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Understanding the President’s Economic Czar

August 13, 2012

If one wants to understand the mind or mentality of the country’s

PNoy's economic dictator: Balisacan

PNoy’s economic dictator: Balisacan

central planning agency (the NEDA), one needs to read its head’s works and published papers. Prior to his appointment as NEDA chief, Arsenio Balisacan was dean of the UP School of Economics.

Here’s one of the official’s alleged economic papers wherein he investigated why poverty persists in the Philippines WITHOUT even tackling the impact of constitutional restraints on trade, foreign investment and professions, and other economic activities.

Personally, I don’t think it is possible to investigate or identify the root cause of poverty, or why it persists, without looking into the Constitution’s impact on wealth creation, investment, and trade. But that’s exactly how our top economist approached his economic paper published in 2007.

The paper somehow reveals how the president’s economic czar understands the root cause of poverty. In explaining the source of the problem (translation: poverty), Balisacan presents two contrasting points of view or schools of thought.

He says (emphasis mine):

“Proposals peddled to address the poverty problem are plenty-and keep growing. At one end of the spectrum are proposals contending that the root of the problem is simply the lack of a respectable economic growth. Putting the economy on a high-growth path is prescribed as all that is needed to lick the poverty problem. At the other end are proposals asserting that the poverty problem is nothing but a concrete manifestation of gross economic and social inequities. Redistributing wealth and opportunities is viewed as the key to winning the war on poverty. “

The paper clearly shows that its author is in favor of the second view or school of thought.

While Balisacan recognizes the role of economic growth in helping the poor, he argues that “it is not good enough”. What he’s trying to say is that the government must adopt redistributive policies and play an active role “in transforming any rate of income growth into poverty reduction” (e.g., “investment in social services).

So, why does poverty persists in the Philippines? Balisacan offers the following explanation: “The poor performance of the Philippines in economic growth and poverty reduction has often been attributed in part to the relatively large variation in access to infrastructure and social services across regions and island groups.”

That explanation simply shows he somehow believes our constitutional

PNOY

PNOY

limitations on trade, foreign ownership and participation, and economic liberalization have nothing to do with the country’s low foreign direct investment, high employment rate, and lack of investment. Balisacan simply cites studies that show some parts of the country that have poor access to economic opportunities and “reliable water supply, electricity, and especially education”. The problem is that the paper doesn’t even bother to explain why there is lack of access to these services, or why the government can no longer afford, or doesn’t have enough resources, to solve the problem.

Citing previous studies, Balisacan then concludes that “the very low income growth achieved in recent years is a key factor in the country’s sluggish rate of poverty reduction.”

Again, his paper doesn’t elaborate on the reason why there is “very low income growth” in the Philippines! Is it because the government didn’t pass enough laws to legislate poverty? Or: is it because our repressive economic policies, characterized by protectionism, high degree of government intervention/regulation, and high level of corruption, repel foreign investors?

To address the issue of poverty, Balisacan offers the following solution: “The quality of economic growth has to be improved to enhance the benefits of growth to the poor.” But his paper doesn’t tell us how he’s going to achieve such a policy. Perhaps he simply thinks that “economic growth” is something that can be legislated. That the government can simply pass laws to improve economic growth. That’s exactly how the guy who runs the NEDA thinks.

But PNoy’s economic czar won’t stop there, as he also believes the government needs to address the country’s rapid population growth. He argues that “there is a strong link between economic performance, on the one hand, and economic growth and poverty reduction, on the other.”

Is this the guy who headed the UP School of Economics? One doesn’t have to study at UP or finish a degree in economics to understand that such an assertion is utterly fallacious, because it is simply NOT true. It is not supported by real statistics, economic facts, logic and reason. Correlation does not imply causation. I believe that overpopulation does not cause poverty, although the first can have the capacity to exacerbate the second. Actually it is the other way around: it is poverty that causes population to grow. Rapid population growth is actually a symptom, rather than a cause, of low national output and poor economic performance.

In his appearance before the Senate to brief the senators on the Aquino regime’s proposed annual budget of P2.006 trillion for 2013, Balisacan said that “the Philippines must manage its population and decrease its dependency rates.”

A strong advocate of population control, the neo-Malthusian economist claimed the country’s problem “has more to do with the fertility rate. About a third of economic growth in Asia is due to population management.”

But there is no correlation between economic growth and poverty reduction, or between overpopulation and poverty. Such an alleged correlation is a fallacy. But there exists a correlation between poverty and repressive economic policies, as shown by the ranking of Doing Business and Economic Freedom Index. For instance, top ten countries with the highest fertility rate are Niger, Uganda, Mali, Somalia, Burkina Faso, Democratic Republic of Congo, Angola, Ethiopia, and Republic of Congo. What do these countries have in common? They’re all poor. But why are they so poor?

Let’s see how the Heritage Foundation ranked these countries in terms of economic freedom. Niger was given the freedom score of 52.9 or mostly unfree; Uganda (62.2 or moderately free); Mali (55.6 or mostly unfree); Somalia (not ranked because of its chaotic domestic affairs); Burkina Faso (59.4 or mostly unfree); Democratic Republic of Congo (41.4 or repressed); Angola (48.4 or repressed); Ethiopia (51.2 or mostly unfree); and Republic of Congo (43.2 or repressed).

On the other hand, based on the top 5 countries with lowest population growth rate (Monaco, Japan, Germany, Singapore and S. Korea) there appears to be ‘some’ kind of connection between economic growth and  low fertility rates. One possible explanation for this is that most people in these progressive countries are employed and thus they don’t have much time to procreate or they understand the economic impact of having two or three or more children.

For example, Singapore did not become an economic tiger by curbing its population. To develop Singapore, its founding father Lee Kuan Yew did exactly the opposite of what Filipino intellectuals advocated and politicians did in the Philippines. Instead of embracing protectionism and limiting foreign ownership of land and businesses, Lee Kuan Yew adopted free market reforms like lower taxes (the country has no capital gains tax), less regulations, no import tariffs except for duties on alcoholic beverages, tobacco products, petroleum products, and a few other items, no export duties, among others. In Singapore it will only take three days to start a business compared to our 35 days. This made Singapore the freest economy in the world and the easiest place to start and do business, according to Doing Business Index.

The inability of Balisacan, the president’s handpicked economic czar, to identify the root cause of poverty in the country somehow explains why he strongly supports redistributive policies, massive government intervention, population management or control policies, and the idea that the state must play an active role to “improve economic growth” and combat poverty. With his statist mentality, I can almost assume Balisacan is against the abolition of protectionism, economic liberalization or free market reforms, privatization, and constitutional revision. Indeed, the President’s choice of appointees defines his statist brand of politics.

The source of poverty is man’s inability to think or to use his mind. In the vast field of politics, the real source of poverty are government laws and policies that restrict rights and freedom (especially economic freedom). Some nations developed while others did not because those others (e.g., North Korea, Zimbabwe, Congo, Liberia, Eritrea, Somalia, among others) do not respect individual rights, economic freedom, and intellectual property rights. The countries (e.g., Singapore, Hong Kong, United States, The Netherlands, Switzerland, United Arab Emirates, Norway, Luxembourg, Qatar, among others) that guarantee and promote a higher degree of economic freedom and respect rights achieved economic progress. Others like Balisacan and his ilk might argue: ‘Well, it’s because these progressive countries implement welfare policies!’ But who pays for those welfare programs? Those government welfare programs are simply like vampires that suck the blood of their victims: the productive industries and people.

Welfare programs do not create wealth; it is the people’s willingness and ability to use their mind (e.g., introducing new inventions and innovations, and developing new productive ideas, etc.) and to be productive (e.g., starting new ventures and businesses) that truly creates economic wealth that people need to survive.

8 Comments leave one →
  1. August 14, 2012 3:38

    The members of G20 pledge that they will not repeat the mistakes of protectionism of the previous era. From what I read about protectionism, this economic policy is one of the leading cause of war and poverty. I highly doubt the credentials of the NEDA Chief because it is quiet surprising that he doesn’t even know the consequences of those policies he stands for. I also doubt that he knows about Shock Therapy. Philippines need this therapy if we want to hasten the economic growth.

    • August 14, 2012 3:38

      That’s why I am kind of surprised to know, based on what I read, that Balisacan is in favor of economic policies that bankrupted some European countries.

  2. bogz permalink
    September 15, 2012 3:38

    “Balisacan simply cites studies that show some parts of the country have poor access to economic opportunities and “reliable water supply, electricity, and especially education”. The problem is that the paper doesn’t even bother to explain why there is lack of access to those services, or why the government can no longer afford, or doesn’t have enough resources, to solve the problem.”

    That’s the problem of government-own utilities. The cost of maintenance to these services requires taxpayer’s money. Under a free market capitalism, private sectors need to widen their market segmentation. In this way, those people, who previously do not have access to utilities, will have to choose which provides better services at a reasonable price.

    Isn’t good for government to reduce its responsibility to the society? I think the lesser responsibilities of a politician has, the easier he/she can deal with it.

    Fredrich Bastiat is right. Government is a great fiction and assume the role of Superman or a world police(See: America). The consequences of it are: 9/11 attack, Vietnam war, EU debt crisis, and the likes..

    • bogz permalink
      September 15, 2012 3:38

      And also, Uganda. =))

Trackbacks

  1. The Best Solution to PH Poverty: Economic Freedom « THE VINCENTON POST
  2. Sotto is Right, ‘Overpopulation’ in PH is a MYTH! « THE VINCENTON POST
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