Home » SCMAP Perspective » What Economic Prosperity?
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I would like to apologize to Ana Rose Ochoa for the omission of her name in the last issue (October 7, 2013) as author of the article on SCMAP’s Search for Supply Chain Excellence. Ana Rose was President of DMAP in earlier years. She has also been our guest columnist a number of times.

 

More than seven years ago I wrote a piece about another kind of distribution problem, which is the lopsided distribution of wealth in the Philippines. Part of the text below is taken from my 2006 article. This article serves as an update.

 

For sure the problem remains and is as difficult as, or more difficult than, ever. Mechanisms and structures that reduce the share of the poor continue relentlessly to increase concentration of wealth in a few families. These mechanisms come from various sources.

 

All our economic, social and political systems favor the big and powerful against the small, poor and disadvantaged. These systems all move towards concentration of wealth in a few big and powerful companies and families.

 

There are several groups of structures or systems that work to perpetuate and worsen the distribution of wealth. They work in the following ways:

 

  • Diminish the total wealth to be distributed
  • Cause concentration of wealth in a few
  • Spread poverty

 

These structures or systems include:

  • Economies of scale
  • Bias in favor of biggies
  • Control by biggies over mechanisms that spread wealth
  • Investors that bring wealth out of the country
  • Monopolies and cartels, including laws that support them, and the lack of laws to control and prevent them
  • Crooks
  • Inheritance

 

I would like to revisit the problem in the light of recent events.

 

Today the ordinary Filipino asks what economic prosperity is the government talking about? Praise from global and foreign financial institutions does not translate to improvement in the quality of life of the ordinary citizen. We hear from militants and non-militants alike “Hindi nararamdaman ni Juan ang magandang performance ng Philippine economy (The average person does not feel the effects of an improved Philippine economy)”.

 

The latest publication of the richest Filipino tycoons shows further concentration of wealth in a few families.

 

The Napoles super scandal exposed an unbelievable attempt to alter the distribution of wealth, involving, not only Napoles herself, but lawmakers, government executives and private individuals as well.

 

Even the spate of natural disasters (habagats [monsoon], floods, landslides, earthquakes, typhoons) is a huge mechanism for reducing the share of wealth of the poor.

 

Economies of scale are a natural advantage of the big. Economies of scale result from the spreading of fixed costs over a big volume.

 

In addition to the natural advantage of economies of scale, structures and systems favor the big.

 

The phenomenon of malls is another example of wealth concentration. The small sari-sari (mom ‘n pop) stores have been disappearing. Wealth is being concentrated in the mall owner.

 

In business, big businesses have more access to funds and at lower interest cost. Money begets money, therefore biggies have more opportunities to make money grow. Big bank deposits earn more interest. Many kinds of profitable business need big investments.

 

Big businesses and rich individuals can reduce taxes and other payments legally or illegally; legally by hiring tax consultants and lawyers, illegally by bribery, regulatory capture, use of dummies or other illegal means.

 

Business also always decides against the small wage earners whenever the question of a wage increase comes up. Wage increase is always a last priority. Whereas wage increases are a way of distributing wealth, and should help develop the markets for goods, they receive little support from business owners.

 

Many investors, both foreign and domestic based, bring out huge amounts for deposit in foreign bank accounts. I do not understand the frequently used scare of driving away the foreign investors in order not to give wage increases. All foreign investors always intend to take out of the country more than they bring in. There are also domestic-based investors that bring out wealth for deposit in foreign bank accounts.

 

There are also crooks who act to concentrate wealth in a few (themselves). We have already mentioned Napoles and her allies in government and the private sector.

 

Big companies in an industry can get together and form a cartel to control the industry, as done, for example, in the oil, pharma and shipping industries. There have been laws that encourage monopolies, even create them. During the Marcos years, Marcos issued a PD giving a monopoly to the Cojuangco-owned Unichem. PD 857 gave and continues to give the PPA extraordinary powers even up to today, such as having a cut in the rates it regulates. Erap tried to set up a cargo-handling monopoly in the North Harbor via EO 59.

 

There is no effective antitrust law. Bills on competition have not succeeded in the legislature. Many of the legislators have business interests to protect. Regulatory capture also perpetuates cartels.

 

Probably the biggest force that perpetuates concentration of wealth in a few is inheritance. For some undeserved reason, newborn scions of the rich get a huge head start, inheriting riches without lifting a finger.

 

As we can see the lopsided distribution will continue. There are very few forces that push for distribution, such as wage orders and lotteries. They are too weak and their effect is too small. Technology has been helping the small as “equalizer” (cell phones, internet) but the effects are too small.

 

Thus the battle against lopsided distribution of wealth is a losing battle, with so many formidable forces and structures contributing to concentration. There is a need for a giant Robin Hood who will do things legally.

 

Address inquiries and comments to Ed Sanchez at tel. 671-8670, fax 671-4793, cell 0918-914-1689, or email secretariat@scmap.org. For more information please go to SCMAP website : www.scmap.org

 

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