Tuesday, October 04, 2005

comments on hyperwage theory

I don’t have the technical answers to questions raised about Hyperwage Theory, but below are some perspectives.

1. The strength of an economy is a function of, among other things, the level of industrialization and purchasing power of the citizens. That’s how the G7 countries and tiger economies, i.e. S. Korea, Taiwan, etc. made it. They industrialized and protected their infant industries until they were able to compete. At the same time, wages were living wages, so the employed citizenry were able to buy needed goods and pay for services. They also bought local. Culture trumps all. We all know this but it is good to keep it in mind.

2. Economists have foisted upon us the myth that their economic data are accurate and importantly, up-to-date. Unfortunately, this has not always been the case as data gathering is very difficult, costly, and time-consuming. Economists also rely on data that they did not themselves gather, so the data are questionable. All of the social sciences struggle with the twin problem of data gathering methodology and data validity.

What this means is that it is difficult to get some mathematical formulation that will fully support the Hypwerwage Theory. Besides, the other popular economic theories and schools of thought were implemented with even far less mathematical justifications, i.e. classical econ, macro econ, neoliberalism, state socialism, etc.

3. What businessmen, such as many of you, have done is that you have relied more on buying behavior, the market, pop psychology, and trends. That is why books like the Tipping Point, Butterfly Economics, and now Freakenomics (I’ve read the first 2) are widely popular and counter-intuitive. It is how people spend their money (marginal subjective utility) in a manner they personally feel is best utilized. Successful businessmen and entrepreneurs are those who discern this market/ subjective utility. The Hyperwage theory posits that it is prices that determine market behavior. But the “pricing behavior” is basically individual wants and needs which influence others’ behavior. This is then eventually scaled up to the societal or market level.

4. One way of looking whether Hyperwage will work has been written about already, the example of Ford raising his employees’ wages so they can buy the Ford T. Don’t think that this has not been done in the Philippines. One reason why Ayala Land is successful, aside from its good management, is that employees buy Ayala Land properties. They sell in-house and sell a lot. It and many other companies have what is called the employee-discount plan (all the U.S. car companies are doing it). Where do you think SM employees shop? Where do insurance and educational plan agents buy their plans? So, good wages and employee discount will generate in-house sales especially if you are selling GOOD QUALITY consumer items with good service (best management practices still count!).

5. The other point is the emergence of a major market segment that nervous local businessmen do not realize that they actually have been selling to. This is the OFW market. One out eight Pinoys are out of the country presumably earning, presumably remitting ($6-8 billion/year), presumably spending back home (a lot of assumptions here). Hey, we Pinoys spend $50 million yearly alone on U.S. visa applications. What does this imply?

5. 1 OFWs are becoming the middle class because of their higher wages.
5.2 They are re-investing and spending somehow in the country.
5.3 There is some multiplier effect on the local economy.

Who is earning from OFW spending? Astute businesses benefiting from hyperwages. Now, the truly creative part is getting the rest of the population to start buying (and selling!!!) more.

6. In the long-term, the government needs to give enough opportunities to Pinoys to be the best they can be. Given the right breaks and better governance, I believe Pinoys will choose to industrialize (in an environmentally-friendly manner) and provide even better wages. While the G8 countries are an inspiration, we will have to develop in our own unique way. Free trade has been bad for us, because we should’ve negotiated for FAIR trade. The OFWs are giving us another chance, but we all need to pitch in whatever way we can. We all need to support Pinoy businesses- and labor.

7. My thesis though is that it is futile to put our national economic salvation in our politicians and bureaucrats. I posit that due to their vested interests, they will never be able to reform by themselves. They must be forced to. Marx said it himself when he noted that bureaucrats have turned themselves into a class unto themselves in direct competition with the other social classes.

So, if we pin our hopes on reforming the bureaucracy/politics; then it will necessitate a bloodbath. Are we willing to do this? There are about 1.5 M government employees exclusive of the politicians. Where do we start the eradication? My brother-in-law, an American, says we go top-down. Ok, I said, why don’t we start with GMA’s kamag-anaks, relatives, classmates, then move on to the Congressmen, Senators, and their families and friends? Where does it end, I asked him. Do you think these powerful people will take it sitting down? It will be a bloodbath.

8. A few months ago, these same questions were raised by former Ramos NSC advisor, Gen. Jose Almonte (he correctly predicted in 1998 that if ERAP won the presidency there would be a coup d’etat or some sort of uprising in 2 years) and UP/PhilStar’s Alex Magno. Their conclusion? The market is the only feasible way of instituting reform. They said a bloodbath would be too costly for the nation and that “millenarian groups” (ideological bent can not be determined but might be of an ultra-fundamental religious leaning) would have a good chance of taking power. The country would then enter into a cycle of violence and become a failed state. I think Hypwerwage provides one pillar of support for their market-as-solution proposition.

9. The Philippines has been recognized in the academic literature, in the international social movement, and in the global human rights community for its contributions to democracy, people power, etc. Some writers are beginning to note that the effects of globalization and how to address some of its ill effects have come from Philippine civil society initiatives. Philippine environmental and community-based projects have been winning accolades. They also predict that the Philippines will also be able to come up with a way of solving its economic problems in a democratic manner. I think this could be done through generating wealth or as Almonte and Magno write, through the market and through Hyperwage.