Philippine Competitiveness Ranking Plunges! How the Crowding Out Strains Economic Competitiveness: The Construction Industry

Free competition is worth more to society than it costs—Oliver Wendell Holmes Jr., American jurist and Associate Justice of the Supreme Court of the United States 

In this issue

Philippine Competitiveness Ranking Plunges! How the Crowding Out Strains Economic Competitiveness: The Construction Industry

-How the Crowding Out Strains Economic Competitiveness

-How "Build, Build and Build" Crowds out the Domestic Construction Industry

-How Raging Construction Prices Increase the Risk of Accidents

-The Cantillon Effect: Eroding Competitiveness form a Massive Shift of Economic Factors to the Government

-The Cantillon Effect: Hasn’t Sustained Price Instability Been a Source of Loss of Competitiveness?

Philippine Competitiveness Ranking Plunges! How the Crowding Out Strains Economic Competitiveness: The Construction Industry

How the Crowding Out Strains Economic Competitiveness

According to the World Competitiveness Ranking Report in 2018, published by the Switzerland-based business school International Institute for Management Development, the Philippine economy experienced the most significant decline in the region.

The report indicated that the Philippines slipped to 13th place from its 11th ranking in 2017 among 14 Asia-Pacific nations. Even worse, the country’s ranking tumbled by a shocking 9 notches to the 50th spot from the 41st place in 2017 out of 63 economies tracked, as reported by Philstar (May 24, 2018)

Reasons cited were the “worsening” tourism, employment and public finances, as well as concerns about the country’s education system.

Competitiveness represents the third order of priority in the Duterte’s 10-point social agenda: “Increasing competitiveness and the ease of doing business, drawing upon successful models used to attract business to local cities such as Davao, as well as pursuing the relaxation of the Constitutional restrictions on foreign ownership, except with regards to land ownership, in order to attract foreign direct investments”

The report has excluded a critical factor behind the administration’s failure to meet their goal of improved competitiveness.

More precisely, the crowding out syndrome diminishes competitiveness.    

The crowding out dynamic exhibits that when the government draws resources, labor, and finances away from the private sector,such distorts the allocation of capital goods from a higher to lower value uses. Or more precisely, economic activities shifts from production to consumption. 

And there’s more.

The crowding out syndrome translates to the burgeoning share of the economic pie by the government. And when the government becomes the dominant economic force, the overshadowed private sector won’t just have to deal with reduced availability of higher-priced resources but suffers from a loss of productivity as well.

Thus, the loss of competitiveness signifies a natural outcome of a government growing bigger and faster than the private sector. Plainly put, the crowding out dynamic equals a LARGER government and a SMALLER private sector

How "Build, Build and Build" Crowds out the Domestic Construction Industry

The crowding out is not just a theory

This anecdote from a January Bloomberg report wonderfully demonstrates the crowding out dynamic in motion (bold mine)

The labor gap has already caused some project delays in the private construction industry, leading to an increase in home and office prices, said Joey Bondoc, research manager at Colliers International Philippines in Manila. Of the 16,200 additional residential units that Colliers expected in Manila last year, only about 7,400 units were completed in the first three quarters.

The result will be a bidding war for construction workers, says Budget Secretary Benjamin Diokno. “Companies should be willing to adjust their wage rates,’’ he said.

To ease the shortage, the state agency Technical Education and Skills Development Authority is training more building workers and engineers.

“Tesda in the past six years failed to train construction workers and zeroed in on the service industry such as hotels, food and business process outsourcing,” said Ibarra Paulino, executive director at the Philippine Constructors Association Inc., a group of about 130 large building contractors.

But the Philippines isn’t the only place that needs more builders. In Japan, where wages are much higher, Tokyo is in the middle of preparations for the 2020 Olympic Games. Singapore is doubling the size of its mass transit system, while Indonesia, India and Malaysia are all on infrastructure drives to boost growth.

To fill vacancies, some Philippine developers are retraining employees or hiring more laborers from the countryside. Others, like 8990 Holdings Inc. are setting up their own training facilities for masonry, carpentry, welding and crane operation.

You see the cost of government taking resources away from the private sector?

The government is driven by political objectives. In contrast, profits and losses spur most of the private sector activities. The differences in incentives reveal that there is no contest for the private sector when confronted with an institutionalized monopoly.  The flow of labor and resources will represent a lopsided activity in favor of the government. Thus a bidding war is a mirage.

Proof?

Figure 1

The Bloomberg report has not just been an account signifying the current economic backdrop if government statistics is to be believed, that January narrative has been transposed to 1Q 2018 GDP.

Real GDP (RGDP) for the construction sector grew by 9.3% which was led by the public construction at 25.1%. Private construction accounted for a 6.8% RGDP. (Figure 1 Lower window) It is unclear whether the reported private construction GDP represents purely private sector undertaking or if it includes Public-Private Partnerships (PPP) projects. I suspect the latter. Nevertheless, public sector growth has outpaced the private sector by 269%.

Competition for resources has been heavily skewed in favor of the government. Based on the Philippine Statistics Authority’s Construction Material prices, wholesale prices, which represent government prices spent on its projects, has rocketed to 7.51% in April whereas reported the private sector retail prices grew by only 2.55%. That government prices have clocked in a whopping 194% increase more than the private sector validates the Bloomberg’s chronicle.

And if I am not mistaken, rising private sector construction material retail prices have hardly been about actual construction activities but about the spillover effects from shortages created by the massive boom in public construction.

And if my suspicion is accurate, higher prices will not only suppress private construction activities, ballooning cost overruns will force marginal players out of the playing field due to accruing losses.

The crowding out syndrome reveals the process of centralization of economic activities as the private sector becomes marginalized in favor of the government and government-sponsored activities.

With a smaller, less productive private sector, how can the economy be competitive?

How Raging Construction Prices Increase the Risk of Accidents

For the public sector, two potential consequences from higher prices:  If the projected costs of the construction projects are variable, higher prices mean higher project costs which also extrapolates to larger public expenditures. And expanded public spending entails more debt and or more BSP liquidity infusions.

However, if the project costs are fixed, then costs overruns may translate to a scrimping of costs through the use of inferior materials for construction. The result would be the emergent accounts of accidents, such as the collapse of concrete beams in the ongoing construction of a flyover in Imus City in the third week of May.

Last February, the Indonesian government suspended some infrastructure projects due to a string of accidents. One of the key reasons for such accidents has been due to the omission of standard procedures “to lower the costs”.

The higher the prices, the greater the odds that public projects will be built on inferior quality, thus heightening risks of mishaps.

Of course, the more the government expands, the greater the odds of corruption.

The Cantillon Effect: Eroding Competitiveness form a Massive Shift of Economic Factors to the Government

And that’s not all. 

Skyrocketing of wholesale construction material prices showcases the Cantillon Effect. The great Irish French economist Richard Cantillon theorized of the relative effects of money on the economy.

As Austrian economist Mark Thornton observed*

Cantillon showed that changes in the quantity of money could have several different types of real effects on production, investment, consumption, and trade depending on who first received the money; effects now labeled Cantillon effects, injection effects, or first-round effects.

*Mark Thornton CANTILLON ON THE CAUSE OF THE BUSINESS CYCLE THE QUARTERLY JOURNAL OF AUSTRIAN ECONOMICS VOL. 9, NO. 3 (FALL 2006) p.49

The first recipients of new money benefit from current prices, thereby enjoying higher standards of living that come at the expense of later recipients, who signify the later chain of spending thus pays for higher prices – hence the lower standard of living.

Applied to the current setting, the government IS the first recipient of the new money.

It uses money raised mostly from debt and from the BSP to finance its massive construction projects, by bidding up construction material prices (and labor) way above the ability of the private sectors to match them. Deficit spending says tax revenues account for the last chain of the government finance.

Whereas Cantillon posited that the chain of spending from first to the later recipients would cause the later to acquire at higher prices, when the government accounts for the original recipients this may lead to a different scenario

Because governments are not driven by profits and losses but by political imperatives, they are less sensitive to prices.

In the current environment, spending on infrastructure to account for 5% of the GDP represents the fourth priority of the Duterte regime’s 10-point agenda. In the relentless pursuit of such goal, the national government has signified the PRIMARY factor in powering inflation furiously in the construction sector. The gaping gulf in construction wholesale and retail price inflation underscores this dynamic.

The government’s response to vacillating political priorities exquisitely highlighted by the Bloomberg report: “Tesda in the past six years failed to train construction workers and zeroed in on the service industry such as hotels, food and business process outsourcing,” said Ibarra Paulino, executive director at the Philippine Constructors Association Inc., a group of about 130 large building contractors.

Nonetheless, Cantillon showed that the injections of money would have real effects on production, investment, consumption, and trade and on relative prices.

The Bloomberg narrative exhibits how domestic labor has been evolving to meet with such political goal.

The public construction industry has been absorbing private sector construction labor, as well as laborers from the countryside. Part of the migration to the construction industry includes sugar farmers as discussed in March. [See Bullseye! Crowding Out Effect in Motion: Sugar Farmers Move to the Construction Industry! Excise Taxes: Will Sardine Manufacturing Be the Next Coca-Cola? March 5, 2018]

Labor movements can be indicative of changes in production, investment, consumption, and trade patterns.

The absorption of laborers to the “build, build and build” industries translates to labor shortages elsewhere. Wouldn’t labor strains percolate eventually to output and investments as well?

Have escalating imbalances been worsened by the NG’s Spend Spend and Spend programs not limited to the “Golden Age of Infrastructure”?

Hasn’t the massive change in the nation’s economic structure been a critical source of the loss of economic competitiveness?

The Cantillon Effect: Hasn’t Sustained Price Instability Been a Source of Loss of Competitiveness?

As for the relative prices, here is Murray Rothbard on Cantillon’s theory, [Murray N Rothbard Richard Cantillon: The Founding Father of Modern Economics Mises.org]

“relative prices will be changed in the course of the general price rise, because the increased spending is "directed more or less to certain kinds of products or merchandise according to the idea of those who acquire the money, [and] market prices will rise more for certain things than for others." Moreover, the overall price rise will not necessarily be proportionate to the increase in the supply of money. Specifically, because those who receive new money will scarcely do so in the same proportion as their previous cash balances, their demands, and hence prices, will not all rise to the same degree.

The point of the above is that prices will not rise at the same time. Where new money has been spent is where price pressures will occur

And because of the NG’s programs, the most significant price spikes have emerged primarily in the construction and its ancillary industries

Figure 2

But other sectors with the government’s fingerprints on it have also seen an infusion of new funds.

Aside from construction loans which vaulted +30.02% in April, bank lending to the education +41.23%, public administration and defense +29.61% and transport and storage sectors +30.93% outperformed substantially in April. (figure 2, upper window)

Recall that the NG has instituted free college education in and a Php 2.2 billion Public Utility Vehicle Modernization program in 2017. These sectors have seen credit growth ramped up significantly.

Curiously, banking loans to the hotel and food industry growth plunged to +1.16% in April. Has this reflected “worsening” tourism from the war on Boracay which became a drag on the nation’s competitiveness? 

Shall we see negative numbers in the coming months for this sector?

Loans to the trade industry +22.71% rocketed in April. Curiously, consumer borrowing (+19.05%) continues to soften with all subsectors slowing. Even the once-hot credit card growth (+21.03%) appears to have peaked out. Has rising rates begun to bite?

So while the consumer demand side loans have been moderating, the consumer supply side or retail loans continue to fly.

So what gives? Income tax cut will juice up spending? Really? With “spend, spend and spend” financed by the BSP and by banking system raising prices, whatever benefits those tax cuts has provided would have a very short window.

Besides, with the NG siphoning away resources from the private sector, what would be the means left for consumers to spend?

With economic calculation muddled by pervasive political intrusions, how will entrepreneurs profit and increase productivity from such a landscape?

And hasn’t sustained price instability been a way to lose competitiveness?

In socialist societies, competitiveness in the economic front is hardly a concern. However, competition for power signifies the paramount agenda.

More Devaluation Myths

Investing guru Mark Mobius, executive chairman of Templeton Emerging Markets Group says,

In some cases, a devalued currency can be an engine for future growth. A lower currency price means the nation’s exports will be more competitive (less expensive) in the global market, and imports will become more expensive, so many companies can benefit.

A discussion about currency values should include a discussion about inflation, which is closely interconnected. Inflation has been problematic for many emerging economies, and while it does seem to be ebbing temporarily in some markets, it’s important to remain vigilant about it. High inflation can cause a strong public response (even a mass uprising), as consumer purchasing power quickly erodes.

It would be patently misleading to present devaluation as a different animal from inflation. That’s because devaluation IS inflationism. Consumer price inflation signifies as the effect of prior monetary inflation.

Professor Jeffrey M. Herbener explains,

When a government announces devaluation, as the United States did in 1934 and again in 1971, it is merely recognizing the reality of the consequences of its monetary inflation. Its inflationary policy has eroded the purchasing power of its currency which will be suffered both domestically, with price inflation, and internationally, with devaluation.

The undesirable effects of monetary inflation cannot be eliminated with floating exchange rates. Then the price inflation and devaluation occur gradually instead of being bottled up behind the government’s unsustainable peg. But whether the currency is pegged, as the dollar was in the 1920s and 1930s, or floats, as the dollar has since 1971, monetary inflation and credit expansion cause a boom-bust cycle.

Yet prescribing devaluation is tantamount to, or a euphemism of saying poverty promotes growth.

By having to lower standards of living, as a consequence of the transference of resources to politicians and their cronies, people are expected to work harder in order to generate growth.

So inflationistas are essentially moral schadenfreudes—finding satisfaction in the miseries of people.

Not to mention that inflation represents highway robbery (plunder) by governments of their people.

Even the divine inspiration of statists and facists, John Maynard Keynes admitted to these. (Wikipedia.org; bold highlights original)

Lenin is said to have declared that the best way to destroy the capitalist system was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security, but at confidence in the equity of the existing distribution of wealth. Those to whom the system brings windfalls, beyond their deserts and even beyond their expectations or desires, become 'profiteers,' who are the object of the hatred of the bourgeoisie, whom the inflationism has impoverished, not less than of the proletariat. As the inflation proceeds and the real value of the currency fluctuates wildly from month to month, all permanent relations between debtors and creditors, which form the ultimate foundation of capitalism, become so utterly disordered as to be almost meaningless; and the process of wealth-getting degenerates into a gamble and a lottery.

Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.

Let’s take the Philippines as example.

The Peso devalued from 2 pesos: 1 US dollar in 1960s to about 42 pesos to a US dollar today. This means the Peso devalued by about 4% annually.

From the perspective devaluation exponents, this should have made the Philippines an export giant. However the Philippines ranks only 57th based on 2011 data according to Wikipedia.org

Ironically, most of the top exporters are represented by ‘strong’ currencies from developed economies, and not from economies that has massively devalued their currencies as Zimbabwe.

It’s good news to see that the Philippine GDP per capital has skyrocketed from $257 in 1960 to $ 2,140.12 in 2010, according to Index Mundi.

But this only accounts for an average annual growth of about 1.7%. That’s way below the rate of devaluation (inflation) at 4%. Also the surge came amidst globalization. As a side note, to put a political spice on this, much of the increase came from the 2003 onwards.

And this has been the "magic" that has spawned PEOPLE exports or the Overseas Filipino Workers (OFWs) whom has been politically labeled as today’s economic heroes, out of the paucity of economic opportunities.

In reality, OFWs are MANIFESTATIONS of an uncompetitive economy borne out of interventionism and inflationism.

And much of that “economic growth” has not only emanated from OFWs, but from the INFORMAL economy which government statisticians downplays or deliberately hides behind the numbers. The informal economy has also been symptom of government failures and of the uncompetitive nature of the economy brought by sustained interventionism and inflationism.

Lastly the idea that exports or tourism benefit from the policy of poverty as a path to prosperity (devaluation) also misrepresents the reality. Devaluation or inflationism provides short term benefits at the expense of the long term.

The great Professor Ludwig von Mises exposes such deception,

If one looks at devaluation not with the eyes of an apologist of government and union policies, but with the eyes of an economist, one must first of all stress the point that all its alleged blessings are temporary only. Moreover, they depend on the condition that only one country devalues while the other countries abstain from devaluing their own currencies. If the other countries devalue in the same proportion, no changes in foreign trade appear. If they devalue to a greater extent, all these transitory blessings, whatever they may be, favor them exclusively. A general acceptance of the principles of the flexible standard must therefore result in a race between the nations to outbid one another. At the end of this competition is the complete destruction of all nations' monetary systems.

The much talked about advantages which devaluation secures in foreign trade and tourism, are entirely due to the fact that the adjustment of domestic prices and wage rates to the state of affairs created by devaluation requires some time. As long as this adjustment process is not yet completed, exporting is encouraged and importing is discouraged. However, this merely means that in this interval the citizens of the devaluating country are getting less for what they are selling abroad and paying more for what they are buying abroad; concomitantly they must restrict their consumption.

Legal plunder through currency inflationism or devaluation has neither provided long term (or lasting-sustainable) economic solutions nor has it been a moral one.

Video: Comparing Effective Tax Rates of Corporations

In the following video, the Tax Foundation demonstrates how US companies have been losing their competitive edge, due to the relatively high tax burden from effective tax rates on the corporate level compared to the world.

It is important to point out that aside from tax policies, the policies that constitute the monetary, political, legal, bureaucratic and regulatory regimes also contributes to the economy's level of competitiveness.

Overall, the lesser involvement by the government, the more competitive the economy. In other words, economic freedom is the key to prosperity.

Philippine Competitiveness: Marginal Improvements, More Required

From World Economic Forum (bold emphasis mine)

Up 10 places to 75th, the Philippines posts one of the largest improvements in this year’s rankings. The vast majority of individual indicators composing the GCI improve, sometimes markedly. Yet the challenges are many, especially in the areas at the foundation of any competitive economy, even at an early stage of development.

The quality of the country’s public institutions continues to be assessed as poor: the Philippines ranks beyond the 100 mark on each of the 16 related indicators. Issues of corruption and physical security appear particularly acute (127th and 117th, respectively). The state of its infrastructure is improving marginally, but not nearly fast enough to meet the needs of the business sector. The country ranks a mediocre 113th for the overall state of its infrastructure, with particularly low marks for the quality of its seaport (123rd) and airport infrastructure (115th). Finally, despite an enrolment rate of around 90 percent, primary education is characterized by low-quality standards (110th). Against such weaknesses, the macroeconomic situation of the Philippines is more positive: the country is up 14 places to 54th in the macroeconomic environment pillar, thanks to slightly lower public deficit and debt, an improved country credit rating, and inflation that remains under control.

In the other, more complex pillars of the Index, the Philippines continues to have a vast opportunity for improvement. In particular, the largely inflexible and inefficient labor market (113th) has shown very little progress over the past four years. On a more positive note, the country ranks a good 57th in the business sophistication category, thanks to a large quantity of local suppliers, the existence of numerous and well developed clusters, and an increased presence of Filipino businesses in the higher segments of the value chain. Finally, the sheer size of the domestic market (36th) confers a notable competitive advantage.

I would suggest that much of the aforementioned improvements may have been due to macro economic trends more than having been policy induced.

That said, the Philippines needs more economic freedom and less reliance on politics to improve trade competitiveness

How Anti-Dumping Leads to Reduced Competitiveness

For the left, because trade is a zero sum game and an activity done by nations and not by individuals, imbalances are always someone’s fault. Thus prescribe policies that lean towards protectionism.

One of their populist claim is that asymmetric currency values leads to the alleged imbalances. But they hardly talk about how extant protectionist policies have been contributing to the loss of competitiveness and consequently high unemployment rates.

One of such protectionist policy is the anti-dumping emasures

Cato’s Dan Ikenson elaborates (bold highlights mine)

During the decade from January 2000 through December 2009, the U.S. government imposed 164 antidumping measures on a variety of products from dozens of countries. A total of 130 of those 164 measures restricted (and in most cases, still restrict) imports of intermediate goods and raw materials used by downstream U.S. producers in the production of their final products. Those restrictions raise the costs of production for the downstream firms, weakening their capacity to compete with foreign producers in the United States and abroad.

In all of those cases, trade-restricting antidumping measures were imposed without any of the downstream companies first having been afforded opportunities to demonstrate the likely adverse impact on their own business operations. This is by design. The antidumping statute forbids the administering authorities from considering the impact of prospective duties on consuming industries—or on the economy more broadly—when weighing whether or not to impose duties.

That asymmetry has always been insane, but given the emergence and proliferation of transnational production and supply chains and cross-border investment (i.e., globalization)—evidenced by the fact that 55% of all U.S. import value consists of raw materials, intermediate goods, and capital equipment (the purchases of U.S. producers)—it is now nothing short of self-flagellation.

Most of those import-consuming, downstream producers—those domestic victims of the U.S. antidumping law—are also struggling U.S. exporters. In fact those downstream companies are much more likely to export and create new jobs than are the firms that turn to the antidumping law to restrict trade. Antidumping duties on magnesium, polyvinyl chloride, and hot-rolled steel, for example, may please upstream, petitioning domestic producers, who can subsequently raise their prices and reap greater profits. But those same “protective” duties are extremely costly to U.S. producers of auto parts, paint, and appliances, who require those inputs for their own manufacturing processes.

Read the rest here

Why Global Labor Unions Have Been On A Decline

Labor unions have been on a declining trend, not just locally but internationally.

Trade or Labor Unions, according to the Wikipedia, is “organisation of workers that have banded together to achieve common goals such as better working conditions. The trade union, through its leadership, bargains with the employer on behalf of union members (rank and file members) and negotiates labour contracts (collective bargaining) with employers. This may include the negotiation of wages, work rules, complaint procedures, rules governing hiring, firing and promotion of workers, benefits, workplace safety and policies. The agreements negotiated by the union leaders are binding on the rank and file members and the employer and in some cases on other non-member workers.”

Labor unions, for me, function as political force, which uses government laws for extracting economic privileges, at the expense of the company owners, non-labor union workers and taxpayers indirectly (such as the GM bailout) or directly (government unions).

The main goal of the labor union is to restrict manpower supply and to raise wages and benefits above market levels. And in doing so, labor unions add to the imbalances in the labor markets, which results to higher unemployment levels and the lack of competitiveness among many others.

For public unions the desire is for more taxpayer funded privileges.

In other words, labor unions thrive on a non-competitive environment.

As shown in the above (interactive) chart by the New York Times, since the 1980s labor or trade union around the world has seen a sharp decline except for a few, e.g. Iceland.

The main reason: rising international competitiveness or globalization.

Cato’s Dan Griswold explains (bold highlights mine)

Economic theory offers a number of reasons why growing international competition would be damaging to the interests of labor unions. More competition in product markets means greater elasticity of demand for labor—that is, global competition means that demand for labor is more sensitive to any change in wages.

Employers competing in global markets cannot simply pass higher wage costs along to consumers in the form of higher prices because consumers themselves can choose to buy substitute products from lower-cost, often nonunionized producers.

Expanding capital mobility means that employers are more able to shift production to lower-wage countries if necessary. A more mobile company is better able to threaten or employ an “exit” option in response to union demands. In the face of product competition and capital mobility, union demands for higher wages can lead instead to fewer domestic union jobs, as has been the case in a number of firms and industries.

In contrast, in markets insulated from robust competition, unions can more readily demand a share of a company’s or industry’s profits without fear of compromising the survival or competitiveness of the employer. Insulated markets create rents in the form of abovemarket profits that unions can then bargain with management to divide between them at the expense of the consuming public.

In short, the more a country is open to trade, the bigger likelihood of the diminished role of labor unions.

There are other non trade factors are involved too.

They include, adds Mr. Griswold, more rapid growth of certain categories of workers, such as women, southerners, and white-collar workers, who are less favourable to unionization; the deregulation of transportation industries; declining efforts of unions to organize new members; government activity that substitutes for union services, such as unemployment insurance, industrial accident insurance, leave policies, and other workplace regulations; the decline in pro-union attitudes among workers; and increased resistance among employers

For me, another very critical factor second to globalization has been the ongoing transition from industrial era to the information age.

Labor unions had basically been tailored for vertical organizational structures. But times are changing. As technology (via the web) becomes more entrenched, the nature of work has gradually been reconfiguring. And this provides lesser opportunity for unionization to take place, aside from the financial incentive or viability to maintain one.

As Alvin Toffler writes in Revolutionary Wealth,

Work is increasingly mobile, taking place on airplanes, in cars, at hotels and restaurants. Instead of staying in one organization, with the same co-workers for years, individuals are moving from project team to task force and work group continually losing and gaining teammates. Many are ‘free agents’ on contract, rather than employees as such. Yet while corporations are changing at a hundred miles per hour, American unions remain frozen in amber, saddle with the legacy organizations, methods and models left over from the 1930s and the mass production era.

In other words, digitalization, automation, robotics and other technology enhancements which raises productivity are taking many people out of the industrial era work. The more outsourcing and specialization takes place the lesser role played by the labor unions.

Investing guru Doug Casey also sees the same,

The good news, however, is that coercive unions are on the way out. They're anachronisms. They're leftovers from the time when people were like interchangeable parts in the giant factories they worked in. People were so replaceable that one person was little better or worse than another – because they were basically biological robots. In the early industrial era, labor was in over-supply, society was poor, and conditions were harsh everywhere. It's understandable why workers felt they had to band together for self-protection. But the industrial era is gone. The assembly line with thousands of workers is totally outmoded. In the global information age, trying to extort high wages for manual labor is pointless. Soon robots will be doing almost everything, then nanomachines will replace the robots. People will only be doing work that requires thought, judgment, and individuality. Those aren't things that can be unionized.

It pays to look at the big picture.

Labor union trends worldwide have not been declining because of culture or politics, but because of economics.

Globalizing Hollywood and the Philippine Entertainment Industry

The Economist hits the proverbial nail on the head, (bold highlights mine)

THE film-awards season, which reaches its tearful climax with the Oscars next week, has long been only loosely related to the film business. Hollywood is dedicated to the art of funnelling teenagers past popcorn stands, not art itself. But this year’s awards are less relevant than ever. The true worth of a film is no longer decided by the crowd that assembles in the Kodak Theatre—or, indeed, by any American. It is decided by youngsters in countries such as Russia, China and Brazil.

Hollywood has always been an international business, but it is becoming dramatically more so. In the past decade total box-office spending has risen by about one-third in North America while more than doubling elsewhere (see chart). Thanks to Harry Potter, Sherlock Holmes and “Inception”, Warner Bros made $2.93 billion outside North America last year, smashing the studio’s previous record of $2.24 billion. Falling DVD sales in America, by far the world’s biggest home-entertainment market, mean Hollywood is even more dependent on foreign punters.

Read the rest here

Since I’ve learned about the importance of free markets, I have also veered from watching TV talent competitions or Film awards for the simple reason that I’ve realized that a handful of judges cannot substitute for the real voters—the consumers.

And that’s exactly the message of the Economist.

Where media contests are decided by the subjective preferences of select judges (typically represented here as ‘experts’-yes again modeled after technocratic government), they tend to get politicized, and importantly, overlook discovering talents with immense potentials.

The Philippines has two good examples:

One, our local version of the Oscar Awards, the Metro Manila Film Festival, have been repeatedly plagued by controversies.

I’d prefer to see local production outfits compete with international filmakers for international or even local migrant audiences than have second raters squabble over what I see as “mediocre” titles.

In the food industry, the dominance of Jollibee in the local market and her expansion as an international brand should serve as an example of how local outfits can achieve global competitive standards. If Jollibee can do it, so could other industries like media.

The problem is the dominant filmmakers or media outfits here appear to have either reached their comfort zones or have been operating as political enterprises.

Two, this is also why I’ve cheered for online discovered celebrities such as Ms. Charice Pempengco.

Ms. Pempegco’s early stints with the local TV contests had not borne fruit, instead it took the youtube and foreigners to discover her.

From this, it would seem that either the domestic audience did not appreciate her talents (or her type of music) or that local scouts or judges may have simply discounted her. I would suspect the latter because her overseas success has prompted the local audience to also embrace her.

I would even further my hunch: the reason she has not been recognized early on here is that there appears to be a bias for mestiza-looking with model shaped features for female celebrities (except in comedies). So mainstream talent scouts may have misjudged her from this angle.

Nevertheless the Economist shows how the US film industry has been globalizing.

And it is also likely that local entertainment industry will have to pattern along with the major trend or otherwise get consumed or overwhelmed by fast expanding international players who might likewise tap on the local audience.

As the Economist notes, (bold emphasis mine)

The success of a film outside America is not purely a marketing matter. As foreign box-office sales have become more important, the people who manage international distribution have become more influential, weighing in on “green-light” decisions about which films are made. The studios are careful to seed films with actors, locations and, occasionally, languages that are well-known in target countries.

Things are likely get done a lot differently from now on.