Economic Liberalization

It's time to talk about basic economics and why Filipinos should support economic liberalization over the 1987 Constitution's insistence in the use of economic protectionism. As you read through this, you will find out about how economic liberalization is badly needed in the Philippines.

What's wrong with the 60/40 rule?

Do you know why many Filipinos end up flying abroad looking for jobs? It's not because "PELEPENOS ARE TAKING OVER DA WORLD" but because of the sad reality that the 60/40 rule has restricted jobs. How would foreign investors want to invest if they can only have 40% unless the law gave them special permission? It's really racist in its own way where foreign businessmen and Filipino businessmen don't get the equality and equity that they all need to have. 

There's always the lingering fear that only foreign investors will get rich, the local businesses will be threatened or the fear of invasion and lost of sovereignty to foreigners. All the while, some of these idiots are bragging of how the Philippines is invading other countries through the OFW program when it isn't. That kind of thinking has empowered the oligarchy for thirty years (or more if you count the Marcos Years). If there's hardly any competition then why bother to be competitive? It's all about healthy competition that keeps people on their toes. 

Let's take a look at the law of supply and demand. It's time to ask why is it that the prices of utilities in the Philippines are very high while they have very bad services at the same time? It's not only a lack of competition but also the supply-demand gap. You can't change these facts about economics - when demand is high and supply is low then prices will naturally go up. That's the problem of trying to adhere to the "sariling atin only" mindset. Count the number of Filipino job providers vs. the population of Filipinos. Count the number of islands vs. the number of service providers. The supply-demand gap is incredibly huge. Besides, don't the local businesses run their businesses with imported equipment? 

What's even worse is that there are people who want to end labor export and get bigger salaries all the while they still insist on economic protectionism. Idiotic activists like Migrante International still get mad at the increase labor export but they refuse to open up the economy at the same time. It's like complaining that you have a huge tumor yet you refuse to let the doctor remove it. Are these people still expecting that the government and their local businessmen alone can provide jobs for that many Filipinos? If so, they're just like people who are out of water and yet they would refuse to get water to where they can get it.

The 60-40 rule is the lack of give and take. So is it me or are Filipino businesses making it big abroad getting more than 40% all the while foreigners in the Philippines get only 40% without special permission? That kind of mentality would show you can't be trusted as a business partner. Nobody wants a parasite for a partner, right? 

History has proven that economic liberalization beats protectionism 

It's absurdly stupid that this Internet personality who should be dubbed as Heneral Lunatic (because he's a lunatic) dares to tell people to study history all the while he says the most absurd stuff. He says that the first world countries didn't progress through accepting of foreign investors but by economic protectionism. That is according to whoever Lunatic really is - is that by protecting the small businesses that the whole national industry was born. But this is baloney and I would like to give an illustration. 

If what Lunatic said is ever true then it's time to ask this guy, "What about those uncharted islands?" Those places have no foreign investments, they surely protect the businesses of the local natives then why didn't they get the whole promised progress brought to them by national self-industrialization? The statement alone is a challenge of logic. It doesn't take one to be an economist or historian to know how economic liberalization works. 

Let's take a look at the history of China under two regimes as an example. Please, don't blame China's free trade for its current pollution problem because countries more polluted than China have very bad economic policies or are poorer than China. For starters, one should take a look at how Mao Zedong and Deng Xiaoping ran China.

Mao's plans for the "Great Leap Forward" and the "Cultural Revolution" were a failure. By trying to install not only an equality based society - he had set up a road that rewards laziness and punishes diligence. Although he was a great man in the Art of War but he was definitely a failure in the area of economics. His misguided sense of Chinese nationalism caused China to have its Great Leap Backwards. His economic protectionist policies brought China to starvation. There's way more Chinese commoners vs. the number of Chinese job providers. Mao could have corrected this by easing foreign restrictions but he chose not to. That caused China to enter the Great Leap Backwards all the while Taiwan became a progressive country.

The scenario was different with Deng's rise to power in China. What he did was to to open up the economy to the world. He may have been a Communist and Lee Kwan Yew was a democrat. But there's one thing they have in common - they brought their impoverished, crime-laden countries into first world status. They accepted foreign investments as part of gaining more money to guarantee peace and order. No, Singapore and China didn't accept foreign investors only after they became first world countries. It was by accepting foreign investors that they became first world countries. 

Another example would be both Japan and South Korea. Both countries have very weak currencies which are weaker than the peso. But why did they rise up to power? It's stupid to keep throwing back to the Marcos Years for the current state of the Philippines. Japan was in even worse condition with the Hiroshima Bombing. Not only did it lose a lot of its money during the Imperial Japan days but also it was a wreck. But guess what - after ten years we have Modern Japan. How did both countries do it? By accepting foreign investment which means more taxes for both countries.

It wasn't through Japan returning to the ideals of the Tokugawa era and South Korea being protectionist. Instead, both countries used economic liberalization by accepting foreign investors while giving reasonable restrictions to keep things in order. So why is the world enjoying Japanese and Korean products now? The keyword isn't only economic liberalization. The next keyword is innovation.

Economic liberalization brings forth constant innovation

Competition itself is very innovation friendly. How does competition bring forth innovation to improve quality overtime? If you have no competition then why bother to innovate? But because there's competition you have to keep innovating or perish. Foreign investors would not only provide jobs and better service providers but also competition. It would make all the local businessmen be on their toes and find new ways to keep their businesses going. 

Take a look at top Japanese products and South Korean products. So what cellphone are you using right now? You may be using a Lenovo or Huawei Smartphone (from China), Sony or Toshiba Smartphone (from Japan) or a Samsung Smartphone (from South Korea) to name a few of the many you can get. Do you think you would be using them to rant on nonsense if it wasn't for competition? No. In fact, not having competition is pretty much an enemy of innovation. Those countries wouldn't be able to dominate the international market if they didn't pass through competition from foreign investors. If they remained protectionist then those big time Chinese, Japanese and South Korean companies wouldn't have their worldwide share by now.

Here's an imagined scenario that would help illustrate the point on economic liberalization. Just think of what could be going on in the heads of innovative thinkers in their companies. There's competition. It would be like how South Korea's Samsung would have to face competition from Toshiba and Sony. Toshiba and Sony just entered and are now competing. Yes, it's good for South Korea's economy but it serves as a threat in the SWOT (Strengths, Weaknesses, Opportunities and Threats) analysis of Samsung. So what do they do? Instead of whine, these companies decide to prove how great they are by constantly innovating and thinking of how to get better.

You can talk about reaching the stars. Do you know how and why successful Filipinos abroad got to where they were? It's not just about their innate talent (since you do need to know where you're good at first and enhance it) and not's not about being a Filipino. It's also all about facing competition. I think about the number of ways Filipino talents making it big find different ways to render different songs. They had to face a lot of competition. They wouldn't be able to get to where they were if it wasn't for hard work and facing competition. 

A good example would be the success of Filipinos. Gilas' victories in several countries wasn't overnight. They weren't always the winners. Instead, they faced a lot of competition before they got their wins. Lydia De Vega had to constantly compete before she won the title of the world's fastest woman. Exposure to competition is part of molding who the successful Filipinos are today. You can't brag how great you are until you've passed through several wins and losses trying your best.

Filipino-owned businesses can have more room to evolve

In SWOT when there's threats there's also opportunities. If it's always a weakness to a threat then retreat. Then it's time to build up strengths to face opportunities and threats. Enhance opportunities and confront threats when you have the strengths. So how can it be done?

Let's take a look at the Small and Medium Business Enterprises. There's the lie that economic protectionism helps them grow. In contrast, not having any competition keeps them stagnant in contrast to how SMEs grow in first world countries. People can think it's crazy that foreign investors can help the Filipino-owned businesses but it does - depending on how one plays their cards.

The incompetence of many local Filipino-owned businesses isn't only attributed to the lack of competition but also a lack of quality services. While it's true that the hand that wields the sword matters matter but bad tools can also lead to bad quality. Can you prepare high quality food with rusty utensils? You can't. The same goes for a lack of quality services. If there was competition then both local and foreign service providers have to straighten up or perish. Any competent Filipino businessman can take advantage of this ongoing competition and strengthen his business through these competing sides.

It also means expanding one's target market to a whole new level. A basic goods store that sells something everybody eats can help, right? General merchandise stores and groceries can get some help through foreign investors as one's customers. They can start selling basic goods to these investors. Foreign investors may want to take advantage of the presence of local suppliers. Wouldn't that be a green light to expand one's customer range? 

In truth, economic protectionism is what's more dangerous to SMEs for this reason. The competition gap is too huge. What can a small time Filipino businessman do against a big time Filipino oligarch? He has no choice but to avail of their bad services at a high prices. Economic liberalization will offer better options than just the oligarchs. 

More revenues for the country in the long run

One of the many things that has to change is the Philippines' tax environment. It's the setting where taxes are too high which in turn leads to numerous cases of tax evasion. It also encourages the Bureau of Internal Revenue to be corrupt if there's reason not to report one's correct income statement. It's time to think about how economic liberalization can help change the tax environment.

Lowering the tax rates isn't enough. You must also open up the economy to gain more taxes. Here's how it will work. You have foreign investors coming in. Check. You have the Filipino businessmen evolving because of competition. Check. This would mean more income taxes for both professional employees and employers. Just think if there were more investors and more Filipino businessmen evolve then that means more money for the Philippine government.

If your country can collect more taxes in the long run then it's better. The problem is people tend to want easy money without thinking about how to collect more money in the long run. It's time to stop short-term thinking and be in for long term thinking.