Lee Kuan Yew And Deng Xiaoping Didn't Make Singapore And China Rich Through 4Ps Type Programs

Part of the Philippines' plan to bolster its economy aside from the plan to liberate the economy is to get rid of the 4Ps program. Why is that? One needs to take a bit of history lessons and I would like to bring two people namely Lee Kuan Yew and Deng Xiao Ping. Did you know that Singapore and China were once MUCH POORER than the Philippines? Mao Zedong's faulty economic policies brought China down to such a poor extent and Singapore was a crime infested, poverty ridden island. 

So what did the two of them do? I can't imagine it if both Lee and Deng decided to simply say, "Fellow Chinese/Singaporeans our nation is so poor. In order to solve our crisis, we must increase our spending so here's free money for everyone!" Can you imagine what if Lee and Deng decided to hand out money to poor Singaporeans and Chinese at that time so their spending will increase? True, you need to spend to create jobs but not all spending creates jobs. What kind of spending creates jobs? You spend for materials to make the facilities, you spend for their salaries, you spend for their equipment -- that's the kind of spending that creates jobs. But spending for the sake of spending doesn't create jobs.

Here's an illustration. Let's say that both Lee and Deng decided to give what would be equivalent to PHP 500.00 per month to impoverished Singaporeans and Chinese. Some of the worst problems in both countries back then were drug-related problems such as opium smoking among the Chinese. The impoverished Singaporeans and Chinese line up to get their social welfare help because Lee and Deng gave it to them. They get it but how sure are we that the money is spent on necessities? Chances are these impoverished Singaporeans and Chinese would probably just smoke opium or sniff shabu all day long. Did it cause the PHP 500.00 to be given to each and every impoverished Singaporean and Chinese to return to the government PHP 1,500.00 from every family that received the money? No! Instead, it was wasted on nonsense -- so where's the 3x return promised for the government treasury? None!

On the other hand, the multiplier effect works better in an open economy. Here's what Economics Online has to say about the issue:

The multiplier effect in an open economy

As well as calculating the multiplier in terms of how extra income gets spent, we can also measure the multiplier in terms of how much of the extra income goes in savings, and other withdrawals. A full ‘open’ economy has all sectors, and therefore, three withdrawals – savings, taxation and imports.

This is indicated by the marginal propensity to save (mps) plus the extra income going to the government - the marginal tax rate (mtr) plus the amount going abroad – the marginal propensity to import (mpm).

By adding up all the withdrawals we get the marginal propensity to withdraw (mpw). The multiplier can now be calculated by the following general equation:

1/mpw

Applying the ‘multiplier effect’

The multiplier concept can be used any situation where there is a new injection into an economy. Examples of such situations include:

1. When the government funds building of a new motorway
2. When there is an increase in exports abroad
3. When there is a reduction in interest rates or tax rates, or when the exchange rate falls.

The downward or 'reverse' multiplier

A withdrawal of income from the circular flow will lead to a downward multiplier effect. Therefore, whenever there is an increased withdrawal, such as a rise in savings, import spending or taxation, there is a potential downward multiplier effect on the rest of the economy.

If you think about the multiplier effect -- that certain crazy old man doesn't see that 4Ps is basically WITHDRAWAL of funds. Yes, there's a multiplier effect but it's the reverse effect. Every time you withdraw -- it's a decrease in funds. 4Ps is a decrease of funds with NO REAL RETURN ON INVESTMENT. What can financing lazy bums do to improve the economy compared to repairing damaged highways, inviting foreign investors, and other spending related to IMPROVING the economy of the Philippines? 

What Lee and Deng did is that they actually gave in more money by opening up the economy. What did the act of inviting foreign direct investors or FDI do? By inviting FDI they actually have given people more spending power at the same time the government earns more money from the taxes. Both didn't consider FDIs to be invaders but investors. Deng saw how Mao's equal utopian where everyone got paid whether they worked or not was a failure. Deng changed Mao's "equality" with the "No work, no pay." policy. Lee started opening Singapore to FDIs as well. Both of them opened up the economies and placed several investors under their umbrella without a ridiculous 60/40 rule. They saw that FDI was badly needed to fill the government coffers and make their local businessmen competitive as they now had more customers to win and more competitors to go against.

If you say FDIs are not a source of income then you're dreaming. Before any FDI can invest even at 100% ownership -- they have to get past various legalities depending on what business they are doing. They have to get the necessary legalities from the Department of Foreign Affairs, the Department of Trade and Industry, the Bureau of Customs, City Health, and the Bureau of Internal Revenue to name a few offices. They have to get a registered permit in the area where they wish to open a business (assuming that they have already done a feasible study) which binds them further to the local government even when they have 100% ownership in terms of intangible assets. That means for every income earned by the FDI it means money, money, money for the Philippine government in terms of taxes. More income for the Philippines means the chances of increasing minimum pay will increase as well.

FDIs are not only a source of competition but also a source of customers. The more competitors your customers have -- the more you should try to win their competitors to be your customers. This means the more customers you have -- the higher your income from sales will be. I doubt it that FDIs will allow the local businessmen who serve as their service providers or suppliers not to give them receipts in relation to operating expenses. Let's say a local Filipino businessman's income has changed from PHP 500,000 to PHP 1,500,00.00 or even higher thanks to a lot of foreign investors who served as his customers. That means local businesses' increase of income will mean there's going to be much higher revenues from taxes even if they do have some minor deductions from their operational expenses -- which in turn will allow the minimum wage to increase.

So here's what happens -- local businesses too will expand as a result. FDIs will not be the only ones hiring Filipinos. Having more customers means expanding to keep up with the demand. Local Filipino businesses will have to hire more people to keep up with the demand. In turn, that means more people will be getting employed thereby bootstrapping them with more income. They will be hired, taught to fish and given the resources on how to fish. More people will get more spending power through employment and not through the 4Ps mentality. 

On the other hand, this also means that governments too should still account on how to spend the money. Having FDI will become useless if the government won't budget the money properly or spend the money to where it should be spent. All that spending should not be spending for the sake of spending. Instead, it's all about spending it on things like infrastructures such as bridges, new roads, new train stations and the like to help ease congestion and improve efficiency. It can also be spent on environmentally friendly technology such as finding new ways to recycle or dispose of garbage (such as burning it like in Sweden), solar-powered and wind-powered plants since having a good environment is part of having a good economy.