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T
he Street Strategist has arrived at the conclusion that
the poor Filipinos are not rich because they do not
have money.
This is a very simple concept but it takes a genius
to appreciate its simplicity.
You may notice that I am trying to explain “why Filipinos are not
rich” in contrast to “why Filipinos are poor.”
Is there a difference? Yes, there is.
In asking “Why Filipinos are not rich,” the implication is that the
normal state of events should be that Filipinos are rich and we have
to explain if ever they are not in the normal state, that is, we have to
explain why Filipinos are not rich when supposedly they should be
rich.
Diminishing circle
Anyway, let us proceed.
The Street Strategist has arrived at the conclusion that the poor
Filipinos are not rich because they do not have money.
The Filipinos have no money because the country’s wealth is
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Community of inequality
Let’s view this from another perspective.
According to a World Bank study, 1/3 of the wealth of the
Philippines is owned by only 5% of the Filipinos.
This is a huge disparity.
This is an egregious distribution of wealth.
In economics, the Gini coefficient is the measure the gap between
the rich and the poor.
What does this statistic mean?
Try to visualize a community of 100 of your friends.
For every PhP100 spent within this community, after all is said
and done, these expenditures and incomes will eventually settle as
asset or wealth distributions.
Of every PhP100 in asset, PhP33.3 goes to only 5 of your friends
(PhP6.70 per pax).
The balance of P66.6 is distributed among the reminding 95
friends (PhP0.70 per pax).
Can you imagine how inequitable that is? That’s a ratio of 9.5 to
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1, or 950%.
And did you forget something?
Those 5 friends of yours were actually not doing any work at all.
They were playing golf all day, while your other 95 friends were the
ones toiling under the hot sun, fighting against each other,
backstabbing each other, and knocking on doors at night to sell
products.
Is that fair?
What is really callous is that your rich 5 friends have billions of
money that they could not possibly consume in ten lifetimes.
Single solution
And yet you ridicule me for proposing a single solitary action,
that is, a legislated minimum wage of P20,000 ($400 at $1=PhP50)?
Please remember, I am not advocating communism, socialism, or
confiscation of property.
I am only advocating the correct valuation of labor, the world
market price for labor.
Why can’t our teachers be paid like the teachers in Singapore?
And Singapore has zero natural resources to rely on unlike the
Philippines?
Squander
Myth: The Filipinos are poor because they squander money.
I heard so many upper class people say this. I even heard on radio
somebody who cited their rich neighbor whose children squandered
their inheritance.
But many Filipinos are fortunate enough to inherit wealth? A few
thousands? We have about 35 million workers, and that’s the
majority. They have nothing to squander.
Job search
Myth: The Filipinos don’t look for jobs.
I find this too simplistic. Filipinos are looking for jobs so much
so that millions of Filipinos in search of work worldwide.
Maybe there are too few jobs here in the country. I have repeated
many times why is there only a few jobs around.
That is why I wrote several chapters on the topic of job creation
as a result of the Hyperwage Theory.
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Lazy
Myth: The Filipinos are lazy.
You must be kidding me. Give each one a minimum wage of
PhP20,000 and you’ll see. Currently, among the best workers abroad
are Filipinos. And you and I both know that.
Unsaving
Myth: The Filipinos don’t save.
Of course, the savings rate in this country is low.
Of course, the Filipinos don’t save. We have half of the country
living below the poverty line and you expect savings?
But the top 5%, yes, they do save. Save for what?
Should that money be shaved off a little bit and shared back to
the workers in form of higher wages that will be used to buy the
goods and services owned the same top 5%?
It will all go back to the businessmen anyway.
Naturally rich
The Filipinos are naturally rich.
If we monetize the value of our entire natural resources
nationwide we would have a higher per capita wealth than Hong
Kong, Taiwan, or Singapore.
But why is it that these city-states have a higher per capita income
than the Philippines given that fact that they have no natural
resources?
Simple. They put a value to their intellectual capital and human
capital.
In Hong Kong, if you can’t afford to pay about PhP25,000 for a
domestic helper, then don’t have one.
If you can’t afford to pay PhP30,000 for a sales clerk, then don’t
be in business.
But do you know that happened?
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Businesses flourished.
And they have domestic helpers who are nurses or principal
teachers from the Philippines.
th th
Hong Kong is the 4 or 5 largest financial center in the world
and it is only about 1/5 the size of Cebu province and it have zero
natural resources. It imports water from China, can you imagine
that?
Singapore imports vegetables from Indonesia or Malaysia.
Why aren’t the Filipinos rich when in fact they should be?
It is because the minimum wage workers are paid slavery wages,
very far from the world market price for labor with is the US price.
Since they have slavery wages, they have little purchasing power.
With little purchasing power, there is little domestic market.
When there is little domestic market there are few businesses.
When there are few businesses, then there are fewer employees, and
since there are fewer employees, there is little purchasing power.
And if there is little purchasing power there is little domestic
market and so on and so forth.
Asymptotic hyperinflation
Will there be hyperinflation under Hyperwage Theory?
I have discussed this fully and the answer is that there will
asymptotic hyperinflation, that is a hyperinflation with a ceiling, and
that ceiling is the world market price.
Let’s take a look at this illustration. This is a simple one but if we
analyze common products (vegetables, cooking oil, paper,
newspapers, etc.) in this manner, we will have a clear idea of what
asymptotic hyperinflation is.
Assume a person eats half a kilo of rice a day. With a domestic
helper’s wages of P2,000 per month, then a person earns PhP76.90
daily.
Assuming the current price of rice is PhP30/kg then he will
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consume PhP15 of rice daily. He will have a net on only PhP61.90 per
day.
On the other hand, under Hyperwage, is monthly rate is
PhP20,000 and his daily rate is PhP769.
What will be the price of rice under Hyperwage? About
PhP50/kg? Where did we get this price?
We assume a comparable quality of rice in the expensive city of
Hong Kong which is priced about PhP50/kg.
Surely, we could not be above Hong Kong’ price under our
Hyperwage Theory.
Thus, after spending for a half kilo of rice, the helper obtains a
net of PhP744.
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See my point?
At any rate, I have discussed all these issues in my 33-week
discourse on Hyperwage Theory in 2005.
Human capital
There are several factors of production in an economic system.
Our economic theories emphasize the benefits of using the market
price of each of these factors.
Our theories frown upon subsidies because they distort the
allocation and efficiency of capital.
Yet, there is one factor that is not merely an inanimate factor of
production, a factor that cannot be made to wait for market forces to
determine its price.
This is human capital.
In the Third World countries, if we wait for market forces to
determine the market price for labor, such time may never come in
our lifetimes.
Why? Because a hungry stomach cannot wait for market forces. If
First World countries value labor at $7.50 per hour, without
government intervention, do you think human capital in Third
World countries will stop working unless paid the market price of
labor?
They cannot survive half a day without food. They will accept
anything to survive.
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English is not such a relevant factor we think it is? I admit the BPO
industry has employed hundreds of thousands but do you really
expect us to become a First World country with this? This is Third
World mentality. To attract call centers to the Philippines, we need to
slave our college graduates as phone operators? Isn’t it possible that
we will perpetuate our status as Third World workers for First World
businesses?
Low wages? For the last hundred years our strategy has always
been low wages but why are we poor? Maintaining low wages means
that you want the people to earn less than their US counterparts and
therefore keep the people in check under the strategy of poverty. Yet,
how come low cost of labor did not help our businesses become
world-class players like Nokia or Intel or Samsung? Isn’t it obvious
that maintaining low wages has kept us in Third World status? Can
you economically argue that low wages are what makes a country
rich? Statistics says no.
Low purchasing power? Low wages means low purchasing power.
Answer me this: Does SM or Ayala go to Maasin Leyte because of low
wages? No. The big businesses go to places where the people have
purchasing power.
Purchasing power is due to high wages of the people.
Isn’t it obvious that Jollibee goes to the US because of the high
purchasing power despite the high labor cost?
Why is SMC in Australia? Why is ABS-CBN in Saudi Arabia?
Economically, what makes a country richer, low purchasing
power or high purchasing power?
Yes, indeed, why aren’t Filipinos rich? Why is there a huge gap
between the rich and the poor? Why is management paid 100 times
higher than the lowest employee in this country while in some
countries it is only 10 times?
What is your solution to correct this situation?
As I have pointed out, it is not high education, it is not natural
resources, it is not command of English, and it is not low salary that
makes a country rich. It is how you value the poorest of the poor. It is
how you value least of the least. It is how you value human capital. It
is giving labor its true world-market value. It is Hyperwage.
( * * * * * Thads Bentulan January 18,25, 2007 * * * * *)
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