The President says that as a trained economist, she firmly believes in the sanctity of the free market. And yet she has become the most interventionist leader since the crony days of Marcos.
Just look at a few recent examples.
There is a suggested tax on texting, but don’t pass it on to the consumer—just reduce your profits to below international norms. Halve your drug prices so you can operate at a loss. Face control of your industry again because people (whom government hasn’t provided the environment for them to get well-paying jobs, or at least plain jobs) can’t afford gas and diesel prices. Prices forced by world prices, not rapacious oil companies and you have to ask the serious question: Is this a government that understands how markets best work for the betterment of the people?
If subsidy of oil prices is really desirable, then government should subsidize. It is a mistake to single out one sector and expect it to support a disadvantaged community. That’s the government’s role. Worse, if you are going to require the private sector to alleviate the plight of the storm victims, why do you pick on foreign companies to sacrifice for the national good? Why not, as I said in my column last week, the water companies? Safe drinking water is far more important, and would benefit far more people. But it should not be them either, it is government’s role, no one else’s.
The controlled price is too universal, even those (like you and me) who are unaffected by the storms will benefit from the price control. Actually the rich will get the most out of it seeing as they use their cars a lot. The poor for whom EO 839 is targeted will get little, if any benefit.
Discount certificates (paid for by government) should be issued to those who are found to be affected, and deserving of support. But then how many of them have need of oil products? Few have cars or motorcycles. For LPG, maybe—but they now have no house to put the stove in. The main area I can think of is transport: trains, buses, jeepneys, tricycles. So give them direct support there with travel coupons. Or the conditional cash transfers that seemed to work fairly well.
No decision, certainly no national decision, can ever be taken in isolation. The control of oil prices following soon after the mandated 50-percent reduction in drug prices will scare investors away, not just in those two sectors but others also concerned that government could step into their sectors too. I’ve already had one power company who wishes to invest express concern that control of power prices could be next. His head office is watching this closely. We already get the least foreign investment into Asia, we’ll get less now. I know there’s some who’ll dispute this as judgmental—mine vs. yours—but I think I have the credentials to know the thinking of the executives of multi-national companies (Twenty years of working directly for them, and then 27 years advising them on the external environment they must operate in. And helping them to do so). And, anyway, the statistics confirm it: The uncertainties these sorts of decisions introduce have made the Philippines a less desirable place to invest in than elsewhere in Asia.
As to opening their books, they do. They submit their financial statements to the SEC every quarter. And in 2005, an independent audit under Charlie Alindada conducted a detailed study, while SGV did another one in 2008. Both studies concluded there was no cartel. So I’m at a loss to know what else you’d need to accept that the oil companies do legitimately earn less profits—about 3 percent on average—than most other sectors.
As to their being a cartel, if it were only the Big 3, maybe. But the new players set prices in competition the Big 3 have to match. I see no evidence of a cartel. And with our prices being the lowest in Asia (in countries where there’s no subsidy) what could a cartel be doing that’s harmful? A cartel is supposed to artificially hold prices at a high level, not at the lowest in Asia.
Yet despite oil being the cheapest here, the President has succumbed to populist pressure and ordered oil companies to hold their prices, even if the cost of oil goes up. If she truly believes oil prices are a critical factor in recovery, then the government should subsidize any differential. You do not impose artificial controls on companies in an open market—if you want that market to grow. I haven’t asked them but I can virtually assure you Shell will not be expanding and upgrading its refinery as it needs to do. No way will the bosses in The Hague pour money into a country that capriciously (yes, capriciously—there is no sound economic justification for this decision) dictates the prices of your products.
As the universal objection to this action of government by all major business organizations shows, this was a very unwise decision, particularly as I’m unconvinced that the cost of gas and diesel is a critical factor in the recovery of the thousands now without a home. They need safe drinking water, food, a proper place to sleep, electricity for lighting, a toilet. The basics of life, and oil is not one of them. These are where subsidy should occur, but the cost of that subsidy should be borne by government, not the private sector. The President needs to cancel EO 839 today, and announce she’ll not force control on any other sector either in the remainder of her term. Otherwise we will lose whatever little investment we are still getting.
I think there’s a gross underestimation of the harm this decision has done. Virtually every major business chamber has expressed its dismay at the action. That must tell you something.
Executive Order 839 should be canceled as quickly as possible and a government-subsidized discount card system introduced if some sort of help is really deemed necessary.
With EO 839 in place, the message is that the Philippines doesn’t want business investment under this administration. It doesn’t want a strong, vibrant economy where its people have jobs and a decent standard of living, regardless of what its leaders say they want. –Peter Wallace, Manila Standard Today
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