Abenomics: Weak Yen Takes Toll on Small Japanese Companies

I have recently posted on how the weak yen has wreaked havoc on profitability of many corporations, now we see evidence of the discriminatory effect from the weak yen mostly on small Japanese companies.

From the Wall Street Journal Real Times Economic Blog

While the total number of corporate bankruptcies hit a 24-year low for the six months to September, suggesting corporate Japan is doing well, in part helped by public works spending, a closer look at the data shows that the number of corporate bankruptcies caused by factors related to the yen’s weakness is rapidly rising.

Bankrupt firms citing the weaker yen surged to 214 during the first nine months of the year, compared with just 89 during the corresponding period last year, data released Wednesday by Tokyo Shoko Research Ltd. showed. Only the sales slump following April’s increase in the sales tax was cited by more firms as the main factor behind their bankruptcies.

The failed businesses, many of them small, were struck by the higher costs of imported materials such as fuel, minerals and food as the exchange rate shifted from less than ¥80 per dollar two years ago to as high as ¥110 in recent days. Hit hardest was the transportation industry, including trucking companies, which saw 81 companies go bankrupt. The number of insolvencies totaled 44 in manufacturing, 41 in wholesale and 19 in services, the research company said.

Understand that a weak yen policy (as well as other forms of interventions) redistributes resources politically from one group at the expense of the others. 

For instance, a weak yen policy has been partly designed to subsidize foreign exchange earners such as exporters compared to the rest. I say partly because there are other motives, viz inflate away debt or generate price inflation or subsidize government actions.

In the context of exports, now if we look at Japan’s merchandise trade as % to GDP, which is at 28.4% as of 2012 based on World Bank data, assuming that exports and imports are evenly distributed (even when they are not as Japan trade balance has been in a deficit that got worsened under Abenomics), this means that a weak yen policy supports only 14.2% (28.4/2) of the statistical GDP. As a caveat, this back of the envelop estimates assumes evenly distributed gains to exporters when they are not. [Exports have actually hardly gained under Abenomics] Also this looks merely at statistical numbers without considering the real economic transmission mechanism of a weak yen policy.

Yet because of natural limits in the Japanese economy, say how inflation changes the patterns of domestic consumer spending by putting a kibosh on discretionary spending, the effect would be to put pressure on corporate profits as input costs rise while firms have not been able to pass the costs to consumers as previously predicted:

In short, corporations appear to be very hesitant to raise prices perhaps in fear of demand slowdown. Thereby this means a squeeze in corporate profits. Abenomics has only worsened such existing conditions.

Yet the most vulnerable group to inflationism have been no less than small businesses. 

So while the “total number of corporate bankruptcies hit a 24-year low…in part helped by public works spending” the surge in “bankrupt firms citing the weaker yen to 214..compared with just 89 during the corresponding period last year” or signifying 140% jump, it has been the small businesses catering to domestic markets that has mostly been hit. 

Further note that so-called improvements in corporate bankruptcies has been due to “public works spending” which means many of the mainstream corporations have been benefiting not from organic economic demand but from political redistribution of resources.

As one would note Abenomics weak yen policy has about rechanneling of resources to favored interest groups or crony capitalism.

Yet the massive distortions from government interventions as I previously noted would only disrupt the economy: 

It’s a wonder how the Japanese economy can function normally when the government destabilizes money and consequently the pricing system, and equally undermines the economic calculation or the business climate with massive interventions such as 60% increase in sales tax from 5-8% (yes the government plans to double this by the end of the year to 10%[21]), and never ending fiscal stimulus which again will extrapolate to higher taxes.

It's a wonder how the Japanese economy can ever recover when small and medium scale businesses, whom have been the main victims of Abenomics, have been the heart and blood of the Japanese economy. As the Economist noted in 2010: (bold mine) More than 99% of all businesses in Japan are small or medium-sized enterprises(SMEs); they also employ a majority of the working population and account for a large proportion of economic output. While most of these companies are not as well known as Japan’s giants, they form the backbone of the service sector and are a crucial part of the manufacturing and export supply chain. 

Notice too why exports haven't picked up? 

Also given Japan highly fragile fiscal conditions, all these interventions implies that it’s a system that has been thriving on borrowed time and is not bound to last. 

Booming Japanese stocks, one of the major beneficiaries of political redistribution and direct interventions in particular BoJ's record buying of Japanese stocks, will eventually face economic reality.

Why Bank of England’s Small Business Loans Program May Fail

Talk about central banking wizardry. 

The Bank of England (BoE) will extend lending programs to small and business enterprises for another year even if such measure has initially failed.

From Bloomberg:

The Bank of England will extend by one year its plan to provide cheap loans to companies and consumers and make credit available for small companies, enhancing a nine-month-old program to aid the economy.

The Funding for Lending Scheme will now last until January 2015, and will make lending to small companies more attractive and open to non-bank lenders, the BOE and the Treasury said in London today. The government says its program has lowered borrowing costs by about 100 basis points and provided 13.8 billion pounds ($21 billion) between its creation and December

“This is a big boost for the small and medium sized businesses that are at the heart of the British economy,” Chancellor of the Exchequer George Osborne said in an e-mailed statement. “This innovative extension will now do even more for small and medium sized businesses so that they can play their full part in creating new jobs.”

Osborne is expanding the program on the eve of economic statistics that may show Britain’s economy was close to an unprecedented triple dip in the first quarter. The announcement also precedes an audit of the U.K. by the International Monetary Fund, whose delegation visits London next month after the fund said Osborne should ease his austerity plan to aid growth.

Today’s extension to the FLS will allow banks to borrow 10 pounds next year for every 1 pound they lend to small companies in 2013, the Treasury said. If they wait to extend the loan until next year, the amount they can borrow under the plan is halved to 5 pounds for every pound loaned. Banks can borrow 1 pound for every pound loaned with the rest of the program.

The premise here is that access to finance has been the key barrier besetting the Small and Medium scale businesses.

While it has been true that UK’s overleveraged economy has forced households and firms to pay down debts, that’s only part of the story.

The main obstacle to small and medium scale businesses has been the domestic economy and domestic demand, this is according to the latest survey by the Federation of Small Businesses (FSB).

John Walker, National Chairman of FSB says another factor influencing the weak economy and demand has been inflation

Though our members are feeling more optimistic, the outlook remains challenging with domestic demand weak. Consumer spending has been subdued by inflation, eroding disposable incomes, with inflation expected to remain above the target level in 2013. In this quarter, members report that three cost elements – fuel costs, input prices and utility bills – are increasing their overheads and while down from 12 months ago, the last three quarters of 2012 showed these cost pressures persisting.

So this should be a great example of how inflationism distorts the economic calculation that leads to a stagnating economy amidst elevated inflation or stagflation

The Bank of England has basically increased their balance sheet by almost three times since 2008. 

Over the same period, UK’s statistical consumer price inflation rate remains lofty despite the deleveraging by households and firms. 

Yet as pointed out by the article, UK’s economy is facing the risks of a triple dip recession. (charts from tradingeconomics.com)

In short, all money printing by the BoE has failed to deliver what has been promised—a recovery.

Instead what all the money printing has done has been to keep the bubble in the property sector afloat. 

While UK’s average housing prices have been down from 2007, they remain above the pre-bubble bust levels. This goes the same with housing pe ratios (chart from Nationwide.co.uk)

Another area which BoE’s QE has positively influenced has been the stock market.

UK’s FTSE 100 has been on the rise since 2011 (blue trend line), even as the economy fumbled from one recession to another. Another wonderful example of a parallel universe. The FTSE has been up 8.6% year to date as of yesterday’s close. (chart from Bloomberg)

In other words, all cheap credit and money has done has been to incentivize speculation (asset bubbles) at the expense of the productive sector of the economy. 

Why invest in businesses when the costs of operating one have been unpredictable and when financial markets, especially backed by an implicit Bank of England Put, would give a better yield?

Since the inception of the FLS, the BoE’s recourse to cheap credit has also failed to boost lending to the SMEs.

What this means is that the BoE’s FLS credit program hardly addresses the roots of the problems, which hasn’t been about credit. The BoE fails to see that her inflationist policies has functioned as one of the principal obstacles to economic recovery.

Yet like typical political authorities, who wants to be seen as “doing something”, the expedient action has been to do the same thing over and over again and expecting different results. Unfortunately, the outcome will likely go against their wishful expectations. 

Philippines Small Business: Unfortunate Victims of Political Distribution

When, then, does plunder stop? It stops when it becomes more painful and more dangerous than labor. It is evident, then, that the proper purpose of law is to use the power of its collective force to stop this fatal tendency to plunder instead of to work. All the measures of the law should protect property and punish plunder.- Frédéric Bastiat

In a few hours the Philippine President, Benigno Aquino Jr. will be making his second state of the nation’s address (SONA).

Yet like most speeches, much of what we will likely hear will be founded on emotive platonic rhetoric, mostly founded on logical fallacies and empty promises whose solution would require expanded political redistribution and more control over the economy and the sacrifice of civil liberties.

And most likely, the important real factors will be glossed over.

Nevertheless, the following charts shows where the Philippines have gotten policies so wrenchingly astray.

The heart of any market economy is the small businesses.

In the US, small businesses have functioned as an indispensable force.

According to the US Small Business Association[1]

-Represent 99.7 percent of all employer firms.

-Employ just over half of all private sector employees.

-Pay 44 percent of total U.S. private payroll.

-Have generated 64 percent of net new jobs over the past 15 years.

-Create more than half of the nonfarm private gross domestic product (GDP).

-Hire 40 percent of high tech workers (such as scientists, engineers, and computer programmers).

-Are 52 percent home-based and 2 percent franchises.

-Made up 97.3 percent of all identified exporters and produced 30.2 percent of the known export value in FY 2007.

-Produce 13 times more patents per employee than large patenting firms; these patents are twice as likely as large firm patents to be among the one percent most cited.

China’s majestic renaissance also shares the same dynamics

Ms. Lydia So of Matthews Asia writes[2], (bold emphasis mine)

With the diminishing dominance of state-owned enterprises (SOEs), China’s private sector is increasingly becoming an important driving force for economic growth. Over the past few decades, these private businesses have been a large contributor to providing consumer-oriented goods and services, generating employment, and leading to innovation as well as increased productivity in China. These changes didn’t occur overnight. A favorable business environment is essential in fostering entrepreneurship in any country. While entrepreneurs in China got a relatively "late" start compared to their global counterparts, its achievements and contributions in driving the private economy have been impressive. To date, small and medium enterprises (SMEs) have become the dominant growth driver and a critical source of China’s expanding and evolving economy. In 2007, SMEs accounted for 55% of GDP, 60% of China’s industrial output, 65% of patent registrations and 70% of employment in urban areas.

Now, in contrast, the Philippines have shown a tremendous decline in registered small and medium sized business over the past decade.

Such dismal outcome have been in place despite the so-called manifold government assistance via (chart above and quote from ADB[3])

extension of financial support, enhancement of managerial and technological capabilities, tapping domestic and international markets, streamlining systems and institutions, and providing infrastructure and incentives

We understand that small businesses have not entirely vanished but have mostly gone underground or have operated beyond formal government.

This we know or call the informal economy.

The chart above from the ADB[4] shows that 43.4% of the Philippine economy has been operating underground or informally.

The other way to say this is that 2/5 of the Philippine economy exists outside of the ambit of government.

The multifarious reasons for the existence of an informal economy as I earlier pointed out are[5]

-high taxes,

-high welfare payments (social security)

-restrictions, mandates in the official labor market

-minimum wages

-a smothering web of government regulations (license requirements, labor market regulations and trade barriers)

-compliance and other regulatory related costs

In other words, an overdose of government regulations and tax and welfare burdens has pushed small businesses out to operate in the informal economy which has surmounted any trivial incentives by the government to promote them. What the left hand giveth, the right hand taketh away!

The simple reason is that operating in the formal economy has been so politically and economically exacting whose cost benefit rewards informal operations. Talk about the Philippine government sowing the seeds of self destruction!

The ADB chart shows almost the same concerns.

Corruption, as expressed by the surveys, is seen as the fundamental problem.

Yet the public has been virtually deluded to think that the roots of corruption have been about all about personal virtuousness.

Little realize that corruption, inefficient government bureaucracy, inadequate supply of infrastructure, policy instability, tax regulations, crime and theft and tax rates or at least 84% of the aforementioned obstacles for doing business have all been intertwined. You can even count in coups, labor regulations, inflation and foreign currency regulations as part of this.

Many people (vendors) pay bribe money just to be able to operate the informal economy which makes corruption an informal way of governance too. Except that bribe money goes directly into the pockets of the enforcers than the coffers of the government.

Yet people hardly realize that all these obstacles are consequences of predatory laws, as governments have been all about the power to plunder others and not about moral uprightness[6].

I reprise my previous quotation of the legendary investor Doug Casey on corruption[7] (bold emphasis mine)

As Tacitus said in the second century A.D., "The more corrupt the state, the more numerous the laws." It's absolutely predictable that as all these governments around the world – and I mean all of them – respond to the ongoing crisis with an ever-accelerating onslaught of new laws, there will be more and more corruption – and frustration with that corruption.

Tacitus was right. But he could just as accurately have said, "The more numerous the laws, the more corrupt the state," because lots of laws engender lots of corruption. In other words, corruption isn't the problem. The state and its laws are the problem, to which corruption is an unsavory and unaesthetic – but necessary – solution. Laws create corruption, and corruption engenders laws.

Anyone can operate on utopian illusions and fantasies, yet economic reality eventually prevails and slaps us in the face.

Don’t we ever realize why self appointed messiahs in uniforms always pop out somewhere with their reformist rhetoric[8] but whose goal is to only seize power?

Personality based politics which operates on the principle of plunder represents a vicious cycle that deals with the superficial or the symptom and won’t solve whatever ills we have.

The only way to improve the Filipinos’ standard of living is to adapt and promote economic freedom through the repeal of these byzantine arbitrary anti-competitive laws and regulations, by vastly reducing bureaucracy and government spending, by having an economic system based on sound money, by pruning political stranglehold over the economic distribution of resources, by promoting property rights and the upholding the sanctity of contract through the rule of law.

---

[1] SBA.gov How important are small businesses to the U.S. economy?

[2] So Lydia, China's New Generation of Entrepreneurs, Matthews International Capital Management July 1, 2011

[3] Paderanga, Jr. Cayetano W. Private Sector Assessment Philippines 2011 ADB.org

[4] Martinez-Vazquez Jorge, Taxation in Asia 2011 ADB.org

[5] See Does The Government Deserve Credit Over Philippine Economic Growth?, May 31, 2011

[6] See Video: The Myth of Good Government, July 23, 2011

[7] See Doug Casey On Corruption: Laws Create Corruption And Corruption Engenders Laws, February 10, 2011

[8] Inquirer.net Marine colonel calls for Aquino’s ouster, July 16, 2011

3 Philippine Firms Among Forbes Asia’s Top 200 Smallest and Midsize Companies

Forbes magazine issued its index of the 200 top small scale and midsized companies of Asia (with $1 billion revenues and below)

Some highlights presented by Forbes:

-China maintains the most with 71 but is down from 78 last year

-Indian companies shot up to 39 from 20 last year

-Vietnam made a debut with Vinamilk

-only 2 Japanese companies made cut down from 24 last year

-151 names are new compared to 2009 list

-technology companies (hardware and software) seem to be making the growth inroads as well health care issues

Additional comment:

Among the ASEAN 4: Thailand has 11, Malaysia has 7, Philippines has 3 while Indonesia has one

See the complete list here

For the Philippines: They include Lopez Holdings (classified as media), Pacific Online system (household products) and Philweb (software services)

See charts below: (note: this does NOT in anyway represent a stock TIP)

Lopez Holdings (LPZ)

Pacific Online (LOTO)

Philweb (WEB)

In The US, New Businesses Surge in 2009!

In the US, the Kauffman Institute claims a record surge of new business activities in 2009.
Here is an excerpt of the press release "Despite Recession US Entrepreneurial activity Rate Rises In 2009 To Highest Rate in 14 years" (hat tip: Mark Perry)

"Rather than making history for its deep recession and record unemployment, 2009 might instead be remembered as the year business startups reached their highest level in 14 years – even exceeding the number of startups during the peak 1999-2000 technology boom.

"According to the Kauffman Index of Entrepreneurial Activity, a leading indicator of new-business creation in the United States, the number of new businesses created during the 2007–2009 recession years increased steadily year to year. In 2009, the 340 out of 100,000 adults who started businesses each month represent a 4 percent increase over 2008, or 27,000 more starts per month than in 2008 and 60,000 more starts per month than in 2007.

"Challenging economic times can serve as a motivational boost to individuals who have been laid-off to become their own employers and future job creators,"said Carl Schramm, president and CEO of the Kauffman Foundation. "Because entrepreneurs drive the economy, the growth in 2009 business startups is encouraging and hopefully points to a hopeful trend in terms of our economic recovery.”

Read the rest of Kauffman's press release here.

My comment: While the Kauffman institute does provide some details over geographical distribution of entrepreneurial activities (press releases naturally provides limited info), it doesn't make a breakdown on the industries where these activities have seen the surges.

My suspicion is that they'd probably be centered on technology or technology related activities.

But the point is, it's simply wrong to write off the elan of entrepreneurs, in spite of all the troubles (aftereffects of bubbles cycles, government intervention, bailouts, prospective high taxes, growth of government relative to the economy and etc..).

The ramifications of the deepening knowledge based economy is one of the x factors that can sustain free enterprise.

Changing Dynamics In Central Bank Management, Quasi Boom Policies

``With the economic improvement and steepening yield curve that our US team expects, commercial banks may find it a good risk/return decision to move these funds into the real economy rather than simply earn an interest rate in the neighborhood of the risk-free IOR. The risk therefore is that these methods of draining reserves simply postpone the macro problem of burgeoning excess reserves.”-Manoj Pradhan ER, RR, IOR and RRR

It’s a simple fact that the world constantly changes.

Even the management of central banks given today’s monetary conditions has been exhibiting such changes. Traditional tools don’t seem to have the same measured ‘efficacy’ due to the drastic stimulus-response feedback loop mechanism applied by authorities in response to the rapidly changing environment. I would posit that the past successes had not been out of bureaucratic skills but out of happenstance; the emergence of globalization had engendered the era of the “great moderation”.

For instance, in an effort to curb the incidences of bank failures during the latest crisis, central banks have rapidly deployed the unorthodox (nuclear option) means of providing emergency loans against ‘dubious’ forms of collateral and importantly the purchasing of specific types of bubble ‘tainted’ assets directly from the market.

The proceeds from the central bank loans or sales have led to the intensive ballooning of excess reserves (ER) of banks, which until today, has been warehoused in the central bank. Considering the extent of balance sheet impairments of the US banking system, the temporary measures have not yet adequately resolved the chronic woes, nor has these excess reserves been converted into end user or consumer loans. Not yet anyway.

Hence, the huge buildup of excess reserves has apparently altered the scalability of the tools required to deal with balance sheet management of the central bank.

Morgan Stanley’s Manoj Pradhan describes the transition, ``The traditional way of draining reserves was to sell T-Bills to commercial banks. This would mean that commercial banks would replace cash on the asset side of their balance sheet with the T-Bill of an equivalent quantity. However, ER held by the Fed now stand at US$1.1 trillion and the size makes it difficult for reserves to be drained in the traditional way.” (emphasis mine)

In other words, the change in the discount rates or possibly even the Fed Fund rate may seem more symbolic than functional. And perhaps this may be one reason why the markets appear to have discounted the recent actions by the Federal Reserve.

The Federal Reserve has thus been tinkering with experimental tools such as reverse repo, term deposit facilities and interest rates on reserves.

So while the Fed desires to see ample liquidity in the system, withdrawing the huge stack of bank reserves underlines the apparently emerging distinct objectives- the task of liquidity and interest rate management.

Reviving The Credit Process By Fueling Bubbles

On our part, we understand the fact the Fed is dabbling with generally untested tools relative to the new circumstances it is faced with brings about greater risks than what the mainstream expects.

For one, it is becoming clearer that credit demand hasn’t been the underlying problem as alleged by many, instead it looks more likely to be a ‘supply’ problem, where tight lending from banks have stifled the credit process.

As proof, many in the US, have turned to local ‘scrip’ currencies in the face of money shortages to conduct business or trade [see Emerging Local Currencies In The US Disproves The 'Liquidity Trap']. There are as many as 100 local currencies operating in the US today.

Next, banks that have benefited from government’s bailout have reportedly been averse at lending to small business.

According to CNN Small Business,

``Small business loans continue to dry up at the nation's biggest banks. Eleven top TARP recipients -- including Wells Fargo, by far the nation's largest lender to small companies -- cut their collective small business loan balance by more than $2.3 billion in December, according to a Treasury report released late Tuesday.

``The drop marked the eighth consecutive month of declines for the 11 banks. In that time, their total loan balance has fallen 7%, to $169.4 billion. Seven of the reporting banks have cut their small business loan balance every single month.

``"Credit is still tight for many small businesses," the Treasury acknowledged in a Feb. 10 report.

Another, government interventions in the housing market through a recent tax credit subsidy program compounded by low interest rates could spark the process of inflating yet another property bubble.

But this time bubble signs appear to have surfaced in homebuilder lots, according to Doug French of the Mises Institute, (bold highlights mine)

``Last November, President Obama signed the Worker, Homeownership, and Business Assistance Act of 2009, which, as many people know, extended unemployment benefits and the first-time-homebuyer tax-credit program. But quietly included in this legislative lasagna was a provision allowing big businesses to offset the losses of 2008 and 2009 against profits made as far back as 2004. This provision will generate corporate tax refunds of $33 billion, the New York Times reports. Previously, only small companies could offset losses against past years' profits.

``Big home builders are the prime beneficiaries. After racking up monster profits during the housing boom, the industry has booked huge losses in the bust, accentuated by write-downs of their land positions totaling $28.5 billion for the 14 largest publically traded homebuilders. Now these large homebuilders are recapturing some of what Uncle Sam took away during the boom years. According to the Times, Pulte Homes has a refund of $450 million coming, Hovnanian Enterprises will get back $250–275 million, while Standard Pacific and Beazer Homes will recoup $80 million and $50 million of their profits respectively.

``And while returning taxes to businesses is a wonderful thing, home builders are reading the distorted economic tea leaves. These seem to say that low interest rates and tax credits will eventually bring buyers back to their subdivisions, while many of the big builders' smaller competitors were washed away for good by the housing tsunami — so ramp up the higher-stage and durable-production process by investing capital in building lots…

While it is true that there are still enormous housing inventories to reckon with as to successfully reignite a bubble, improving trends in the sales of homebuilder lots could signify as important clues to a brewing bubble.

Adds Mr. French, ``The lot-buying homebuilders may be irrational, but they aren't yet exuberant. The National Association of Home Builders' housing-market index rose just 2 points to 17 in February — far below the bullish readings of 50 that haven't been seen since April 2006. But the 528 residential developers surveyed say that the tax credits being offered along with low mortgage rates are spurring some demand.” (bold highlights mine)

This seem to reconcile with our view that if we are correct, the record steepness in the yield curve will likely generate belated credit traction 2-3 after a recession [see What’s The Yield Curve Saying About Asia And The Bubble Cycle?]. We may probably see some signs of revitalization in the credit process of the US by the end of the year.

And what else could stoke the credit process than a new bubble!

Remember considering that homebuilder losses have been allowed to be offset via tax refunds, essentially, the carryover losses has been borne by the US government.

So there lies the issue of the moral hazard problem. What should stop these economic agents from resuming reckless and imprudent risks, when they know that Big Brother would backstop their activities?

Moreover, these homebuilders are only responding to the incentives set by the government: Government gives them money from which they employ based on inherent familiarity, and government provides the conditions-low interest rates and the moral hazard issue/risk free environment- for them to take a stab at new risks. Besides, government subsidies tend to immunize economic agents from the sentience of profits and losses.

So the US government’s approach to gradually disengage itself from the housing market appears to be to stir up a new bubble.

The US government is simply fundamentally following the dogma of sustaining the perpetuity of a quasi boom.

From John Maynard Keynes, ``The right remedy for the trade cycle is not to be found in abolishing booms and thus keeping us permanently in a semi-slump; but in abolishing slumps and thus keeping us permanently in a quasi-boom.” A quasi boom kept as permanent policy would lead to a prolonged depression and a reduction of the nation’s living standard.

Also this should put into rigorous tests the effectiveness of the new set of tools, strategies or the new doctrines for the Federal Reserve to deal with its humongous excess reserves.

Where to bet our money? Against the success of the Federal Reserve, of course.

Doing Business In The Philippines

In an earlier post, we featured why the Philippines severely lags the global competitive environment, see 2009 Global Competitiveness Report And The Philippines.

In this post, the World Bank provides the details why the economy hasn't been materially improving. Yes, some (marginal) improvements, but not sizeable enough to make a dent on the real economy.

It's primarily because policies have been less friendly (my adjective-averse/hostile) to business.

Here is the partial list of the world ranking according to doingbusiness.org.


Notice that the Philippines has ranked 144th out of 183 countries. Last year we ranked 141st.

Yet notice that the same countries, which are in the highly competitive order, have a pro-market economy environment.

We'd like to avoid saying pro-business as it may create a misplaced notion of supporting "big" business.

A market economy is an economy conducive to competitive entrepreneurial class, particularly small and medium scale enterprises.

In the East Asia & Pacific, the Philippines has been placed dismally in 21st out of the 24 countries. According to the doing business ratings, we lag almost across all categories- the worst being-starting a business, paying taxes, applying for permits and employing workers. Our best has been trading across borders.

Generally we have been relegated to lowest order just in front of Cambodia, Timor-Leste and Laos.

A better graphic from Doing Business Philippines

The Philippines' overall ranking fell, this year, not because of more deterioration but because more countries have aggressively worked to improve on their business environment. As the above graph would show.

Recently the Philippines reportedly adopted reform measures aimed at ameliorated the business environment:

``The Philippines enhanced access to credit with a new credit information act that regulates the operations and services of a credit information system.

``The government also cut the corporate income tax rate from 35 percent to 30 percent and promoted company reorganization procedures by introducing prepackaged reorganizations and regulating the receiver profession."

Unfortunately while necessary and quite laudable, it hasn't been sufficient.

The Philippines remains structurally trammeled by anti-business (anti competition) pro-government (politics) policies, laws and regulations.

Unfortunately, populism and personality based politics won't solve this.