Socialism itself can hope to exist only for brief periods here and there, and then only through the exercise of the extremest terrorism. For this reason it is secretly preparing itself for rule through fear and is driving the word 'justice' into the heads of the half-educated masses like a nail so as to rob them of their reason... and to create in them a good conscience for the evil game they are to play.- Friedrich Nietzsche
In this issue
The March to a Neo-Socialist State: Duterte Administration Opens a War Front against Jollibee and PSE, Escalates War on Boracay and UBER-GRAB!
-Duterte Administration Launches War on Jollibee!
-The War on Capital Markets: Land Bank To Bid For Control of the Domestic Bond Markets!
-War on TNVS: Will the Ride-sharing Industry Survive?
-Duterte’s Escalating War on Boracay and the Tourism Industry!
The March to a Neo-Socialist State: Duterte Administration Opens a War Front against Jollibee and PSE, Escalates War on Boracay and UBER-GRAB!
Unknown and unrecognized by most, I propounded that the Philippine political economy is in a transition towards a Neo-Socialist State. That was barely a month ago.
See The March to a Neo-Socialist Society; 2017’s Fiscal Deficit Down by 27% from Target March 19, 2018
Evidence has been mounting of the structural makeover of the Philippine economy through the installation of socialist institutions.
And the transition has been amazingly swift!
Duterte Administration Launches War on Jollibee!
The Duterte Administration has commenced on a campaign to crackdown on labor contractualization. It has declared war on Jollibee by forcing the company to absorb some 6,000 to 10,000 (or more) of contractual employees as regular employees!
From the Inquirer (April 6): “Labor Secretary Silvestre Bello III on Thursday said more than 10,000 workers of Filipino fast-food giant Jollibee Foods Corp. may soon be granted regular employment status. Bello said the inspection of compliance to labor laws by establishments, including Jollibee’s other branches nationwide, was ongoing and labor inspectors were already submitting their reports to the heads of the regional offices of the Department of Labor and Employment (Dole). “On a nationwide basis, you can think of more than 10,000 to 50,000 workers, considering the bulk of the employees of Jollibee,” he added. Dole’s National Capital Region Director Henry John Jalbuena on Wednesday ordered Jollibee to regularize 6,482 workers from two of its contractors in Metro Manila. The Philippine Chamber of Commerce and Industry, the country’s largest business group, is questioning the validity of the order, saying it should have been issued by the labor secretary himself.”
Why Jollibee? Jollibee represents a high profile target which has been intended to set the tone of what the administration desires to accomplish. The administration deftly uses symbolism to promote its cause to the voting population.
The administration believes that Jollibee shareholders are unworthy of its profits thus deserves to redistribute it to their workers. The administration is essentially promoting a Marxist class war or the conflict between the bourgeois (capitalist) and the proletariat (labor)!
It is quintessential socialism in motion!
Ending labor contractualization opens the door for the socialist government to pry open and intervene on entrepreneurial operations!
So what happens to Jollibee?
For publicity purposes, Jollibee will likely comply with the DOLE’s imperatives.
However, because these apparatchiks can’t see beyond what has been intended, or how such policies will change people’s incentives, they are likely to be surprised by the long-term results.
1) Jollibee will likely pass these costs to its consumers by raising prices of its products. However, doing so would reduce their competitiveness if rivals don’t share the same burden as theirs. Or competitors may take some of Jollibee’s market share. Jollibee’s earnings and investments will fall.
2) If the Duterte administration enforces its labor intrusions with same rigidity to Jollibee’s competitors then the industry’s prices would rise. And higher prices will reduce demand for these food products. The industry’s earnings and investments will decline
3) Jollibee will reduce its expansion programs. Thus, the company’s earnings will come down.
4) Jollibee will decrease non-mandated labor or employee benefits, such as training, company outings and or others. Productivity will fall, so with the company’s future earnings.
5) Jollibee will shift from labor to automation. Competitors or smaller companies unable to adapt automation, and thus, will lose market share, or see a decline in earnings, or will lose money and close shop.
6) A combination of the above.
The most likely ramifications from such political interventions on Jollibee and the industry: higher selling prices, lower demand for the industry’s products and services, lesser output, diminished earnings and curtailment of investments. Such would extrapolate to a reduction in potential employment, decreased consumption, and most importantly, a decline in tax collections!
You see, the Duterte socialist regime just shot themselves in the foot!
Remember, because Jollibee is the poster child of the Filipino consumers, this exposes further the reality that the Duterte regime is out to attack consumption spending!
RA 10963 which raises excise taxes and expanded the coverage of VAT has signified the opening salvo.
And you can just imagine how small and medium scale enterprises will have take it on the chin just to comply with this labor mandate.
So, instead of having more employment, expect that there will be less.
The War on Capital Markets: Land Bank To Bid For Control of the Domestic Bond Markets!
By offering to take a large equity share of the bond market platform from the private sector, the Duterte administration has just waged war against the capital markets
The Philippine Stock Exchange's bid to create a unified bourse for stock and bond trading is in danger of being scuttled, with no less than a state-backed lender moving to thwart the merger.
PSE chief executive Ramon Monzon said on Thursday the exchange was prepared to continue "business as usual" should a deal fall through, as Land Bank of the Philippines made a counter offer to buy PDS Group, which owns and runs the fixed income exchange.
Land Bank has started due diligence and has offered to buy PDS shares at 360 pesos each, 12.5% higher than the PSE's offerof 320 pesos apiece.
PSE on Thursday listed the 11.5 million new shares worth 2.9 billion pesos ($55.36 million) it sold during a recent stock rights offering. The share sale was aimed at diluting the brokers' control over the exchange, a requirement set by the Securities and Exchange Commission before it grants PSE an exemption and allows it to buy PDS Group.
The alleged reason behind LBP’s thrust to gain a market share: PSE has been slow to comply with regulations!
PSE had planned to acquire PDS in 2013, but the SEC rejected the move in March 2016 due to its ownership breach and lack of clearbusiness plan for the unified stock and fixed income exchanges.
A failed merger could hamper the goal of PSE, one of the smallest exchanges in the region, to be a more competitive bourse. The company has said a single exchange could result in lower fees and more products and services being offered. Other markets in the region, such as Malaysia and Singapore, already run a single bourse for stock and bond trading.
The merger plan was revived in late 2016 under the new administration of President Rodrigo Duterte. The Philippine Competition Commission, the antitrust watchdog, gave its greenlight last year. However, delays in PSE's efforts to fix its ownership structure irked Finance Secretary Carlos Dominguez, who has backed Land Bank's investment in PDS.
"The development of the capital market is being slowed down by the PSE's inability to be compliant with the law," Dominguez was quoted as saying by the Philippine Daily Inquirer in January. "The Duterte administration will no longer tolerate private institutions thwarting the goal of achieving a robust and inclusive financial system."
So first, the government rejected the PSE for allegedly an “ownership breach and lack of clear business plan”. As a consequence, the merger plan had been shelved.
Then, with a new administration, the plan was revived in late 2016.
To comply with regulations, the PSE recently reduced the broker ownership requirements. And yet they have been blamed by the government for its “inability to be compliant with the law”
The government subsequently makes a bid which is higher than the PSE and will likely bag the deal.
Needless to say, there is no way for the private sector to outcompete an institutionalized political monopoly.
As the above shows, the government makes the rule, and then, they place an obstacle on it.
Applied to the above case, by arbitrarily making hard it hard for the PSE to comply, the government has virtually used legal impediments as a pretext to justify its entry for an ownership on the bond market.
That’s not all.
The private sector depends on profits and access to credit to finance its deals and, therefore, is highly price sensitive. The government, on the other hand, as a monopoly, is funded by taxpayer money, and is motivated by political goals. Thus, the government is less sensitive to prices.
Since they are less responsive to prices, they can offer higher prices to sellers, and thus, easily outbid the private sector
The PSE-Land Bank competition over PDS showcases how the government can browbeat its private sector competitors.
But why would the government be interested in the bond market platform?
One definition of state capitalism is “the dominance of corporatized government agencies (agencies organized along business-management practices) or of publicly listed corporations in which the state has controlling shares”.
Or, applied to the above, aside from desiring additional revenues, the National Government simply wants to have direct control of the domestic bond markets.
And control of the bond markets gives the NG leverage on the access to the public’s savings. With an insatiable spending appetite, that’s the logical thing that the NG will do! Additionally, it will dictate the terms and will likely pick winners.
War on TNVS: Will the Ride-sharing Industry Survive?
Ride-sharing app Uber is an example of how a government demolishes a business or a commercial enterprise.
Last year, because Uber reportedly violated the national government mandate for ride sharing services to stop processing new applicants, Uber was slapped with a one-month suspension. Along with this order, Uber was instructed by the NG through the Land Transportation Franchising and Regulatory Board (LFTRB) to extend financial assistance to affected peer-operators, during the one-month suspension, as “an expression of good faith”. Earlier, both Grab and Uber were fined Php 5 million each for operating “without proper permits”.
Because rival Grab reportedly complied with LTFRB regulations, they were allowed to operate.
And after payment of a staggering Php 190 million in fines and another astronomical Php 299 million as compensation to its partner drivers,Uber’s suspension was lifted in August 2017.
So Uber had to shell out an enormous amount of money just to comply with government mandates to sustain operations.
On the other hand, Grab reportedly lost money during the suspension of Uber when it absorbed some Uber drivers and when it imposed a cap on its surge pricing system.
At the end of March, Uber was reported to have pulled out of Southeast Asia through a merger with the surviving entity, erstwhile rival GRAB. The deal involved Grab’s acquisition of Uber’s businesses and assets in the region in exchange for giving the latter a 27.5% stake in Grab.
The governments of Singapore and Malaysia, as well as, the Philippine Competition Commission (PCC) launched an investigation into the Grab-Uber merger for possible anti-competition practices. The PCC threatened to block the deal and ordered Uber to continue operations even after April 8 when it was supposed to have shutdown.
Again, the government makes an arbitrary rule and then uses such edicts to squeeze dry or fleece commercial enterprises.
Because Uber, obviously, has been financially strained (Php 489 million!) from mere compliance with unilaterally imposed regulations, it has decided to sell out of the Philippines and Southeast Asia.
Yet, after bleeding the company dry, the government further adds insult to injury by threatening to impede the deal.
If Uber decides to cut its losses by closing shop, the outcome would be the same. Grab will remain, in the meantime, as the only ride-sharing app in operation: a virtual monopoly.
Yet, Grab’s monopoly did not emerge from or wasn't created by the marketplace. Rather, its temporary status had been handed out to them by the NG through the imposition of walls of arbitrary mandates.
That is to say, the NG killed Uber and created the present monopolistic conditions. Cause and Effect.
It doesn’t stop here.
Since the merger deal was consummated outside of the Philippines, only the local representatives of both companies will be affected by the PCC's prospective actions
Should Uber sustain its operations in accordance with PCC’s behest, Grab would in effect be subsidizing the money-losing operations of Uber.
And should there be an extension of PCC’s dictates, then Grab will also buckle under financial pressures. Thus, eventually, Grab may follow the path of Uber.
The TNVS (Transport Network Vehicle Services) has been plagued not only by direct interventions, rising fuel costs and higher automobile prices due to hikes in excise taxes from the recently enacted RA 10963 compounds on the industry’s challenges
Thanks to the pervasive and massive political interventions through regulations, the TNVS industry may suffer the fate of dinosaurs.
Several Grab drivers I spoke with told me that the reason for the sustained harassment of TNVS industry has been due to the interests of political insiders from the regulating agencies, who have been eyeing entry on this market.
The LTFRB reported that three local ride-sharing companies, namely Go Lag, Owto, and Hype were in the process of completing their accreditation before the agency. I wonder whether these entities are owned by political insiders, or if state agencies have exposure to them.
Taken together, the travails of the TNVS industry showcases how the government bleeds dry or destroys or undermines commercial enterprises through rigorous interventions. People hardly understand that adverse repercussions from such actions would impact the economy
Of course, since all actions are purposive, the draconian imposition of regulations can be extrapolated as intended to attain a regimented political control of the industry.
As it stands, the continuing war against the TNVS industry represents an assault on the industry’s consumers.
Worst, in the path towards political centralization, the rapidly-expanding role of the political class has emerged at the expense of the consumers and private sector industries
Update: The LTFRB has expressed opposition to PCC’s order and stated that Uber be allowed to shut down. According to the LTFRB, Uber’s accreditation has already expired. Importantly, with only 2-3 employees remaining in the company’s workforce, this wouldn’t be sufficient for business operations. Both agencies have only been contesting for power over Uber.
Duterte’s Escalating War on Boracay and the Tourism Industry!
The TNVS industry has not been the only industry reeling from draconian political interventions.
In the name of environmental preservation, the National Government has trained their guns on the tourism industry.
And following the same pattern as the NG’s labor offensive against Jollibee, the most prominent domestic tourist location, Boracay, have been the target of the fusillade of interventions.
The Philippine president made good on his bluster last end of March stating that nothing and no one could stop him from implementing the closure of the island. He finally approved his team’s action plan for the rehabilitation of the island, last week, through a 6-month closure, startingApril 26.
Like the war on drugs, despite purported claims that Boracay is state-owned, no due process had been involved.
Because the leadership’s baseline has been that everyone in Boracay has been equally culpable for the degradation of their environment, then all will have to be chastised for their inequities, hence, the economic lockdown.
Yet, every single stakeholder of the island had their property rights arbitrarily violated with the island's shutdown. Guilty or not, everyone is punished.
The Boracay episode epitomizes the leadership’s political ideology rather than the published concerns over the environment. His preference for governance channeled through totalitarian methods is revealed through his actions.
With the aim of establishing socialist institutions, his actions revolve around the political ideology of class conflict or the subjugation of the bourgeois (capitalists). Hence, Mr. Dutertes allotted a Php 2 billion calamity fund mainly for the displaced workers and also for the island’s indigenous people
The standard of living of Boracay’s stakeholders will naturally diminish because they have been deprived of their property rights to exercise voluntary exchange
And the violation of this right to conduct voluntary exchange is not a small number.
Boracay, which for the leadership supposedly is a ‘cesspool’, has drawn some 2 million in visitors in 2017. And through them, the island’s industries, which employ some 36,000 people, generated some Php 56 billion in revenues over the same period.
Yes, 2 million foolish people (including my daughter) thronged into an alleged cesspool/swamp and spent an aggregate amount of Php 56 billion!
Ironically, despite the environmental disaster, revenues of the Boracay’s internationally popular ‘sewage system’ continue to swell.
With a 6-month shutdown, the island’s entrepreneurs (guilty or not in contributing to the swamp) will bleed.
The cost of the closure is staggering. Perhaps close to half of last year’s revenues may be lost from the arbitrarily imposed commercial freeze. Hardship will ensue from a command predicated on reductio ad absurdum and the fallacy of composition in the name of the environment
While the NG has allotted a Php 2 billion safety net for workers, it provided nothing for the enterprises who were non-pollutants.
Worst, all the island’s existing enterprises or establishments will be subjected to intense inspections to see whether they are or have been compliant with national and local laws.
So enterprises will not only lose income, they will be harassed, harried, fined and or coerced to spend based on the whims of regulators and or shell out ‘under the table’ money to authorities.
And because of financial loses and the government’s enforcement, many above ground or legitimate establishments are likely to close shop, thereby shrinking the supply base for the tourism industry in Boracay. Citing environmental violations, a hotel was forcibly shut by the local government last March.
The reduction of the supply base, which would reduce competition, should translate to a propitious setup for the establishment of 2 grand casinos. Of course, the leadership denied knowledge of plans to build casinos and said that he would rather give Boracay to the farmers
The 6-month closure timeframe represents a truncated target from the original recommendation of 1 year. Given the government’s track record, the current target could signify as wishful thinking. If the NG fails to deliver its deadline, it would mean a protraction of agony for Boracay stakeholders
Nevertheless, the government expects some Php 20 billion in lost revenues as consequence of the commercial shutdown. That is all for theatrics. Largely unseen by the public has been the possible billions of pesos in government spending for Boracay’s rehabilitation!
Aside from scoring political points on environmental politics, the Boracay project should be boon or bonanza for Mr. Duterte (via his fiscal spending target, and perhaps personally), his bureaucracy and his favored private sector contractors.
The ultimate takeaway from Duterte’s war on Boracay has been about the rapid expansion of political and economic control by the state over the citizenry.
And the war on Tourism has been spreading. Local officials of a Cebu resort island Sumilon declared a one week reprieve from tourists. Finger pointing has surfaced over beach pollutions in the several communities in the Northern part of Luzon as the NG has begun sounding out warnings for an expanded crackdown there and elsewhere.
The tourism industry directly accounted for 8.2% and indirectly 19.7% of the 2016 GDP (World Travel and Tourism Council 2017 report) and is about to get some nasty drubbing, in almost all aspects, output, earnings, investments and jobs. And the coming slowdown will certainly spread to the economy.
Even more, because the establishment of socialist institutions translates to a war on the citizenry, which now covers many sectors, aside from Tourism, the decadence from such redistributive politics will only accelerate.
This brings us to the other vital unseen lesson from the war on Boracay. Duterte’s many wars haven’t been directed only on private enterprise but also on consumers.
In so many words, Mr. Duterte wants to transfer the private sectors’ spending capacity to him.
As a final note, if you should notice, the weakening of the Phisix has coincided with the Duterte's administration's interventions on the tourism industry, which began last February. Of course, such correlation does not imply causation, but this could have contributed to the recent stock market conditions
