Part II
The shift from direct investment to produce and manufacture goods to portfolio investment relying wholly on interest rate reached its peak during the Reagan administration. Here, the period that coincided with the empowerment of the oligarchy spearheaded by Mrs. Aquino, was positively responded to by exempting and reducing tax on foreign investment to attract and give incentive to foreign capital, while at the same time dismantling many of the Marcos-built tariff barriers and subsidies which were designed to encourage production by increasing the income of those who actually toil.
These incentives given to foreign capital accelerated the gap between profit earned from interest rate on loans, stock trading and speculation, which were mostly confined to non-productive economic endeavor. The withdrawal of subsidy dis-incentivized investment in manufacturing and agricultural production, while directly affecting those engaged in the production of goods and services, which is supposed to be the most important vehicle in wealth creation. As a result, the gap of economic inequality became extremely wide. It created a handful class of billionaires whose political power completely synthesized with their economic power, with the teeming majority subsisting on what they meagerly earn with no hope of economically advancing whatsoever.
In the Philippines, it began with the privatization of the government-owned public utilities, with those foreign creditors providing loans to the local oligarchy that signed the notorious currency exchange rate adjustment (CERA). Little did consumers know much about it, and about why they had to pay an additional charge for their water, electricity, toll fee, etc. when normally they should not be charged for those services to justify the high exaction from their earnings called taxes, not to say of it as a public service. The added cost may be insignificant, but taken collectively could reach staggering proportions. As a condition, CERA assured foreign investors and international creditors like the World Bank and the IMF that for whatever happens, they could not be shortchanged as a result of the fluctuating value of the local currency against the US dollar.
For instance, if the loan was obtained when the exchange rate was at P41 to a dollar, and suddenly it depreciated to P44, the government allowed the oligarch-franchise holders to collect the difference from their customers the difference of P3 or 18.92 percent. That includes the interest rate that correspondingly increases. Under that finance mechanism, there is no way foreign creditors could lose even by a centavo.
Another, was the condition to allow owners of public utility firms such as electricity, water, toll fees, etc. to pass on their payment of franchise tax to their customers. Like the CERA, the payment of franchise tax has become repulsive because it is a privilege tax imposed on the owner of the public utility than of a revenue tax. Franchise tax is precisely imposed to protect the holder from undue competition because the nature of the business would require huge capitalization, and the government has to assure the owner of his investment by granting him either the monopoly or by regulating the industry to prevent ruinous competition.
Franchise is considered a deviation from the laissez faire system but is made necessary to meet the ends of social justice. Instead of observing that principle as observed under P.D. 551, franchise holders were allowed to pass that on to their customers following the same practice they did to CERA and VAT. In that, one could see that the oligarchy was allowed not only to own the public utility, given the protection by the State, but to pass on their liability to their customers, thereby creating a class of mega rich in the wretched land of deeply religious people.
One must not forget that when the government butted in for the trading of electricity, the motive it stated in the “whereas clauses” of the Epira Law was to improve the industry and reduce the cost of electricity by encouraging investors, and the easy route was to trade electricity. After more than 10 years of trading nicely called Wholesale Electricity Spot Market (WESM), there remains no record that the profit generated in the trading of electricity was ever plowed back to improve the industry and concomitantly reduced its cost residual to free market competition.
Maybe the industry has managed to widen its area coverage, but that was carried out by the franchise holders from their own direct investments just as that would be good for them. Rather, the profit generated from the trading of electricity which partakes of a portfolio investment, wholly went to the pockets of bettors styling as investors, to the owner-oligarchy, with some ending up as fat commissions to traders accredited by the Philippine Electric Marketing Corp. or PEMC.
Much that the price of electricity per kilowatt hour has gotten out of control, and the public now making their angry clamor for its reduction, forcing the Energy Regulatory Commission (ERC) to reassert is authority by fixing and reducing the price per kilowatt hour, even if for momentarily. The assertion of authority by the ERC exposed the downright stupidity of our lawmakers because the trading of electricity impliedly abrogated the power of the ERC to fix the price of electricity.
As in all public utilities that were deregulated, they were from thereon subjected to the rigors of free market competition, and therefore beyond the control of regulatory laws, although the capitalist vices of monopoly, cartel, price rigging, etc., still played its invisible hand to keep the price at lucrative level to entice investors to keep the casino economy going. That also happened after the government privatized our water service, our first and only oil company, our expressways, etc.
As said, the detachment of the US dollar from the gold standard resulted in the oversupply of money because people tend to concentrate more on speculative trading. That decision was taken advantage, which reason why wealth created through speculate trading disproportionately ballooned in contrast to the normal growth of wealth through production and manufacturing. Yes, money grew by their figure, but that drastically reduced the purchasing power of the wage earners much that value-wise, their wage remained stagnant, notwithstanding the continuing inflation and loss of jobs.
Reagan’s chief economic adviser Milton Friedman introduced the monetarist policy - that by controlling the supply of money, the rest of the economy will take care of itself. He also advocated that the government should keep money supply fairly steady, and expanding it slightly each year to allow the natural growth of the economy. In that, one could see that money has become pivotal that modern-day capitalists no longer relied on the classic means of creating wealth through the production and manufacturing of goods. So, from a serious trade deficit, the US economy morphed to become the greatest debtor on this planet.
rpkapunan@gmail.com
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