We are fast approaching the stage of the ultimate inversion: the stage where the government is free to do anything it pleases, while the citizens may act only by permission; which is the stage of the darkest periods of human history, the stage of rule by brute force.—Ayn Rand
In this issue
Footprints of a Neo-Socialist State: 1Q 6.8% GDP Dominated by the Government; The Relationship of Quo Warranto, War on Drugs, Boracay and the GDP
-PESTLE Analysis and The War on Due Process
-Footprints of Neo-Socialist State: 1Q GDP Was Almost ALL About Government Spending!
-Industry GDP: Spend, Spend and Spend Construction and Utilities Boost 1Q GDP
-Services GDP: Spend, Spend and Spend Pushes Out the Private Sector!
-Neo-Socialism: Linking War on Drugs, Boracay, Quo Warranto and the GDP
PESTLE Analysis and The War on Due Process
PESTLE is an analytical tool commonly used for business planning and strategy.
It takes into consideration six external factors that may affect an organization’s conditions namely, Political, Economic, Sociological, Technological, Legal and Environmental. Factors are under these nomenclatures are identified and consequently are rated by their likely impact on the organization’s health.
Having weighed on the likely influences, recommendations for actions to either enhance the benefit provided by specific factors or reduce exposure or take necessary contingencies to shield from potential risks.
The lack of appreciation of the interrelationships of factors is one of the fundamental shortcomings of a typical PESTLE analysis.
Applied to contemporaneous politics, there appears to be sparse recognition that the unfolding series of events have signified planned or premeditated actions pillared on the goal of centralized direction
For instance, the war on drugs is entwined with the Boracay closure. Bereft of due process, such unilateral political activities signify as a systematic violation of property rights. Political action in one account reflects on another.
Do you know that a Bill of Rights has been enshrined in the 1987 Philippine Constitution?
From Article 3 Section 1: “No person shall be deprived of life, liberty, or property without due process of law, nor shall any person be denied the equal protection of the laws.”
There is a link between the recent ouster of the Supreme Court chief justice with the war on drugs and the Boracay closure: these events mark the sustained upending of the due process.
Through a vote on a technicality, justices of the Supreme Court have opted for political expediency than to uphold fundamental rights.
In response, because 14 members of the Senate perceived that only Congress has the right to impeach the Supreme Court chief justice, theyfiled a resolution urging the Supreme Court to review its decision.
A former SC chief justice lamented on the Supreme Court decision to note that “Because the supposed to be the guardian of the constitution, the protector of the rights of the people, the sentinel of the rule of law, the steward of democracy […] violated the constitutional mandate that the chief justice can be removed only by impeachment”. He also added that because the Supreme Court vote was a “culpable violation of the Constitution” it should serve as “a basis to charge them of an impeachable offense”.
In the meantime, opposition lawmakers have taken former SC justice’s remarks as a call to action. Various groups including the Catholic Churchhave expressed opposition to the Supreme Court’s decision.
All these have been predictable. The thrust to centralize political power extrapolates to the purging of undesirable elements. Political purges were common in communist/ radical left regimes.
Since the incumbent leadership aims to establish outright control over all political institutions, its tactical approach would be to ensure a path free of any legal barrier. So the leadership aims to install his vassals in the Supreme Court.
Otherwise, if the ruckus over the expulsion of the SC chief justice gains headway, this could lead to a constitutional crisis. Wouldn’t the internecine strife within the Supreme Court serve as propitious justification to impose martial law?
The leadership wins in both outcomes!
Footprints of Neo-Socialist State: 1Q GDP Was Almost ALL About Government Spending!
What has this got to do with the GDP?
Everything.
The path towards institutionalizing a neo-socialist state has been gaining momentum. It’s becoming evident even in the National Government’s GDP
Because the establishment perceives GDP as a vital thermometer of prosperity, it becomes part of our analysis even when I understand the GDP to be incurably inaccurate.
The Philippine GDP data comes with the expenditure and the industry side which, like a coin, represents the obverse sides of demand and supply.
The expenditure side indicates the people’s spending patterns while the industry side implies where such expenditures occurred.
From the demand or expenditure side, 1Q 6.8% real GDP was almost ALL about the GOVERNMENT.
Only Government Final Expenditure and Capital Formation increased in the 1Q. The rest of the pack including the ballyhooed Filipino consumers had been on the sidelines.
Growth in Government Final Consumption Expenditures (GFCE), which comprised of government personnel, wage increases, maintenance and operating activities, surged 13.6% in the 1Q from 12.2% in 4Q 2017. Excluding Q1 2017, GFCE’s growth rate has been accelerating since Q3 2016. (red bar chart)
Let us hear it straight from the Philippine Statistics Authority: “Government Final Consumption Expenditure (GFCE) grew by 13.6 percent in the first quarter of 2018. Creation and filling up of government positions as well as the increase in the base pay of civilian and military and uniformed personnel contributed to the growth of the sector. Increase in the maintenance and other operating expenses of various agencies also contributed to the expansion.”
See? Spend, spend and spend! And what’s the raison d'être for such bureaucratic expansion? Has it not been to institute bigger and deeper interventions in the economy?
Ever since peaking in Q2 2016 at 7.5%, growth in Household Final Consumption Expenditures (HFCE) has been decelerating. HFCE grew by 5.6% in Q1 2018 down from 6.2% in Q4 2017. Along with Q3 2017’s 5.4%, real household consumption growth has been at the lowest level since Q4 2014.
Why should household spending boom when consumer spending has been the target of taxes?
Capital formation was the other aspect which improved sizably in the 1Q. Capital formation jumped 12.5% in Q1 2018 from 8.3% in Q4 and 10.3% in 2017. But the improvement from this sector came mainly from the construction sector which almost doubled to 10.1% in Q1 2018 from 5.7% in 2018. Construction had a 27.8% share of capital formation.
From the PSA: “Investments in Construction grew by 10.1 percent in the first quarter of 2018, albeit slower compared with the 11.3 percent growth in the previous year. Public Construction, which accounted for 20.8 percent of total construction investments, expanded by 25.1 percent. Moreover, Private Construction, which accounted for 79.2 percent, grew by 6.8 percent. This was slower compared with the 13.6 percent growth in 2017.”
See? Spend, spend and spend!
The other major segment of the Capital Formation is Durable Goods which grew 8.4% in 1Q 2018 and was lower than 11.2% in the 4Q and 9.7% in 3Q 2017.
Meanwhile, exports and imports were down substantially in 1Q. Exports and imports grew by 6.2% and 9.3% from 4Q’s 20.6% and 18.1% respectively.
See? From the expenditures side, the government grew at the expense of the private sector. That would be the crowding out effect in motion!
To put it more precisely, that fantastic 6.8% headline growth accrued to the government. Yes, the national government has taken over the economy!
Industry GDP: Spend, Spend and Spend Construction and Utilities Boost 1Q GDP
Now let us move on to where people spent their money on - the supply side.
Since the obverse side of demand is supply, 1Q GDP tells the same tale: the National Government’s takeover of the economy! 
Of the three major sectors, only the industry grew and that’s largely due to construction!
Industry growth jumped to 7.9% from 7.0% in 4Q 2017 and was the principal driver of 1Q GDP. Agriculture real GDP dropped to 1.5% in Q1 2018 from 2.4% in Q4 2017. The service sector real GDP inched up to 7.0% from 6.9% over the same period
It is interesting to see manufacturing slightly higher 8% from 7.9% even when exports and imports were down significantly. Except for the government and the construction sector, who would be buying their products when private sector activities have been weakening? Has the sector been immune from higher excise taxes? PSE data of listed manufacturing firms show otherwise.
Such is an example of the folly from the logic of statistics equals economics.
Mining real GDP was down to 4.5% from 5.4%. Industry’s other boost came from Utilities (electricity gas and water) which real GDP boomed to 6% from 5.5%.
Aside from public works, the imposition of excise taxes in the 1Q must have contributed significantly to the utility GDP, which may have only been partly captured by the implicit price index.
Increases in prices of utilities would lead to lesser disposable incomes of consumers unless income grew in proportion to such increases
Services GDP: Spend, Spend and Spend Pushes Out the Private Sector!
From the services side, the consumer-related GDPs of trade (6.1% in 1Q 2018 and 8.7% in 4Q 2017) and real estate (4.7%, 6.6%) were substantially lower. (see trend lines upper window). Again, PSE data on listed company performance contradicts this claim. The Train Law provided an ephemeral boost to non-durable retail but burdened the food retail business.
On the other hand, Real GDP’s of public administration and the transport sector rocketed 13.2% and 6.4% from 8.5% and 4.9% in 4Q 2017, respectively. (see bar charts upper)
The National Government implemented the Public Utility Modernization program in the second semester of 2017 which must have been a factor in the outperformance of the transportation sector’s 1Q GDP
Meanwhile, GDP of financial intermediation also boomed from 5.2% to 7.6%. The enormous issuance of public sector securities to finance its spending may have helped boost the sector's activities through the distribution of such securities.
Other services real GDP spiked to 8.8% from 6.3% principally for the same reasons.
Expenditures on education nearly doubled to 13.3% in 1Q 2018 from 7.4% in the 4Q. (mid window) The most likely driver for this is public spending. The leadership’s Free College program must have been a principal factor behind such spending spree. At zero price, demand will overwhelm supply!
Health real GDP spiraled higher to 6.1% from 4.8% over the same period. Also, real GDP on infrastructure spending on sewage and refuse disposal facilities grew to 5.3% from 3.6%
See? Spend, spend and spend!
Other private sector services were down.
Except for recreational GDP which climbed to 4.6% in 1Q 2018 from 3.1% in 4Q 2017, real GDP of Other ‘other services’ slowed to 6.2% from 7.0% while hotel and restaurant GDP plunged to 6.1% from 8.9% over the same period.
Other services include beauty treatment, beauty parlors, personal treatment and grooming, spas, funeral services, washing and dry cleaning and others.
For the hotel sector, diving real GDPs came even BEFORE Boracay’s close and the war on tourism!
Neo-Socialism: Linking War on Drugs, Boracay, Quo Warranto and the GDP
The crowding out theory simply means the displacement of the private sector activities by the government. And this crowding out mechanism has been all over 1Q GDP. And this dynamic signifies a process which has been in acceleration.
Logic tells us that a successful transformation towards a fully centrally planned and organized political economy would require absolute control of all political institutions.
More pointedly, the serial suspensions of the due process, which spans from the war on drugs, the war on tourism, the war on informal labor, quo warranto and other contrived socio-economic wars, have been centered on this goal.
The transformation of the Philippine economy would mean the institutionalization of an ideology into an operating political model.
This ain’t about personality-based politics.
But this doesn’t mean that the metamorphosis towards a socialist state is inevitable.
Socialism is always pillared on free money and that’s their Achilles heels.
Rising debt levels and greater use of debt monetization have only translated to a weaker peso, higher inflation and higher interest rates. Economics ensures that free lunch will be squeezed out
At one point soon, the BSP’s credit bubble pops and the proverbial emperor will be exposed as having no clothes.
