GK's ECONOMIC INITIATIVES
Thursday, January 25, 2007
GK's ECONOMIC INITIATIVES
Why Filipinos Are Not Rich by the StreetStrategist aka Thads Bentulan
The Street Strategist has arrived at the conclusion that the poor Filipinos are not rich because they do not have money.
This is a very simple concept but it takes a genius to appreciate its simplicity.
You may notice that I am trying to explain "why Filipinos are not rich" in contrast to "why Filipinos are poor." Is there a difference? Yes, there is.
In asking "Why Filipinos are not rich," the implication is that the normal state of events should be that Filipinos are rich and we have to explain if ever they are not in the normal state, that is, we have to explain why Filipinos are not rich when supposedly they should be rich.
Diminishing circle Anyway, let us proceed. The Street Strategist has arrived at the conclusion that the poor Filipinos are not rich because they do not have money.
The Filipinos have no money because the country's wealth is inequitably distributed in favor of a few rich.
Wealth is inequitably distributed because the labor sector does not have a bigger share of the wealth.
Labor does not have a bigger share because they are mispriced and undervalued.
Labor is undervalued because they do not have an equal footing to enter into a fair contract with the rich employers.
To gain a stronger footing, the government should step in and prescribe a higher minimum wage.
But the government does not want a higher wage because they are afraid the businesses would have lower revenues as a result of higher labor wages.
The businesses cannot maintain their revenues in the faces of higher costs because the demand for their goods and services do not increase.
The demand for goods and services do not increase because the labor class are not rich, therefore they have lesser disposable money.
The people have no money because the wealth is inequitably in the hands of a few rich.
Thus, we are locked in an ever diminishing circle.
Community of inequality Let's view this from another perspective.
According to a World Bank study, 1/3 of the wealth of the
What does this statistic mean?
Try to visualize a community of 100 of your friends.
For every PhP100 spent within this community, after all is said and done, these expenditures and incomes will eventually settle as asset or wealth distributions.
Of every PhP100 in asset, PhP33.3 goes to only 5 of your friends (PhP6.7 per pax). The balance of P66.6 is distributed among the reminding 95 friends (PhP0.70 per pax). Can you imagine how inequitable that is? That's a ratio of 9.5 to 1, or 950%.
And did you forget something? Those 5 friends of yours were actually not doing any work at all. They were playing golf all day, while your other 95 friends were the ones toiling under the hot sun, fighting against each other, backstabbing each other, and knocking on doors at night to sell products. Is that fair?
What is really callous is that your rich 5 friends have billions of money that they could not possibly consumed in ten lifetimes. Single solution And yet you ridicule me for proposing a single solitary action, that is, a legislated minimum wage of P20,000 ($400 at $1=PhP50)?
Please remember, I am advocating communism, socialism, or confiscation of property. I am only advocating the correct valuation of labor, the world market price for labor. Why can't our teachers be paid like the teachers in
Squander Myth: The Filipinos are poor because they squander money.
I heard so many upper class people say this. I even heard on radio somebody who cited their rich neighbor whose children squandered their inheritance.
But many Filipinos are fortunate enough to inherit wealth? A few thousands? We have about 35 million workers, and that's the majority. They have nothing to squander. Job search Myth: The Filipinos don't look for jobs.
I find this too simplistic. Filipinos are looking for jobs so much so that millions of Filipinos in search of work worldwide.
Maybe there are too few jobs here in the country. I have repeated many times why are there a few jobs around. That is why I wrote several chapters on the topic of job creation as a result of the Hyperwage Theory.
Maybe the jobs are not paying well enough. If the actually wages are lower than the threshold reservation wage (the point at which the worker is indifferent if he has a job or not), then maybe that's the reason they do not apply for jobs.
Remember if you work in the
Lazy Myth: The Filipinos are lazy.
You must be kidding me. Give each one a minimum wage of PhP20,000 and you'll see. Currently, among the best workers abroad are Filipinos. And you and I both know that.
Unsaving Myth: The Filipinos don't save.
Of course, the savings rate in this country is low. Of course, the Filipinos don't save. We have half of the country living below the poverty line and you expect savings? But the top 5%, yes, they do save. Save for what? Should that money be shaved off a little bit and shared back to the workers in form of higher wages that will be used to buy the goods and services owned the same top 5%? It will all go back to the businessmen anyway.
Why Filipinos Are Not Rich (Part 2 of 2)
Naturally rich The Filipinos are naturally rich. If we monetize the value of our entire natural resources nationwide we would have a higher per capita wealth than
But why is it that these city-states have a higher per capita income than the
Why aren't the Filipinos rich when in fact they should be? It is because the minimum wage workers are paid slavery wages, very far from the world market price for labor with is the
Few rich, thin middle class The Philippines has a very thin middle class, as with any other
I am tempted but would not discuss here all the economic benefits and non-economic benefits of Hyperwage Theory because I had done that in my 33-chapter book.
Before anyone criticizes Hyperwage Theory, it would do justice if you read it first. In the same manner that I read as much economic textbooks and journals before I finally set into writing my idea of Hyperwage. What I am saying is this: The Filipinos are not rich but that is not what is supposed to be. We have the natural resources that should have given us the power of the purse, the power of wealth. The Filipinos are supposed to be rich. And there is one solution to correct this anomaly. Give labor its true value.
Suppose the businesses give back PhP100 billion in wages back to the people. Assuming a propensity to consume of 80%, the economic multiplier is theoretically 5 times, and the entire nationwide economy will be richer by PhP500 billion. This is the beauty of Hyperwage Theory. Instead of business annihilation, there would be economic redemption. Again, I have discussed this fully in my book on Hyperwage.
I hope I can meet my Henry Dennison, the multi-millionaire that Harvard economist John Kenneth Galbraith called crazy but who eventually caused the latter to reverse his economic thought. If you recall in my Hyperwage book, Dennison argued that the rich few like himself have a bigger share of the income stream which sucks the economic wealth away from the economic system. Dennison argued that the income stream to the poor should be increased. Who will be my Dennison who would believe the Street Strategist's Hyperwage Theory and become its advocate?
And who will be my Galbraith? As I narrated previously, the famous Galbraith was once a Harvard professor who flipped his economic thought and reversed his ideas and finally adopted the very radical, ridiculed, and controversial ideas of John Maynard Keynes.
Will there be hyperinflation under Hyperwage Theory? I have discussed this fully and the answer is that there will asymptotic hyperinflation, that is a hyperinflation with a ceiling, and that ceiling is the world market price.
Let's take a look at this illustration. This is a simple one but if we analyze common products (vegetables, cooking oil, paper, newspapers, etc.) in this manner, we will have a clear idea of what asymptotic hyperinflation is.
Assume a person eats half a kilo of rice a day. With a domestic helper's wages of P2,000 per month, then a person earns PhP76.90 daily. Assuming the current price of rice is PhP30/kg then he will consume PhP15 of rice daily. He will have a net on only PhP61.90 per day.
On the other hand, under Hyperwage, is monthly rate is PhP20,000 and his daily rate is PhP769. What will be the price of rice under Hyperwage? About PhP50/kg? Where did we get this price? We assume a comparable quality of rice in the expensive city of
So which is better, a net of PhP46.90 under our current low wage regime or a net of PhP744 under Hyperwage Theory? What if rice surges up to PhP100/kg? This means our rice will be higher than that in the
(PhP) Daily rice consumption/pax (PhP Net)
2,000 76.90 30 15* 61.90
20,000 769.00 50** 25 744.00
20,000 769.00 100*** 50 719.50
* Assumes a person consumes ½ kg rice daily
** Comparable rice per kg in
Can rice really surge to PhP100 or any amount higher than US or HKG? Now, apply the same to a can of Coke, a kilo of cabbage, an IBM Laptop, an Ericsson cellphone or a Sony TV. How do we know what will be the prices when we adopt Hyperwage? Simple, call the
See my point?
At any rate, I have discussed all these issues in my 33-week discourse on Hyperwage Theory in 2005. Human capital
There are several factors of production in an economic system. Our economic theories emphasize the benefits of using the market price of each of these factors. Our theories frown upon subsidies because they distort the allocation and efficiency of capital. Yet, there is one factor that is not merely an inanimate factor of production, a factor that cannot be made to wait for market forces to determine its price. This is human capital. In the
What makes a country or its people rich?
Education? We have a literacy rate that is one of the highest in the world at 95% or more, yet we are belong to the poorest of nations. Can we econometrically say that education is what makes a country rich? Statistics says no.
Natural resources? We have one of the richest natural resources in the world, yet we belong to the
English? We are the third largest English speaking country in the world, but we wallow in poverty not wealth. Is English what makes a country rich?
I admit the BPO industry has employed hundreds of thousands but do you really expect us to become a
Low wages? For the last hundred years our strategy has always been low wages but why are we poor? Maintaining low wages means that you want the people to earn less than their
Statistics says no.
Low purchasing power? Low wages means low purchasing power. Answer me this: Does SM or Ayala go to Maasin Leyte because of low wages? No. The big businesses go to places where the people have purchasing power. Purchasing power is due to high wages of the people. Isn't it obvious that Jollibee goes to the
Yes, indeed, why aren't Filipinos rich? Why is there a huge gap between the rich and the poor? Why is management paid 100 times higher than the lowest employee in this country while in some countries it is only 10 times? What is your solution to correct this situation?
As I have pointed out, it is not high education, it is not natural resources, it is not command of English, and it is not low salary that makes a country rich. It is how you value the poorest of the poor. It is how you value least of the least. It is how you value human capital. It is giving labor its true world-market value. It is Hyperwage.
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Tuesday, January 23, 2007
From: Norman Madrid
Subject: Re: [Fil-AmForum] Re: Servant-Leadership and Gawad Kalinga
Hi Hecky and Perry,
Thanks to the seven of you who have responded to my critique of Gawad Kalinga. May I follow up with two stories to possibly clarify our thinking on good versus bad humanitarianism? If you agree with me, then we could perhaps invest together to build a strong nation, with GK investing with us as we transform its thinking to our thinking?
Just us eight, plus 300 more bright Filipinos and foreigners that I have been assembling for the task of fortune-making and nation-building, will be enough to build a strong Philippines.
I mean, the 300 plus us eight and GK plus certain global corporations will be our ideal partners at world export-conquests will get the
and that I have been the building of private fortunes-- for the 300, the eight here, and the multinationals and 150 million Filipinos by 2040.
1. KG as a Malthusian Story:
a.. A society produces food abundantly. Hence, the population grows. The society must therefore produce more food for the bigger population. The food adequacy enables the population to further grow. So, the society is forced to produce even more food.... But, it can't! Resource limits have been reached! There is no more land to produce more food. The society dies.
b.. That is the current Gawad Kalinga story. Amidst a housing shortage, it produces housing by begging for funds. The poor are happy with their new GK houses, and they grow in number. They also grow in poverty, since GK is erecting no productive factories to employ and enrich the poor. Amidst the wider poverty, GK must produce more housing by begging for more funds. The poor are again more happy as they see the more numerous houses. Therefore, they further grow in number. That further worsens poverty due to a lack of factories. GK must produce more housing through more begging. But, it cannot! Donors refuse to support the begging anymore. GK has hit a Malthusian wall and can no longer build more housing. The poor can no longer maintain their GK houses, which fall apart. The poor die. So too, GK dies, a beggar killed by the Malthusian apocalypse.
c.. There is a happy alternative to the above story, GK as a Tiger.
2. The GK Tiger Story
a.. A poor
b.. GK warns the government not to overtax intellectuals and investors just so as to feed and house the people.
c.. GK says two things to President Arroyo:
a.. "Leave investors alone. Let them keep their money to find foreign multinationals as allies at world export conquests.
b.. "Open up the economy to free trade. Let the world discover our low wages and come in freely to exploit us fairly or unfairly, it don't matter.... it DON't matter.
d.. Gloria is heartless and complies.
e.. Foreign partners flow in to the
a.. The GK Tigers are like avenging angels knocking at every Fortune 5000's door to find partners for global victory
b.. Many foreigners don't want Filipino partners. They want to be by themselves, exploiting Filipinos independently as cheap soldiers to kill their global multinational rivals with.
f.. The mix of three weapons--low Filipino wages, GK Tiger ambition, and multinational resources-- is globally winning! The
g.. The three weapons become known as the global predator, GK Tiger Inc. It is a purely private initiative headed by Hecky, Perry and three or four more people.
h.. GK Tiger, Inc. earns big dollars that imports machines and technologies.
i.. The Philippines gets modernized and enriched by booming factory building and infrastructure construction.
j.. Everyone finds a job.
k.. Many scientific labs and R&D institutes rise. Mapua develops world-class products.
l.. GK Tiger needs more workers, but cannot find many. The working poor are too busy to have babies!
m.. So GK Tiger is forced to invest in technology from Mapua to make existing workers more productive.
n.. As their productivity rises, workers get better pay
o.. GK Tiger offers to build low cost housing.
p.. The workers say, "No! We don't need low-cost housing. You build bigger homes for us and we will pay whatever must be paid."
q.. Wow! This is known as GK Tiger Humanitarianism: Investing in world conquest, GK Tiger makes every poor person rich!
r.. Population is declining, as in
s.. Farms are abandoned. Far more income is made at factories conquering world markets than at farms.
t.. All food is imported, at lower prices than in the
u.. Firewood no longer gets used. LPG is imported easily with the country's big export earnings.
v.. The Philippines is virgin green! Abandoned farms have become forests on their own! The forests are untouched, as houses are no longer made with wood but with earth and steel.
w.. Malthus cannot escape from Pandora's box to plague the
x.. Resource limits are not reached at all as population declines and Mapua is ever inventive.
In short, Perry Diaz: there are two kins of humanitarianism.
a.. GK Malthusian humanitarianism which leads to death.
b.. GK Tiger humanitarianism leads to everlasting life and riches
May I count upon you, Perry, to be a GK Tiger?
Re Hecky's point on behavior, yes GK is behavioral and action oriented, and that is good. And, bad, because the behavior and actions are sub-optimal, they are GK Malthusian.
Hecky says in his second email that GK is needed since the World Bank's structural adjustment programs and free trade policies have killed Philippine industries. There are two errors in this statement.
a.. First, that GK in its current form is needed. No, no, no, Hecky: the current form is GK Malthus and must be ended. GK Tiger must be initiated. (By whom and when? By us, now, here. Just us eight people, talking now can turn the
b.. Second, that the World Bank has killed the Philippine economy. No, no, no, Hecky. The World Bank's programs were sane. Filipinos did not know how to implement it. Hence, GK Tiger is needed as a group of a few Filipinos who 1) know what to do to make the country prosper, and 2) will do it.
I must use an analogy. The
To explain these obscure points, do understand the elements of the World Bank's so-called Structural Adjustment Program. It has about 10 requirements or goals:
1.. Inflation control so that there is a stable business environment;
a.. Yep, HK and
2.. Promoting exports so that there are dollars earnings to import machines;
a.. Observing this rule,
3.. Meeting debt-payment schedules so that the borrower is seen to be responsible
5.. decreasing budget deficits, so that governments live within their means
6.. cutting government spending and employment (same as #4). Government employment must be cut since government jobs are often only unproductive, patronage jobs,
7.. higher interest rates, so that only the most profitable projects are pursued, and citizens will deposit their money locally instead of abroad, and foreingners will deposit their money in the country
8.. currency devaluation to help exporters, and keep out imports, thus developing the country's ability to industrialize,
9.. lower real wages, so that the country can conquer world markets and earn big dollars for development, and employ more of its people
10.. sale of government enterprises, since they are often unproductive, are milking cows for the corrupt
11.. reduced tariffs, so that foreign raw materials can be imported cheaply and used as inputs to conquer world markets with, and so that local companies enjoy no protection and are forced to be efficient and be competitive in the world; and so that, if they do not know how to be globally efficient, then they will find foreign companies as their partners for export success;
12.. liberalized foreign investment regulations, so that a country's power plants and railways, water, port and telecom systems, which require much capital to develop, get developed by rich foreign investors, and will attract foreign investors to set up industrial plants in the country and make the country prosper.
.. Completely World- Banked: free trade and structurally adjusted: meaning, , Also suffused with free trade policies. ir textile, steelthe cure.
T. It was not the World Bank's responsibility to cure the patient. It was Filipino responsibility-
, and ill become apparentLet me
that has collapsed from a heart attack.
unite make additional comments to establish so that we. that I hope you will find valid. My goal with these comments is to produce 300 young, bright Filipinos (and one old one) who will be billionaires in 15 to 25 years. That is, they will be thinker/investors like the 22 billionaires that have built the richest Asian economy,
, bright thinking and acting at investments, .
ies in the world--
Hint1: GK is a Malthusian effort. Hint 2: GK applies Band Aid to cure AIDS.)
The other phrase: band aid. is used to for )
no suspicion out meaning to do it.
far faster than enrich the
Let me re-state my goal: produce many young, bright Filipino philosopher kings brighter than all Filipino intellectuals, business, banking, industrial, and revolutionary leaders from the 1800s to date.
Wait, re philosopher kings, do kings still exist? No more? Or, hardly? Okay, let me change to philosopher-
Do be do be do,
Do be do be do.
I think he means To do is to be, and to be is to do. When you think about it, that has been the lives of modern philosopher-
so that you may become an Asian Tiger thinker and investor and will transcend Robin Broad, Walden Bello, Renato Constantino, GK, and our three billionaires plus all the bankers (BPI, Metrobank) and industrialists (Hilarion Henares, Concepcions, Gokongwei) and politicians-
add addtional points for your is constructive . I hope you will regard Now don't be insulted if I say
----- Original Message -----
From: Hecky Villanueva
Subject: [Fil-AmForum] Re: Servant-Leadership and Gawad Kalinga
Norman, hello and thanks for your comments. Good points. They will help me with my research. I will also distribute widely as you suggested. My response follows.
On servant leadership, not only the western world needs it, but the elite in the developing world as well. The elite in the
I agree with your strategies for economic development, but getting from here to there is the issue. Along with the non-working rich living off the fat of their ancestors, Filipinos need to contend with the big-time tax evader, smuggler, carpetbagger, influence peddler, and the three groups that have constituted themselves into their own class: the bureaucrat, the politician, and the local official. All these individuals and groups are both in cahoots and in competition with one another to gain wealth and power at the expense of the country.
Why should we blame the poor, when they're the only ones who honor their word? As Tony Meloto says when a politician buys their votes, they keep their end of the bargain and vote for the tradpol.
We have seen and read all types of proposed national development policies all these years, but where are the leaders to implement them? The Left? They are so easily co-optable as seen during the Erap administration. Civil society? They are constantly worried about the next funding cycle. The military? Most are poor and are easily corruptible. The Ivy League technocrats? Marcos hired most of them. They allowed the country to be the guinea pig for WB-IMF's structural adjustment program (SAP). Robin Broad's Unequal
The World Bank, the International Monetary Fund and the
The question is not how because the alternative studies, plans, strategies are there. It is leadership, political will, and courage to protect national interests that are needed.
To GK, poverty is not economic, but behavioral. It is the breakdown of relationships between rich and poor, powerful and powerless. It is first about healing social divisions, restoring dignity, generating social conscience, and accepting responsibility to care and share. When rich and poor get together, maybe they can discuss what the national interest is. Greenleaf wrote that, "Criticism has its place, but as a total preoccupation, it is sterile..One is asked, then, to accept the human condition, its sufferings and its joys, and to work its imperfections as the foundation upon with the individual will build wholeness through adventurous creative achievement.
Maybe a new generation of bureaucrats, politicians, and local officials will arise from work with GK?
As an economist, you will not disagree with GK that housing is the single biggest household expense for an urban family. In the
Although GK started housing, they have a 7-point program that includes economic productivity. Alas, that is for another article.
Maraming salamat po at Mabuhay.
I enjoyed reading your essay and was also pained by it, as I will explain.
Please circulate the following critique of the Gawad Kalinga approach to all the people in your mailing list. Let a hundred flowers bloom at debate on servant leadership. I certainly will be happy to have my ideas below critiqued by you and others. What follows is my response to your essay.
== = = =
The concept of servant leadership is relevant only in the Western world. Let them, as the dominant leaders of the world, work as servants of the world.
Leaders in poor nations should not spend any time on the concept. Instead of community projects such as housing to serve the people, the leaders of poor nations should focus on factory building wherein to employ workers at export projects to conquer world markets.
The big dollars that we could earn from the world would finance even more factory building. It will also help to finance more joint venturing with foreigners to conquer world markets.
Thus, jobs will proliferate! Unemployment would fall to 1.5% as in
At Gawad Kalinga servant leadeship, that duty to win in world mrkets is neglected. Instead GK focuses on building homes, and not the the competitive factories to conquer world markets with.
The smart economies of
The result is that the export revenues of the four Tigers in 2005 from goods and services exports totalled $1,100 billion ($1.1 trillion). That was far more than the corresponding figure of $55 billion for the
The inferior Philippine performance reflected decades of globally-inferior Philippine projects. The three main projects: 1) land reform that earned no dollars, and 2) the anti-Chinese Filipino First policy that also earned no dollars, and 3) the industrialization program that served only the local markets and thus also did not earn dollars.
Time for the =non-global Gawad Kalinga initiative to die! Let us focus on winning in world markets, pooling all our capital into investments in machines and into attracting foreign investor allies with whom to conquer together in world markets.
The big dollars we earn will finance even more factory building. It will also help to finance more joint venturing with foreigners to conquer world markets. Whoa... didn't I say this already?
Thus, jobs will proliferate! Unemployment would fall to 1.5% as in
The Asian Tiger model definitely beats the GK approach at helping the poor.
Have a better year, GK guys, by abandoning the GK initiative and embracing the Asian Tiger approach at nation-building and at eradicating poverty.