Many could not understand why privatization sought to impose a ban on government participation in business. What is wrong in the government participating in business? Maybe government entry could be assailed if its objective is to monopolize the production and distribution of goods or services understood as “nationalization”.
On the contrary, for the State to participate is to put on track free enterprise. Capitalism, left alone, has never been a perfected economic system. It always ends up in monopoly by undercutting prices, dumping or even smuggling all designed to eliminate competition.
Free enterprise is saddled with problems inherent in the system like the formation of oligopolies and cartels, price manipulation, dumping, hoarding, and all sorts of unfair business practices. Such practice invariably results in the harsh exploitation of the workers. Capitalists take them as their first victim, not their business rivals, to reduce production cost. Corollary to that is their tendency to evade or reduce payment of taxes.
Such problems however cannot be resolved by nationalizing problematic industries. Leaders like the late President Marcos insisted that the government should instead participate in business like any private enterprise endeavoring to earn profit. State-owned enterprises could play the role to break the cartel that controls and dictates the price of goods, and prevent the entry of legitimate competitors through price rigging. In that instance, the government could level their price with the rest in the industry, deterred from resorting to hoarding to artificially create shortage.
As a stepping stone to industrialization, SOEs, as base industries, are meant to generate capital. The accumulated capital, in turn, is used to finance the building of even more complex industries as what Korea, China, Singapore and Malaysia did to achieve a respectable level of industrialization manufacturing high value products and promoting massive employment.
In a “mixed economy”, profit is not really stifled but regulated by the natural operation of the market forces of which the SOEs play a vital role to reduce production cost. This explains why at the outset, the privatization of the strategic industries such as the importation, refining and distribution oil; water distribution; and the generation and distribution of electricity to reduce their prices was doomed to fail. If some managed to compete, it was an oligopoly competition than an honest-to-goodness one.
In the end, the promise of bringing down the prices of goods and services became a myth only former President Ramos and his disciples continue to blindly believe. Artificial competition was carried out by a system of syndicated cartel amplified today by the unrestrained increase in the prices of fuel, water, electricity and its subsequent trading beyond one’s wildest imagination.
Maybe tax collection increased because of the high cost paid, but that was not the result of increased sales. It was the result of a depreciated currency caused by inflation, increased operations cost, high salary for the new executives, and unrestricted profit that borders on greed.
In fact, anybody who knows a little of economics and uses his common sense to apply the basic laws on commerce could readily tell that when the price of certain goods and services are deregulated, that amounts to an implied legalization of the cartel. This explains why some countries regulate, restrict and control the prices of goods manufactured and services undertaken by strategic and vital industries, or even forthrightly nationalize them.
That became a necessity because there could only be one or few players by the nature of the industry. That effectively encouraged the uniform fixing of price among the players; to either increase after the unwanted competitors had been eliminated or to unduly bring down their prices, even at a loss, to ease them out of the market through cutthroat competition.
True competition occurs only when there are many competitors impersonally interacting in the open market. In monopoly or oligopoly industries, the formation of cartel is bound to happen, and this explains why the buyers of those government-owned enterprises, as pre-condition for their purchase, sought to append a law on the privatization binge of the Ramos administration by seeking to deregulate the prices of their goods and services. The subsequent approval of that law made operational the mechanism of an airtight syndicated cartel, viz. with the government placed in a straightjacket.
So, the hot air flaunted by the Ramos government turned out to be a foul smell. Some say it was criminal because the runaway prices offered by the privatized industries reflect more of price rigging. For instance, just before Marcos was removed from office, the price of unleaded gasoline was at P7 and diesel at P4 per liter. Today unleaded gasoline is at P55 and diesel at P45 per liter. During his time, per tank of LPG at 11 kilograms cost about P56. Today, per tank costs more than P800. Water, before it was privatized, was at P2.50 per cubic meter. Now it costs about P25 to P30 per cubic meter. Electricity cost ranged from 18 to 22 centavos per kilowatt. Now the average charge is at P13.37 per kilowatt hour.
Many of our people suffered because privatization removed from them the remaining clutch that would secure their welfare. The whole concept of serving the people is now confined to just collecting taxes, which if one would take a second look is plain extortion because payment of taxes demands a corresponding public service. The government now demands a fee for every service it renders contrary to the classical theory that it is obligated to return what it collects by way of services like free hospitalization, education, low cost housing, etc. and subsidy in the cost, say of rice, water, oil and electricity.
To relegate everything to the private sector is to make a mockery of free enterprise because without government participation, it is nothing more but economic anarchy.
