponsored by the DTI and BOI.

Two, allow more shipping lines, more players to serve important routes like Batangas-Calapan, Batangas-Caticlan, Roxas-Caticlan, Sorsogon-Samar, and so on. More routes mean more options for motorists and passengers. Government should reduce the bureaucracies and taxes for new players to come in, or for existing players to expand and modernize their fleet.

Three, allow private developers, shipping lines and/or bus lines to put up their own ports, meaning deregulate and demonopolize the PPA.

Market failure vs. Government failure

An article today in BWorld says,
“A market failure, in the parlance of economics, means a situation in which free markets produce wasteful outcomes.”

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The above statement is wrong on 2 counts:

(1) Market failure is literal, demand is there but supply is low or zero, or vice versa. So failure of the market to adjust supply and demand.

(2) Market failure is often a parlance of politics and government, less of economics. It is a good justification for endless government intervention and expansion for people who have no or little concept of “government failure.”

Anybody can create a market failure anytime, anywhere. How?

  1. Mr. X and his friends demand a 500 GB USB that is sold for only P1,000. Demand is there but supply is zero, so market failure.
  1. Mr. Y and his friends supply a rice variety that is said to cure 10 types of common diseases and sold at P800/kilo, no one buys their rice. Supply is there but demand is zero, so market failure also.

Given these two examples of market failures, do they justify government intervention? Like (1) using taxpayers’ money to create a new govt-owned IT company to supply that 500 GB USB and sell only at P1k or less. Or (2) Govt to procure that rice and distribute for free or at high subsidies to sick people?

No. In public finance econ (Econ 151), there is one definition there, something like “Market failure is a necessary but not sufficient condition for government intervention.”

Rightly so. Because (1) market failures are generally short-term and are signals for market solutions in the short- to long-term, and (2) government intervention may only worsen the original market failure and introduce its own government failure.

From the same article, it says, “Public education… make economies more prosperous, and most economists support it, but no one can point to just why the free market doesn’t educate enough people on its own.”

If people pay lots of taxes, fines, regulatory fees, mandatory social contributions, etc. to both national and local governments, there is little “disposable income” left for food, clothing, housing, gadgets, appliances, travel, etc. This explains why not many parents/guardians can send their kids to private schools, majority of parents send their kids to public education.

It’s like the government disabling the people with some physical attacks then govt gives them a wheelchair and expects the people to be thankful to government for the wheelchair.

Top 10 news of 2016

* This is my article in BusinessWorld last December 27, 2016.

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Since government by nature consists of force and coercion, legislation and regulation, mandatory contribution and taxation, it naturally creates division among people anywhere in the world. Those who benefit from welfarism are happy while those who are affected by endless regulations and taxation express the opposite sentiment.

Below is my list of top 10 news around the world in 2016, five international and five national/regional.

INTERNATIONAL

1 “Brexit.” British voters opted last June to exit from the European Union (EU), a regional government that allows free trade and free mobility of people and services among member-states, but also imposes various protectionism and restrictions on goods and people mobility to countries outside the EU. This combination of free trade and trade protectionism, simpler migration for fellow EU citizens but difficult migration for non-EU people, tax harmonization and prevention of tax competition among member states, among others, have created confusion and even more animosity among the British. So far nothing is definite and details of the exit may not be known until 2019.

2 Trump victory. A big businessman without past political position but employed an unconventional campaign, President-elect Donald Trump outlasted 16 Republican rivals and then a famous Democrat candidate Hillary Clinton. Not being part of the entrenched political establishment, he is known more to reverse the various regulations and high taxation policies of the Obama and Bush administrations. For instance, he plans to cut the US corporate income tax from 35% to 15%, reverse the anti-coal, anti-oil sentiments and policies, and so on.

3 Terrorist attacks in Europe. Massacres in a newspaper office and rock concert in Paris, airport bombing in Brussels, lorry attack of people in the streets of Nice, France during a Bastille Day celebration, another lorry attack of people in a Christmas shopping in Berlin. Plus some foiled attacks in other cities in Europe. To fight this kind of war, governments will need less of those deadly fighter planes, huge battle tanks and ships. Instead, they will need more drones, CCTVs, crawling small robots, cyberware. The fight is not country to country but house to house, building to buildings.

4 Syria. Endless war among many armed factions has resulted in large-scale murders and displacement by the millions. Aleppo has become the main reference point of why civil war by some proxy countries should be avoided as much as possible. The volume of civilian deaths and destruction of properties is so big.

5 Malaysia and South Korea. Big governments always invite big opportunities for big corruption and wastes, the degree just vary from country to country. In particular, the corruption scandals of Malaysian PM Najib Razak over IMDB and S. Korean President Park Geun-hye over her friend Choi Soon-sil’s involvement in government affairs have pushed their people to conduct various rallies calling for their resignations. And these leaders continue to cling to power.

PHILIPPINES

6 Duterte victory. President Rodrigo Duterte was the first Mayor to move straight to Presidency with a different campaign strategy focused on fighting criminality, drug proliferation, and corruption. Unlike the three other major candidates — former VP Jojo Binay, Sec. Mar Roxas, and Sen. Grace Poe — who all focused on more welfarism. And he got huge support from the poor, which shows that the poor are not exactly asking for more welfarism and subsidies, but are seeking increased peace and order to protect themselves against thieves, murderers, rapists, drug pushers, corrupt officials, and other criminals.

7 Drug deaths. From a campaign promise of killing 100,000 criminals if he wins, President Duterte later mentioned that “like Hitler, (I will) annihilate 3 million drug criminals.” The on-going “war on drugs” has resulted in several thousand murders so far, about one-third from police operations and two-third from vigilante-type of executions. The rule of law and its long process of police investigation and court proceedings have been sidestepped.

8 PI Obama, Pakyu EU. Before and during the ASEAN summit and related meetings last September, President Duterte has directly or indirectly lashed out against US President Obama who attended the event in Laos. President Obama and later the EU have voiced criticism over the high number of deaths and disrespect for the rule of law, not the drugs war per se. President Duterte and his avid supporters did not make a distinction between these two and thus, the expletives and harsh words. These were reported heavily in international media.

9 Marcos burial at Heroes’ Cemetery. The sneaky burial of former President Ferdinand Marcos at the Libingan ng mga Bayani has stirred some political upheavals that many protest rallies were held in Metro Manila and key cities in the country. Since the burial is supported by President Duterte and affirmed by the Supreme Court, the cemetery may better be renamed “Libingan ng mga Bayani at Magnanakaw” (LBM).

10 Non-assertion of territorial rights at SCS/WPS. Mid-December, the President said the Philippines and China can “share” oil in the disputed territories in South China Sea/West Philippine Sea despite an international arbitral award affirming the Philippines’ ownership in the exclusive economic zone (EEZ).

From this list, it seems that many people around the world are dissatisfied and disappointed with more government, more regulations, taxation and corruption. Authorities should deliver positive results in areas where stronger government is justified, to protect the people’s right to life, right to private property and right to liberty.