``The main political problem is how to prevent the rulers from becoming despots and enslaving the citizenry.”-Ludwig von Mises, The Theory of Credit and Money
The Phisix defied the world’s seemingly buoyant environment with a 1.2% decline over the week. This comes amidst an early week tumble of 4.66% which saw an extension of the PLDT-Meralco led carnage of the Phisix from last week.
As earlier noted, the combined PLDT-Meralco market cap weighting was about 40% before Monday but fell to 34% at the end of this week. We described the politically driven selling as a foreign investor strike in King Kong Versus Godzilla at the PSE; Where Politics Trumps Markets.
News accounts say that the Lopezes giving up on Meralco had been a winning proposition for the former, we argue that it isn’t.
If the Lopez sellout had been out of voluntary efforts then I would probably agree. Unfortunately, the repeated harassment by the administration on the Lopezes could have been a big factor on their decision to give up their reign of Meralco.
In short, Meralco served as a prized trophy for the political football, where allies of the present administration appeared to have successfully outmaneuvered the besieged Lopezes.
This is a bad precedent.
If the management of Meralco has to be under the blessing of those seated in Malacañang then we should expect structural prices of electricity to go up in the future at the expense of the domestic economy.
Instead of looking for profitability, efficiency and productivity, the management direction of Meralco will be highly political in nature, aimed at gratifying to the whims of those in power.
In other words, the management of Meralco will function as the unofficial de facto extension of the Office of the President.
This implies many costs:
Social Political costs-if the Philippine Presidency decides to lower rates for the purpose of scoring political points on the public, Meralco as a private institution will suffer revenue losses from such subsidies.
Cost of bureaucracy- instead of aiming for professionalizing the institution, Meralco’s organization will likely be stuffed with political appointees which in effect would raise the cost of operations.
As an aside, it risks productivity loses and equally raises the risks of corporate corruption.
Political Costs-the cost of political programs that Malacañang may not want to directly carry may be passed on to Meralco, again raising Meralco’s cost of operations.
Nonetheless accrued losses of Meralco will translate to higher electricity prices as they will be eventually passed on to its consumers. Remember the fate of Napocor?
And high prices will in effect extrapolate to the loss of competitiveness for enterprises covered by the Meralco franchise which means less investments equals less job opportunities equals more poverty.
Were the management of Meralco incur the ire of the Malacañang for one reason or another in the future, we could expect another round of takeover from parties favorable to the palace.
This again sacrifices the stability of the organization which incidentally is a monopoly for Metro Manila’s electricity distribution. And sacrificing stability may raise the cost of obtaining credit or financing cost.
Of course financing cost isn’t just about the organizational stability but likewise the ability to pay which also means bottom line pressures likewise apply to higher credit risks for the company which in turn may raise the cost of Meralco’s operations.
It never seems to occur to most people, not even to our so-called analysts that government intrusion into the private sector has far reaching unintended consequences at a severe cost to Meralco as a company and importantly to the economy.
We should thank our lucky stars that the political costs from today’s political football may be overwhelmed by the surging costs structures from collective government intervention abroad.
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