Friday, March 30, 2007

Wealth Redistribution: A Suggestion

Here's a comment i made in reaction to UPn Student and Watchful Eye's comments over at mlq3's:

Unlike in Malaysia, where the Chinese community constitutes a substantial minority (around 30%), the ethnic-Chinese population here is far too small to be the made the target of affirmative action programs as implemented by UMNO. Besides, our geographic proximity to China and hundreds of years of trade ties means that a lot of ethnic-Filipinos actually have mixed blood so the distinction between Malay/Chinese does not seem to apply as strongly to us. (Physically, Filipinos resemble Thais more than they resemble Malaysians or Indonesians.) The Filipino super-rich is a small community so a more targeted approach may be desirable.

As i mentioned* in Ellen’s blog previously, i’m hoping that the next leader of the country (whether he/she be democratically elected as i would prefer, or a dictator), would summon the 300 wealthiest families of the Philippines to Malacanang and ask each of them for a workable plan to redistribute a portion of their wealth to the poor (e.g. as seed money for livelihood programs). This plan, once agreed upon, should be closely monitored by the grassroots organizations for faithfulness of implementation and quality of execution. Within the ranks elite, they should also agree to police their ranks of would be cronies.

Where we should have a broad based policy against a class of people would be the big landowners (rural or urban) as it has been shown that among the forms of inequality, as i mentioned in this post and as alluded to by hvrds below, it is inequality in land ownership that is the most detrimental to economic growth. That’s why our neighbors who tackled this matter early on had more success in economic development. Besides, it is better for capital to be diverted to industry rather than real estate.

Update 11-22-07: Interesting discussion on what to do with the Philippine elite at this thread over at Manolo Quezon's blog.

*comment at February 15th, 2007 at 7:35 pm

Wednesday, March 28, 2007

From HVRDS: Employment, Industrialization and Development Models

Here's an analytical gem from fellow mlq3 commenter hvrds which i would like to cut and paste here:

"Government tells us that a little over half of the labor force actually earns a wage or salary. The other half are self-employed or unpaid family workers. We massacre the definition of employed in this country to be able to ape the economic accounting construct of advanced mechanized integrated industrial economies.We are told to use to this type of measurements which really is a joke.

Labor force – population 15 years old and over, whether employed or unemployed, who contribute to the production of goods and services in the country. 36M +

Employed – persons in the labor force who are reported at work or with a job or business although not at work during the reference week.

Unemployed* – persons in the labor force who did not work or had no job/business during the reference week and were reported looking and available for work.

Underemployed - employed persons who desire to have additional hours of work in their present job or in a additional job, or to have a new job with longer working hours.

Visibly Underemployed – employed persons who work for less than 40 hours during the reference week and still want additional hours of work.

Invisibly Underemployed – employed persons who work for 40 hours or more during the reference week and still want additional hours of work.

*Persons not looking or who have given up looking for work are not considered unemployed. They are considered voluntarily unemployed. They are not counted at all.

In the more developed industrial economies the description for those who are employed are as follows:

Non-farm payroll workers (full time, part time and temporary) Farm payrolls and government payroll’s (is distinguished from the private sector.)

Self -employed and family owned enterprises are not considered in the same classification as employed.

In the Philippines the term employed is stretched to include this. Tenant farmers(sharecropers),coastal fisherman are all considered employed under this defintion.

Having said that one should recall the words of Adam Smith who reminds us that:

“Servants, labourers and workmen of different kinds, make up the far greater part of every great political society. But what improves the circumstances of the greater part can never be regarded as an inconveniency to the whole. No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable. It is but equity, besides, that they who feed and clothe and lodge the whole body of the people, should have such a share of the produce of their own labor as to be themselves tolerably well fed, clothed and lodged.”

Henry Sy, the Tantocos and the Ayalas have nothing to do with farming nor sewing nor building. The indolent Filipino that I read about in some comments feed, cloth shelter and wipe’s the ass for some of you.

Industrial economies in food production alone through continuing advances in technology have multiplied the productive capacites of land, labor. In the past a 4-6-fold return on seed planted for wheat was considered normal, then a 10-fold return was considered exceptional Today it is 40-45 fold and higher. That is what productivity through a carbon based industrialization has wrought. (man made fertilizers are carbon based)The West subsidizes this production to insure stable prices and price stability. After all food is the currency of currencies. This revoltuion in agriculture in conjunction with the industrial revolution (you remember this) moved most people into cities.

The issue of hunger is prevalent simply because the economic model we persist in using is still the same installed by the colonizers.

It is interersting that a lot of sup[posedly knowledgeable people support the views of Washington Sycip about the drawbacks of democracy pointing to the authoritrian forms of our neighbors. he forgets to point out this one important fact. The chopsticks economies he refers to have a long history of formal national fedual structures in place. But they all followed a national mercantilist dirigist economic paradigm along the same lines as proposed by the then father of U.S. industrial mercantilism Alexander Hamilton.

If we had followed this paradigm at the end of the second world war then we would have destroyed the landlordism in the country by force and installed a genuine agrarian reform program that means that there would have been no parity rights for the Americans and all multinational corporations would have been nationalized and there would have been no Washington Sycip. That is what Japan, South Korea, PRC and Taiwan did. It is precisely Washington Sycip who benefitted from the policy framework of the Washington Consensus. His major clients are the multinationals who would have been tossed out until they are invited in like the PRC under the framework of a national dirigist economic paradigm. He has become rich though the policy of debasing the national currency.
- hvrds March 28th, 2007 at 12:36 pm"

It's an empirical fact that the former colonies of Japan have done better than former American colonies in terms of economic growth. Will blog more about this in the future.

Data Sources for Worldwide Governance Indicators

As a response to this comment over at mlq3's, i'm listing the sources of the World Bank's World Governance Indicators (WGI) for reference:

Data Sources for Worldwide Governance Indicators
African Development BankCountry Policy & Institutional AssessmentsPollNo
AfrobarometerAfrobarometer SurveySurveyYes
Asian Development BankCountry Policy & Institutional AssessmentsPollPartial
Bertelsmann FoundationBertelsmann Transformation IndexPollYes
Brown University’s Center for Public PolicyGlobal E-GovernancePollYes
Business Environment Risk IntelligenceBusiness Risk ServicePollYes
Qualitative Risk MeasurePollYes
Columbia UniversityState Capacity ProjectPollYes
Economist Intelligence UnitCountry Risk ServicePollYes
European Bank for Reconstruction & DevelopmentTransition ReportPollYes
Freedom HouseCountries at the CrossroadsPollYes
Nations in TransitionPollYes
Freedom in the WorldPollYes
GallupInternational Voice of the People SurveySurveyYes
Global InsightGlobal Risk ServicePollYes
Business Conditions and RiskPollYes
Heritage Foundation / Wallstreet JournalEconomic Freedom IndexPollYes
IJET Travel Intelligence Country Security Risk AssessmentPollYes
Institute for Management and DevelopmentWorld Competitiveness YearbookSurveyYes
International Research & Exchanges BoardMedia Sustainability IndexPollYes
LatinobarometroLatinobarometro SurveysSurveyYes
Merchant International GroupGrey Area DynamicsPollYes
Political & Economic Risk Consultancy (PERC)Corruption SurveySurveyYes
Political Risk ServicesInternational Country Risk GuidePollYes
Reporters Without BordersReporters Without BordersPollYes
State DepartmentTrafficking in People ReportPollYes
State Department / Amnesty InternationalHuman Rights DatasetPollYes
World BankBusiness Enterprise Environment SurveySurveyYes
World Business Environment SurveySurveyYes
Country Policy & Institutional AssessmentsPollPartial
World Economic ForumGlobal Competitiveness ReportSurveyYes

Source for the above, as well as more information can be found here.

Update 03-28-2007 (12:15pm): Where available, i am associating the appropriate links to the sources in the table above, but this would take a bit of time to complete, workload permitting.

Update 03-30-2007 (7:37pm): While searching for the link on 'Latinbarometro', found this paper on Globalization and Latin America: A critical analysis (by Manuel Chiriboga). This contains some useful material on the evolution of the Washington Consensus.

Update 03-30-2007 (8:15pm): Another useful anti-corruption link - Transparency International

Update 03-30-2007 (8:31pm): Looks like i'm done for now. While searching for the above links, i came across a promising-looking site which presents itself as the Guide to Country Research on the Internet. They have reviews on some of the organizations above, usually done in a semi tounge-in-cheek tone.

Tuesday, March 27, 2007

The Poor: Two Narratives (Part 1)

The SWS' survey findings on record levels of hunger has spawned discussions on whether the poor are victims of the government's (and society's) neglect or whether it is the poor who are, at least partially to blame due to their lifestyle, attitude and consumption habits. In a reaction to a self-confessed aristocrat's comment, I mentioned that 'blaming the poor for their misery' is an integral part of the ideology of globalization. Let me clarify where I’m coming from. As part of the narrative of globalization, Cameron and Palan in their book The Imagined Economies of Globalization explain that what we call globalization is made up of three 'economies'.

One is the Offshore economy of Multinational Corporations, Export processing zones, Banks and global institutions such as the IMF, WB and the WTO. These are the elements that we are able to closely associate with globalization. In a sense, though, 'offshore' is a misnomer if taken to mean that it exists outside the State for it is precisely the State (or States around the world) that has carved out this sphere (through laws, regulations and guidelines especially in the area of banking, trade and industrial policy). It has done so as part of a strategy of economic development, which brings us to the second 'economy' in the globalization narrative which is the Private Economy whose emergence, in the words of Cameron and Palan, has led to a...

"...shift in the orientation of state activity, indeed a change in the very principle of statehood, away from established functions associated with the nation - the latter viewed as a spiritual, political and cultural community - towards a more outward-looking, competitive and fundamentally economic principle."

This shift away from the previously established role of the State has led to the creation of the third 'economy', which is the 'anti-economy' of social exclusion. It is characterized, in the words of the authors with...

"...the idea that poverty and marginality are 'personal deficits' [that] implies that those unable or unwilling to live up to the emergent norms of the global labor market are in some way pathologically deviant. It also implies that responsibility for becoming more employable lies in the first instance with the unemployed themselves and not with the institutions of the mainstream labor market from which they are excluded."

While this third economy redefines what it means to be poor, it also transforms the character of those who are more fortunate:

"Civil Society, therefore, is no longer identified by a set of core values, rights and responsibilities but by levels of access to, and participation in, 'opportunities' in the mainstream economy. As John Lovering has pointed out, the key distinction made in the mainstream debate over social exclusion is not between exclusion and inclusion, but between exclusion and competitiveness."

This, as described above, is the place of the poor within the narrative of globalization and is what shapes the guilt-free mindsets of the Tim Yaps, Gloria Arroyo's and various aristocrats of this world. Personally, i find such a worldview distasteful to say the least.

Update 03-27-2007:From Expectorants, a compilation on thoughts regarding the poor (and the middle class).

Monday, March 26, 2007

Holly Valance - Naughty Girl

Nice beat. I like the synthesizer background.
Update Nov-03-2007: Reposted video.

Sunday, March 25, 2007

Export Promotion vs. Import Substitution

Ever since my school days, i've listened and read about policy debates on the merits of one or the other, but is this really the right frame? South Korea has experienced the fastest annual growth rate for exports from 1950 to 1995 of 26.3%*, i.e. doubling of exports every three years. This is what Alice H. Amsden has to say in her book The Rise of the Rest:

South Korea, with the highest growth rate of exports in "the rest", induced firms to become more export-oriented by making their subsidies contingent on achieving export targets, which were negotiated jointly by business and government and aired at high-level monthly meetings. These meetings were attended regularly by Korea's president, Park Chung Hee, and were designed to enable bureaucrats to learn and lessen the problems that prevented business from exporting more, information that was likely to have contributed further to export activity. Reciprocity involved long-term lending by the Korea Development Bank (KDB). Starting 1971, at the commencement of Korea's heavy industrialization drive, the KDB began to offer credit 'to export enterprises recommended by the Ministry of Commerce and Industry". The more a company exported, the more likely it was to receive cheap, long-term loans (as well as tariff protection for its sales in the domestic market)" [emphasis mine]...

"...The reciprocity principle in Korea operated in almost every industry. In electronics, for example, "the question could be asked why the chaebol-affiliated enterprises did not confine their business to the domestic market where they could make large profits without difficulty. The primary reason was that the government did not permit it. An important Korean industrial policy for electronics was protecting the domestic market. In return for protection of the domestic market, the government required the enterprises to export a part of their production." [emphasis mine]

So, as with other policy questions, as shown in the case of South Korea, it is not a question of 'either/or' i.e. export promotion vs. import substitution, but the right construction and combination of both.

*Source:The Rise of the Rest, Alice H. Amsden, p 150

Saturday, March 24, 2007

Genuine Opposition

Via Ellen Tordesillas and Schumey, the Genuine Opposition (GO) has finally put up their blog in the following URL:

Also of interest is the GO wikipedia entry:

Friday, March 23, 2007

Political Coalitions: Class War, Rural-Urban Conflict and Free Trade (Part 2)

From the passage quoted in the preceding post, we can see that:

A country that is abundant in land and capital but poor in labor, as well as one that is abundant in labor, but poor in land and capital will experience class conflict when it comes to trade policy. As stated in Helpman below, the latter case has been experienced in the Germany. (Randall Stone's powerpoint presentation linked to below also mentions the United States in the 20th century as an example of the former.)

A country that is rich in labor, but poor in capital and land, as well as one that is rich in labor and capital but poor in land will experience rural-urban conflict in the realm of trade policy. Again, as stated in Helpman above, the former has been the case in the United States in the 19th century, while the latter condition was true of Great Britain in around the same time frame.

Source: Lecture by Randall W. Stone (2002)

Assuming the above is true, the question is where the Philippines is situated. My guess would be that the Philippines with its abundant labor and relatively scarce land and capital is similar to Germany (in the 19th century) in that landlords and capitalists will prefer trade protection while labor will support freer trade. The above matrix also indicates that the divisions between rich and poor is deeper than the cleavage between the urban and rural areas. It is worth remembering that the issue of 'Imperial Manila' is being highlighted by the landlord dominated Congress.

Thursday, March 22, 2007

Political Coalitions: Class War, Rural-Urban Conflict and Free Trade (Part 1)

From Elhanan Helpman's The Mystery of Economic Growth:

"In a Heckscher-Ohlin analytical framework...improved conditions on world markets, which may result from falling trade costs or reduced foreign protection, benefit inputs that are abundant in a country, because they are used intensively in the production of exportable products. Inputs that are used intensively in the production of import-competing products lose.

Rogowski* examined the effects of the first wave of globalization in the last part of the nineteenth century on the formation of political coalitions. Contrasting Britain, Germany, and the United States, he noted that both Germany and the United States were capital-poor at the time in comparison with Britain. But while Germany was rich in labor and poor in land, the United States was rich in land and poor in labor. The expansion of trade, therefore, benefited labor in Germany and threatened the income of capital and land there. As a result, labor supported free trade while capital and land formed the infamous 'marriage of iron and rye' to oppose free trade. In the United States, labor and capital united into a protectionist coalition, while landowners favored free trade. The result was rural-urban conflict.
[emphasis mine] Finally, in Britain, which was rich in capital and albor, a coalition of capital and labor supported free trade while landowners supported protection."

*In Commerce and Coalitions, Ronald Rogowski, 1989, Princeton University Press

Tuesday, March 20, 2007

Estimated Foreign Debt Payments: 1987 to 2005

To get a rough estimate of how much foreign debt has been paid from 1987 to 2005, we can add to the foreign debt in 1986 the borrowings from 1987 to 2005 and then subtract the value of debt as of 2005.

At the time Marcos left in 1986, Foreign debt was at USD 28 Billion*. The equivalent of this amount in 2005 would be USD 78 Billion**, . The total foreign borrowings from 1987 to 2005 is USD 49 Billion***. Foreign Debt at 2005 (end of period) is USD 54 Billion****.
Foreign debt in 1986 (equivalent dollar value in 2005)78 Billion
Add: Foreign Borrowings 1987 to 200549 Billion
Less: Foreign debt in 200554 Billion
Estimated Principal Payments 1987 to 200573 Billion
Add: Estimated Interest Payments 1987 to 2005 29 Billion*****
Estimated Principal & Interest Payments 1987 to 2005102 Billion

Among other things, the above shows that for the past two decades, for every dollar we borrowed, we have paid out two dollars (49 billion vs. 102 billion). (Update 03-21-2007: On second thought, including interest payments to the year 2005 equivalent values may be a form of double counting, in which case, the comparison should be between 49 billion and 73 billion, which means 1.5 dollars paid out for every dollar borrowed.)

Update 08-13-2008: Related updates from the PCIJ.

*Source: IBON Facts & Figures 2005 Volume XXVIII
**as computed in
***sum of borrowings from 1987 to 2005 as computed from here
****Source: BSP Website
*****estimated at 40% of annual principal payments as derived from BSP website

Monday, March 19, 2007

Scandal ft Patty Smyth - Warrior

Shooting at the walls of heartache, bang bang...

[Hope YouTube does not take this down again.]

Update 04-01-2007: The video was taken down again, too bad:-(

Update 09-23-2007: Reposting.

Sunday, March 18, 2007

Domestic Borrowings 1987 to 2005

While the preceding post compares foreign borrowings among the different post-EDSA Philippine governments, this one does the same for domestic borrowings. The source data is the same (courtesy of PCIJ). In addition, all the nominal peso values where divided by the GDP deflator* for each year.
Domestic Borrowings 1987 to 2005
YearBillions (PHP) nominalGDP Deflator (1985=100)Billions (PHP) adjusted
*Source of GDP deflator values: here and here.

Graphically represented above, it can clearly be seen that the Arroyo Government, compared to previous administrations, has been the most aggressive by far in terms of domestic borrowings. The average domestic borrowings per year per administration are as follows:

Cory Aquino - 35.48 Billion Pesos** per year
Fidel Ramos - 20.11 Billion Pesos per year
Erap Estrada - 42.24 Billion Pesos per year
Gloria Arroyo - 74.17 Billion Pesos per year (so far)
**1985 equivalent

Something to keep in mind everytime the Arroyo admin congratulates itself in its management of the budget deficit.

Update 03-25-2007: Over at mlq3's, an informative discussion on Budget related matters here (by hvrds, Ca T, Justice League, MB etc).

Update 08-13-2008: Related updates from the PCIJ.

Foreign Borrowings 1987 to 2005

This entry was originally a response to this comment by moks on the comparability of nominal amounts of borrowings over 20 years.

From this PCIJ entry on domestic and foreign borrowings across different administrations. I converted the peso values to its equivalent in US Dollars and multiplied by a factor* to arrive at the equivalent US Dollar value (using 'relative share of GDP') in 2005.
Foreign Borrowings 1987 to 2005
Year Billions(PHP) PHP to USD ConversionMultiplier* Billions(USD)


Graphically represented, it can be seen that the Arroyo Government, compared to previous administrations, has been the most aggressive in terms of foreign borrowings followed closely by the Erap Admin. The average foreign borrowings per year per administration are as follows:

Cory Aquino - 2.0 Billion US Dollars per year
Fidel Ramos - 1.6 Billion US Dollars per year
Erap Estrada - 3.3 Billion US Dollars per year
Gloria Arroyo - 3.8 Billion US Dollars per year (so far)

Update 03-19-2007: Relevant related commentary on this subject from caffeinesparks.

Update 08-13-2008: Related updates from the PCIJ.

Saturday, March 17, 2007

Mango Tree

Got this email from our Division Manager from a couple of years back:

In 2002, we planted [a mango tree]...The tree has endured and survived typhoons...and now it has borne its first fruits!

The agreement back anytime, anyone in the team can go...and pick fruit from the tree. Well, it may take a few more years before it can have enough fruits but patience, patience.

I guess trees easily can outlive organizations but it's a good reminder that orgs can come and go but people and friendships, just like trees, should endure. Happy picking...whenever.

Friday, March 16, 2007

Latin American Electoral Revolutions and People Power Revolutions Compared

Here's more background information on Scenario 4 that was described in last week's post in the form of an article by Tatiana Zhurzhenko in the June 26, 2006 edition of Eurozine comparing the Velvet Revolutions (i.e. EDSA-type People Power events) with the recent wave of Latin American electoral revolutions:

On the Velvet (People Power-type) revolutions:
"the revolutions of 1989 put forward no grand project or social utopia, as was the case with their predecessors. Their only project was to catch up with a "normal" social and political order, in other words market society and liberal democracy. "

On the Latin-American electoral revolutions:
" If what happened in Bolivia can be called a revolution, it was a socialist and working-class revolution, supported, classically, by the poorest and most marginalized part of the population. "

Over here, having experienced our own velvet-revolution(s) which restored and upheld market society and liberal democracy, the middle class is reluctant to allow the Latin-American variety to happen, for fear of what they might lose. This would explain why they foolishly cling to Gloria Arroyo. Like Tim Yap*, they just want the party to continue.

On this same subject, sometime last year, i also had an interesting discussion in mlq3's blog with fellow commenter juan makabayan where he traced the roots of Latin America's leftward turn to liberation theology. He remarked that:

"in latin america, particularly Nicaragua and El Salvador, liberation theology, complementing the communist ideology, played a key role before, during and after the revolution. similar but not same is the scenario here."

He also added:

"The Doctrine of Liberation theology may have been repudiated but its spirit remains strong in latin america for it is ingrained in the ‘basic ecclesiastical communities’(bec’s) that were founded when the doctrine fused the people and the church, the temporal and divine in a militant struggle for the Kingdom.

You know what?

The development and strengthening of the bec’s is actually ‘the’ real revolution. Our current social crisis is a reflection, manifestation, indication of the state of development of bec’s. If we refresh our notion (google) of basic ecclessiastical communities (protestants: basic christian) we’ll realize its relevance to the social changes that we hope for and blog about.

The above was a useful insight by Juan Makabayan which also explains why priests and social workers are being lumped together by the current Administration and its apologists with the CPP/NPA.

*Hat tip to Expectorants for the pointer.

Magsaysay, the Insurgency and the Anti-Terror Law

Manuel Buencamino in this comment offers a timely insight:

"As we commemorate Ramon Magsaysay’s centennial, let us remember that he did not need an anti-terror law to break the back of the Huk rebellion.

Magsaysay was a gentleman. He fought clean. He didn’t an anti-terror law in order to win dirty.

The insurgency issue can be resolved and has been resolved once before. We just have to adopt the right model before it's too late.

Wednesday, March 14, 2007

Trade and Reciprocity

Last week, i exchanged views with fellow commenter Justice League on mlq3's blog regarding the pro's and cons of allowing foreign doctors (from Cuba, India and Pakistan) in the country. Along the way, the discussion touched upon the pro's and cons of free trade in general, specifically, the issue of reciprocity. The take off point was this provision in the Constitution:

"The State shall pursue a trade policy that serves the general welfare and utilizes all forms and arrangements of exchange on the basis of equality and RECIPROCITY" [Justice League's emphasis]

Justice League favored a strict bilateral interpretation while i was for a less restrictive multilateral approach (via the WTO). The practical implication of my position is that we should not put up trade barriers against another country solely because it has in turn imposed trade barriers of their own against our products and/or services.

Why am i against strictly bilateral reciprocity? My reasons have to do with the cost of enforcement and the corruption arising from attempts to circumvent such rules. Under the current quality of governance, rules just present profit opportunities for would-be smuggling lords and other such enablers. Aside from this, the trade barriers themselves would penalize our own consumers who would be either be facing shortages or getting inferior products or services at higher prices. Both of these consequences lead us further from the intended goal of the Constitution to [serve] the general welfare.

The question remains though, when does it make sense to enforce reciprocity i.e. retaliation by imposing trade barriers? Helpman's account on the impact of tariff barriers to economic growth provides some insight into this:

Bairoch(1) argued that the European experience in the late nineteenth century does not support the view that protection is bad for growth...In response to an inflow of cheap grain from Russia and the New World, some countries raised their impediments to trade. France went protectionist in 1892. The growth rate of its GNP increased from an annual average of 1.2% in the decade preceding the policy shift to 1.3% in the decade following the policy shift. Germany changed its policy in 1885, experiencing a rise in the growth rate of its GNP from 1.3% in the decade preceding the rise of protection to 3.1% in the subsequent decade. Sweden also experienced an acceleration of GNP growth around its policy shift toward more protection in 1888, while Italy experienced a slowdown in GNP growth around 1887, the year in which it went protectionist. In view of this evidence Bairoch noted that 'it remains generally true that in all countries (except Italy) the introduction of protectionist measures resulted in a distinct acceleration in economic growth during the first ten years following a change in policy, and that this took place regardless of when the measures where introduced'

O'Rourke(2) examined more carefully the relationship between average tariffs and growth in the late nineteenth century. Estimating a growth equation with data for ten countries between 1875 and 1914, he found a positive effect of tariffs on the rate of growth of real income per capita, thereby confirming Bairoch's argument...

Clements and Williamson(3) confirmed O'Rourke's findings for a sample of more than thirty countries between 1870 and 1913. But they also found that the relationship was reversed in the post-World War II period [emphasis mine] That is, in the postwar period high-tariff countries grew more slowly than low-tariff countries.

Clemens and Williamson suggested that the reversal might be related to the average level of protection in the world economy. [emphasis mine] When a country's trade partners have high tariffs, it can speed up its own growth by adopting a higher rate of protection. When a country's trade partners have low tariffs, however, higher protection harms growth.

....Tariffs were higher before World War I than after World War II, and they hit record levels between the wars. This intertemporal pattern of tariffs is at the heart of Clemens and Williamson's explanation of the reversal of the relationship between protection and growth. - from The Mystery of Economic Growth, Elhanan Helpman, 2004

(1) Bairoch, Paul. 1993. Economics and World History.
(2) O'Rourke, Kevin. 2000. Tariffs and Growth in the Late 19th Century.
(3) Clemens, Michael and Jeffrey G. Williamson. 2002. "Why did the Tariff-Growth Correlation Reverse after 1950?" NBER Working Paper no. 9181

I don't consider the above the last word on the matter as even Helpman further discusses other possible explanations for the reversal of correlation of trade and economic growth in his book (e.g. structure of countries). However, the heuristic of raising and/or lowering trade barriers based on the average level of protection in the world economy (which ties back to my recommended multilateral approach to reciprocity) seems to have basis in the historic data.

Update (03-15-2007): From Blurry Brain's blog, a recent real world case of a local industry (i.e. the soap and detergent industry) rejecting reciprocity for sound business reasons.

Update (03-16-2007): Minor revisions in wording for clarity.

Sunday, March 11, 2007

Nada Sousou Live in Shibuya

Rimi Natsukawa sings her popular Okinawan tune.

Update May-29-2008: First the bad news. The Live in Shibuya version of the video was taken down so i'm replacing with another live version. The good news is that i found the same song performed by Rimi Natsukawa, together with my favorite BoA and another artist Hitoto Yo.

Saturday, March 10, 2007

State Chart of Philippine Democracy: Future Scenarios v1.1

Updated the diagram to reflect Scenario 7 i.e. the tendency of popular dictatorships to transform into elite dictatorships with the passage of time.

This explanation by Manolo Quezon, which brings up the risks of infiltration by radical elements of the unicameral assembly (which supplied one of the reasons for the establishment of the Senate during Manual Quezon's Presidency), is one of the ways in which Scenario 3 below, can come about. The difference is that in a parliamentary set-up, the radicals will be in a position to elect the national leadership.

Wednesday, March 07, 2007

State Chart of Philippine Democracy: Future Scenarios

Here is a state chart diagram showing the state of Philippine democracy as defined by the combination two sets of attributes: dictatorship/democracy, elitist/popular. This maps possible future scenarios to the above combination.

State Diagram of Philippine Democracy: Future Scenarios v1.1

If the result of the May 2007 elections favor Arroyo, there would most likely be a renewed push for a Unicameral Parliamentary form of government . Once such a system is place, i can imagine three possible outcomes:

Scenario 1: Unicameral Parliamentary within an Elite Dictatorship IMO, the most likely outcome would be a one party legislature controlled by a prime minister coming from the ranks of the business elite or alternatively, a proxy who is controlled by him/her (e.g. Chiz Escudero backed by Danding Cojuangco). This would preserve the current structure where the elite dominates with our vestigial democratic institutions serving a window-dressing function.

Scenario 2: Unicameral Parliamentary within an Elite Democracy If no single party dominates parliament, then a minimal form of elite democracy could emerge, which essentially means the preservation of the status quo in favor of the oligarchy. In this environment, it may be possible for middle-class oriented groups such as Kapatiran to aspire for some level of representation in the legislature which is why i made a notation in the diagram that the middle class may consider this as the "best" option. What i believe would actually take place is the resurgence of religious oriented parties (e.g. INC, El Shaddai, CFC and JIL) a-la Lebanon and/or Iran.

Scenario 3: Unicameral Parliamentary within an Popular Democracy If a charismatic populist tycoon in the mold of Thaksin (or a designated proxy) wins the prime ministership with a big enough majority, then we could have a rehash of what happened in Thailand. Given a sufficient sense of history, he/she can choose to turn his back on his own class and become a champion of the people in the manner that Marcos and Erap attempted (or pretended) to be. A unicameral parliament would make it easier for him/her to ram through radical legislation that would address social inequities and he would be hailed as the Filipino Hugo Chavez.

Scenario 4: Presidential system within an Popular Democracy Similarly, if Arroyo does not do well in May 2007 and/or the Presidential system somehow survives, then the opportunity remains open for a charismatic populist to bring the Latin American wave to our shores. This would bring about our transformation from an elite to a popular democracy.

Scenario 5: Presidential system within an Popular Dictatorship Scenario 3 and 4 above may not necessarily be a stable outcome. If society has been polarized enough between e.g. the EDSA Dos and EDSA Tres crowds, then the system may degenerate into a popular dictatorship similar to what seems to be happening in Venezuela today. The middle class, having squandered its moral capital defending Arroyo, would be unable to prevent the tyranny of the majority.

Scenario 6: Other forms of Popular Dictatorship At this point, there seems to be a minimal chance of the CPP/NPA capturing the hearts and minds of the majority. However, once the ordinary foot soldiers in the service of their elite masters notice that they are the ones holding the guns, then given such an epiphany, the soldiers can use force to constitute a new order in the name of the people under an alternative non-Communist, most probably militantly nationalist/neo-fascist ideology.

For the above, the assumption is that the Philippines remains a unitary state. As such, failed state anarchy (a-la Somalia) and fragmentation (a-la former Yugoslavia) outcomes are not shown.

Above entry updated here (on Feb 22, 2008).

State Chart of Philippine Democracy: Past Events

Here is a state chart diagram showing the state of Philippine democracy as defined by the combination two sets of attributes: dictatorship/democracy, elitist/popular. This maps recent past events to the above combination.

The arrows in the diagram depict the historic events that have resulted (or almost resulted) in a change from one state to the other. The original EDSA put an end to Marcos' dictatorship and brought back elite democracy. It also dealt a serious blow to the CPP/NPA's movement to establish a popular dictatorship.

State Diagram of Philippine Democracy: Past Events v1.0

Erap's election victory signaled the move towards a popular democracy. Unfortunately, Erap was not true to his campaign slogan ('para sa masa') in that, among other things, he still kept company with Crony Capitalists and warlords one of whom led to his downfall. EDSA Dos put an end to this experiment and brought back the status quo. Moreover, EDSA Tres, which was a genuine expression of popular democracy failed to achieve its objectives. Likewise, FPJ's run for the Presidency also failed because, in a large part, due to Gloria's cheating. With the issues concerning her legitimacy not being addressed, we can consider ourselves in a de-facto dictatorship which is tacitly supported by a segments of the elite and middle class which constitutes a significant minority. The persistence of the status quo has in turn has further alienated the masses which is currently fueling the CPP/NPA insurgency.

The next entry discusses future scenarios that may cause a further shift in state.

Fidel's Final Victory

mlq3 points to an article in the Jan/Feb 2007 issue of Foreign Affairs, Fidel's Final Victory. It provides an interesting take on post-Castro Cuba.

If the USA and the Cuban exiles don't manage to mess things up for Cuba, it may yet follow in the footsteps of Vietnam and China as another example of the apparently successful two stage Socialist Revolution/Capitalist Reforms model.

Monday, March 05, 2007

Sunday, March 04, 2007

Land Reform, Inequality and Economic Growth

To the extent that land reform is able to lead to greater equality in terms of ownership of land, the prospects for economic growth will improve.

From "The Mystery of Economic Growth" by Elhann Helpman (p. 92):

"Alesina and Rodrik* found a significant negative effect of the Gini coefficient of the distribution of income on the growth rate. But they also found that this effect becomes insignificant when the Gini coefficient of the distribution of land ownership is also included as an explanatory variable. In other words, inequality in the ownership of land not only is more important for explaining growth than inequality in the distribution of income, it also turns the distribution income into an inconsequential factor. This finding has been corroborated by Deininger and Squire**"

*Alesina, Alberto and Dani Rodrik. 1994 "Distribution Politics and Economic Growth" Quarterly Journal of Economics 109: 465-490

**Deininger, Klaus and Lyn Squire. 1998 "New Ways of Looking at Old Issues: Inequality and Growth" Journal of Development Economics 57: 259-287

Rule of Law and Intangible Capital

One way to measure the missed opportunities of Gloria Arroyo's administration is to look at the World Bank's Rule of Law Governance indicator.

Philippines: Rule of Law Index
Year Estimate* Percentile Rank** Standard Error

*'Estimate' ranges from -2.5 to 2.5
**'Percentile Rank' ranges from 0 to 100
Source: World Bank

The significance of the above is that a one point increase in the Rule of Law index for a lower middle income country such as the Philippines would result in a 362 US Dollar increase in Intangible Capital per person. Source: Where is the Wealth of Nations: Measuring Capital for the 21st Century, World Bank

Arroyo's inability to improve the rule of law during her stay in Malacanang translates to foregone intangible capital. As an illustration of what might have been, if in 2005, she was able to bring back the rule of law index to its 1998 levels of '55.3' (instead of the actual value of '38.6'), then intangible capital would have been higher by 6,045.40 US Dollars per person, computed from (55.3-38.6) x 362 USD.

Note: Intangible Capital is component of the nation's total wealth. Total wealth is estimated as the net present value of sustainable future consumption. According to the authors of the referenced document: "the calculations require assumptions regarding the time horizon and the discount rate. Throughout the calculations, we assumed a time horizon of 25 years, which coincides roughly with a generation’s time span."

With 81.5 million Filipinos, that translates to almost 500 Billion US Dollars in what might have been Intangible Capital.

Update Nov-20-2007: John Nery links to a favorable review of the above book.

Update Dec-23-2007: Former SC Chief Justice Artemio Panganiban's Inquirer Online column on the above.