Tuesday, 20 September 2011

Capitalism and socialism won’t work

Business Mirror

The jeepney strike yesterday reminded me of something I read several years ago. “The jeepney has become a metaphor for the Philippine economy: inefficient, chaotic and easily overtaken.”

Over the years there have been calls for jeepneys to be eliminated from Philippine roads but we all know that it is not going to happen. And when you talk about “Philippine roads,” there is a wide disparity between Metro Manila, the provincial other “Metros,” and the more rural areas of the country.

This latest transportation strike is, as usual, about the price of fuel. Of course, the bus operators canceled their motorcade on the Slex in protest against another issue—an increase in toll. I am sure it was merely postponed until there is a more available time slot to get all the publicity they want.

The jeepney strike does have a specific purpose. The owners and operators want the government to do something about high oil prices. Specifically, the demand is to stop the 12-percent value-added tax (VAT) on oil products and a stop to the implementation of the VAT on toll.

The transport groups make sure to remind the media that this would lower the costs for all transportation, both public and private. But I bet that they would gladly settle for a compromise, just exclude the VAT for jeepneys.

Ultimately, what we are talking about here is for general taxpayer money being used to subsidize one small group. It is exactly similar to objections from the provincial congressmen objecting to public funds collected from all over the country being used to subsidize the Metro Manila light-rail system.

If the jeepney owners and drivers operated like all other businesses do, they would raise their prices in line with an increase in their costs. But fares are regulated by the government, so in fact, the jeepney groups are completely justified in expecting the government to subsidize their costs.

That is the problem with a system that wants a little bit of capitalism and also a little bit of socialism. It is inefficient, chaotic and easily overtaken.

Contrary to what you are told by the progressives and leftists, capitalism is a true distributor of wealth. Let’s assume that the jeepney business were less regulated. Jeepneys could raise or lower prices at will. Those who are scared to death of free enterprise would then claim that the jeepney owners would become a cartel and would fix prices at an unjustifiable high level. That is exactly what the jeepney groups are screaming that the oil companies are doing.

If the jeepneys had to pay the same price that you and I do for fuel, let’s say the basic fare would be P15. Riders would complain that they cannot afford the increase. And you know what would happen next? Because fares are not government regulated, some enterprising jeepney operator on a well-traveled route would lower his fares to P12. There might even be price competition, the bedrock of free markets.

Another enterprising operator would decide to air-con the jeepney, wear a clean shirt, serve juice and cookies, and charge P30. That operator might pull some business away from the shuttle services and at a cheaper fare.

Where does the wealth distribution come in? Shoemart and other large employers have tens of thousands of personnel that ride jeepneys. These employees might want a little bit more money each month because of increased fares. Shoemart for example, might agree to this to keep their employees happy. They might raise prices by a few centavos to their millions of customers to pay their tens of thousands of employees to pay for increased fares to thousands of jeepney operators.

That is how capitalism and free markets distribute wealth properly.

The other option to this little bit of capitalism/little bit of socialism is to have the government do it all. Let the government own and operate all the jeepneys. Fixed fares, fixed wages, and no profits. No free market and no capitalism. Isn’t that what the progressives want?

We saw how well that worked for airline transportation when the government owned Philippine Airlines. We waited seven years for a phone when the government imposed a communications monopoly. We now live with the government “owning” electricity generation. And of course, all governments do a great job with public education.

A corrupted system with too much government control can be equally as bad for the economy as crooked government employees.

On a personal note, I can now invite you to visit mangunonmarkets.com. You can gain access to the PSE Strategy Guide for stock-market investors as well as other content that I hope you will find interesting.

E-mail to mangun@gmail.com and Twitter @mangunonmarkets. PSE stock-market information and technical analysis tools provided by CitisecOnline.com Inc.

No comments:

Post a Comment