Tuesday, 28 July 2009

More economic nonsense

Outside the Box
John Mangun
Business Mirror

Occasionally in the entertainment/lifestyle section of a newspaper, you will see an article titled something like “Where Are They Now?” Then you read about some celebrity whose star has faded and little is heard about.

The New York Post is famous for its “Weird But True” section with stories like “Michael Jackson is getting a new tribute, a statue of the singer made out of butter will be displayed at the Iowa State Fair next month.” Or “A German drunkard stumbled into an open drain and got stuck in the hole because of his large beer gut.”

There ought to be something similar in the business section to call attention to the “economic nonsense” that we are confronted with on a daily basis.

About a week or so ago, tire manufacturer Goodyear announced that it was closing its factory in Las Piñas, laying off 500 workers. “Google” this story and you will find more than 170 stories from around the globe about this event. Granted that the factory opened in 1956, the closure was clearly a result of the current economic meltdown. The majority of the Las Piñas factory production, 2 million units, was for the export market. And its closure was part of a broader Goodyear downsizing program to reduce world production by 15 million to 20 million tires annually.

However, a comment from Goodyear’s Asia-Pacific region president based in Shanghai provided some fine material for the local Philippine bashers. He said, “Due to high costs compared to other plants in the region, tires produced in the Las Piñas plant are not competitive in the marketplace.”

Some of our loyal local pundits jumped on that statement as further proof that the Philippines has not got a chance to compete in the global markets.

Goodyear, like many other multi-national manufacturing companies, are forced to reduce worldwide production. They chose to close those factories where production costs are higher. It is simple arithmetic. And what is the No. 1 production expense? Labor costs.

So if we want to be more “globally competitive,” the solution is very simple. In fact, the solution is so perfect that with this proposal, Goodyear might not only come back to the Philippines but increase capacity to employ 5,000, not just 500 Filipinos. And I can almost guarantee that by next year, the Philippines would be in the top 10 in the global competitiveness rankings.

We start by abolishing the minimum wage for multinational companies who set up shop in the Philippines. No longer will we allow the Chinese, Vietnamese or anybody else to be more wage-competitive than the Philippines. We outlaw labor unions, collective bargaining agreements and workplace safety rules. In fact, in 20 minutes, the Congress and the Senate can solve most of the competitive issues by repealing the Philippine Labor Code. That way, the Indonesians, Malaysians and the Thais will not have a chance against us.

We can abolish all taxes; income, tariff duties, and payroll for these companies. And we can do away with other competitive issues like SSS, PhilHealth, and Pag-Ibig payments. The multinationals (and some Filipinos) have said for years that the country should be more grateful for all the jobs these companies create, so now the nation can give them a really big “thank you” by these measures. We can show the world what “global competitiveness” really means.

In fact, why go through all that time and trouble? When a foreign company wants to do business in the Philippines, we should just let them write their own rules. Anyway, they often tell us that they know what is best for the Philippines. But in truth, most of the conversation regarding Goodyear/competitiveness is nonsense.

The headline (not BusinessMirror) read: “BIR falls P11.5-billion short of first-semester target.” The analysis was that this “shortfall” was because of “poor economic conditions.” Buried and ignored in that article was the important information that, of course, BusinessMirror correctly headlined; “VAT surged to P86.56B in first half.”

The Bureau of Internal Revenue (BIR) sets collection targets. These are targets and goals, and reaching or not reaching a goal may not have anything to do with the economy. Income-tax collections were down 9 percent from 2008. However, there is not necessarily any correlation between a company paying less tax and earning less profits as the article implies. A company could easily have greater revenue and greater gross profit and still have a smaller tax bill because of a variety of factors unrelated to the economy.

Only BusinessMirror got to the truth. “Tax collected from services and goods subject to 12-percent value-added tax [VAT] surged 24.6 percent in the first half of the year to P86.56 billion, boosting arguments that local output should remain resilient this year and prove the economic doomsayers wrong.”

Notice the number on the valued-added tax collection: higher by 24 percent over 2008. That clearly shows the amazing strength of the Philippine economy during these difficult times. Any other conclusion is absolute economic nonsense.

On a personal note, the exclusive stock-market web site and market update, now reserved for members of the Portfolio Trading Program, is available. If you would like subscription details for the weekly Stockmarket Update and a sample, please e-mail me.

PSE stock-market information and technical-analysis tools were provided by CitisecOnline.com Inc. E-mail comments to mangun@email.com.

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