Tuesday, 29 May 2012

Economic risk on/risk off


John Mangun
OUTSIDE THE BOX
Business Mirror
http://www.businessmirror.com.ph/home/opinion/27785-economic-risk-onrisk-off

People who believe that a government can create jobs are wrong. A government can employ a person to do a job but a government does not have the financial means itself to pay the salary. A government must take the money from someone else to pay for its employee.

“The government can create jobs” relies on the fallacious argument known as the “Duck Test.” If it looks like a duck, swims like a duck, and quacks like a duck, then it probably is a duck.

The reason people make this incorrect assumption is that a government can look like a private corporation with a pyramid-shaped management structure and various departments with different functions. Swimming, like a private corporation, means having promotions, resignations, firing people and holding elections. A government can quack like a corporation with quarterly results, annual reports and lots of favorable forecasts.

But the look, swimming ability, and the quack do not make a duck a duck. It is the DNA of the Anatidae family of birds that makes the duck.

Part of the DNA of a corporation requires it to seek to earn a profit and gives its sole reason for existing. A government does not have profit as part of its DNA. Therefore, any job that a government creates is not to make a profit, as is true in a private corporation.

Many government employees provide services to the public that are then paid for by taxes, which, in effect, are a user fee. However, to expect a government to create and provide jobs is to assume that there is an ever-increasing demand for those government services. The Philippine government has actually tried that employment model. The number of government employees has grown by percentage faster than the general population although the two main services that people want, police and teachers, have not matched population growth.

History shows that all three branches of the government can stimulate jobs growth by reducing the risk of doing business by private-sector companies.

When you read about the factors that limit economic growth in the Philippines, it always comes down to the way that the government has failed to reduce the risk of doing business in this country.

Private enterprise needs a transportation infrastructure to get employees to their jobs and to get products quickly, and in an affordable manner, to the marketplace. The Philippine government has failed to assist in job creation.

Private business needs a legal system that can be relied upon for quick and impartial decisions. The Philippine government has failed.

The private sector needs fiscal and monetary policies that reward success and encourage investment. Another failure.

Every business needs a peaceful and orderly environment to operate where both the individual and the corporation feel safe and secure. More failure.

The private business owner needs to be able to be innovative and given the freedom and incentive to try new business models without burdensome government intervention. The Philippine government has failed to assist in job creation.

The highly successful outsourcing business has created hundreds of thousands of jobs because the Philippine government allowed and encouraged it to prosper on its own. The Peza incentives reduced the financial risk as these companies were starting up. The government provided encouragement for employees to join this new industry through some government-sponsored training programs. The government never halted the development of the outsourcing industry by lengthy and useless studies to figure out how the government could make the industry better.

Wisely, the government during the last 10 years acted as a facilitator, letting the private sector be the leader rather than trying to control the business as it is doing in so many other industry sectors.

Instead of taking the risk off, the government put more risk on by changing the rules as in the mining sector.

The risk of doing business in the Philippines will always be too high until the country has leaders who understand that the government is there to serve and not to control.

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 E-mail to mangun@gmail.com, web site is www.mangunonmarkets.com, and Twitter @mangunonmarkets. PSE stock-market information and technical analysis tools provided by COL Financial Group Inc.

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