“Socialism, Mises demonstrated, in his greatest original contribution to economic thought, not only abolishes the incentive of profit and loss and the freedom of competition along with private ownership of the means of production, but makes economic calculation, economic coordination, and economic planning impossible, and therefore results in chaos. For socialism means the abolition of the price system and the intellectual division of labor; it means the concentration and centralization of all decision-making in the hands of one agency: the Central Planning Board, or the Supreme Dictator”—George Reisman, Ph.D.
Institutionalizing A Neo-Socialist State: Demand Controls on the War on Boracay and Price Controls on the War on TNVS
Institutionalizing Socialism: The War on Boracay Expands to Include Demand Controls!
There is a critical difference between the Duterte regime and its predecessors. While the implementation of changes by the forebears had been mostly on the margins, the restructuring the political-economic system appears to be the primary objective and impetus of current actions of the incumbent leadership
To put it more precisely, the system is being recalibrated to operate on a centrally planned socialist platform.
The unfolding war on Boracay continues to reinforce my expectations of Mr. Duterte’s thrust.
In the name of the rehabilitation of the environment, there will be purging of enterprises on the island. Strict controls will be imposed on the supply side.
And to comply with growing cost of regulations and mandates, entrepreneurial survival will latch on two instrumental critical binding factors: greater financing capacity and political connections. And because of expanded political controls, corruption will grow sizably, and the political class or state agencies will become the dominant owners of enterprises in the island.
Boracay’s full closure has yet to commence, yet reports indicate that local officials have been selling IDs to non-residents possibly to gain access to the islands.
Higher prices will be the consequence of the shrinkage of the supply base and the growing direct and indirect costs of compliance and interventions.
Boracay will now transform into a playground for the rich, the politically connected and the political class.
And a centrally planned economy won’t stop with the supply-side proscriptions, regulations, and control, but will broaden to cover even the demand-side!
From the ABS-CBN News: “The Philippines might limit the number of tourists to be allowed into Boracay island after its 6-month rehabilitation, two officials involved in the cleanup said Wednesday. The Department of Environment and Natural Resources has been ordered to determine the island's carrying capacity, and it will release its findings by the end of the month, said Usec. Jonas Leones. This carrying capacity will set out the "limit and threshold" of the island famous for its powdery white sand and clear waters, he said”
The administration’s fascination for centrally planned absolute controls will transform Boracay into a political-economic chokepoint.
While the island’s standard of living for the average constituents will diminish, the political class will grow. The asymmetric growth in income and wealth will fuel inequality, and subsequently, drive social tensions.
Meanwhile, rigorous controls will most likely spur a guerilla or underground economy, which would likely result in the worsening of environmental desecration.
Absolute power corrupts absolutely.
The Boracay’s socialist paradigm has begun to expand.
The DENR issued warnings and violation notices to establishments located in the beaches of Panglao Bohol, Puerto Galera, Mactan Cebu and El Nido Palawan, as well as to 127 Bicol resorts.
Fourteen firms in Puerto Galera became victims of the National Government’s (NG) purge of the Tourism industry. In the islands of Coron Palawan, the NG have ordered the demolishment of 75 tourism establishments. 24 of 32 firms have started to dismantle their structures in the island of El Nido.
While the administration advertises such repression as the enforcement of the “political will”, the wanton and indiscriminate violation of property rights, the lack of due process, and the imposition of restrictive commercial rules and mandates underscore the critical shift to a centrally planned, state-controlled economy.
Some have suggested that the absence of Boracay will only prompt for a shift in demand for other tourist spots.
First, like an individual, each tourist spot sport a distinctive character. Consumers will have subjective assessments of the many distinguishing factors or features, such as aesthetics, weather, geography, amenities, proximity, social status, and other perceived leisure related profiles, provided by competing tourist locations. Thus, the inaccessibility of tourist spot A doesn’t automatically mean that tourists will stampede into tourist spot B.
Two, with the political onslaught against the tourist industry, supply won’t be growing. There will be lesser domestic choices for tourists.
Three, the Philippines isn’t the only haven for tourism. Neighbors will likely gain market share lost from the war on tourism.
Fourth, there will be detrimental consequences from the latest hysteria for the imposition of socialism for an environmental cause.
It will likely accelerate the pricking of the twin bubbles (credit bubble and socialist/big government bubble) which will rattle the pillars of the Philippine economy.
If I am not mistaken, by the yearend Philippine economy will stagger or reel from the ramifications of the combined accrued forces of overcapacity (malinvestments), price instability expressed by the stubbornly elevated real economy prices, asset bubbles, and tightening money or liquidity.
The sins of the past, which had been carried over, will be compounded by present policies all of which have been designed to centralize the economy.
The present policies include the massive crowding out effect from the unprecedented surge in the fiscal deficit, the blatant attack on commerce, particularly Boracay which should spread elsewhere, distortions from the socially punitive tax hikes and the imposition of strangulating commercial and social regulations
A change in leadership won’t end socialism, especially if it has become institutionalized, starving the beast would.
Oh as for Federalism, since the NG pays NO respect for decentralized institutions, the essence of autonomous states operating under “state rights” would remain elusive.
RA 10963 and the war on Tourism should be concrete examples of it. Like Venezuela’s Hugo Chavez’s first term, changing of the constitution (constitutional reform) would be about the enshrinement of socialism and the extension of the leadership’s tenure.
War on Grab and TNVS Industry: Controlling the Industry’s Demand Through Price Controls
More evidence of the transition to a neo-socialist state through the deepening centrally planned, state-controlled economy.
Like the war on tourism, the war the transport network vehicle service (TNVS) sector has expanded to cover demand.
Here is the back story.
The NG threw a wall of regulatory barriers against Uber and Grab, including the instituting limits to supplies. Uber was suspended for having failed to comply with the newly imposed arbitrary regulations. Since Uber paid nearly half a billion pesos in fines and compensation to its drivers, the suspension to operate was lifted by the LTFRB a month after. Uber paid its drivers during its suspension period as part of its agreement with LTFRB.
And because of the increasing burdens from the domestic regulatory environment, which was aggravated by swelling financial onus, and which compounded to the predicament experienced by the company’s exposure in the region, Uber sold to competitor Grab under a merger scheme with Grab as the surviving entity.
After slaughtering Uber, NG’s PCC then charged Grab with non-competitive practices and then required Uber to operate even when the company has already scaled down operations. The LTFRB opposed PCC’s position. Apparently, LTFRB prevailed on Uber, so the Uber shut its services.
Unseen by the public, the torrent of regulations imposed by the NG (LTFRB and PCC) on Grab have weighed on the company’s operating costs.
And since Uber’s merger isn’t free, the carrying cost of the merger is still borne by Grab. Perhaps part of that cost may have included the portion of the fines paid by Uber to the NG. Rising fuel costs and the excise tax on automotive sales have only exacerbated Grab’s cost structure.
With the avalanche of additional costs, what does Grab do to survive?
Naturally, Grab attempted a cost pass-through to its consumers. But in a society which embraces the illusions of free lunches, the pass-through was met by public revulsion. A senator even took umbrage at Grab for seeking more profits.
LTFRB initially investigated and suspended Grab’s price increase. However, the government agency eventually backpedaled and allowedrestoration of the price increase requested by the company.
If you haven’t noticed, by regulating and determining Grab’s pricing structure, the NG basically controls the demand for Grab’s services. The NG has replaced the consumer in determining and in disciplining Grab through the profit-and-loss mechanism. And by controlling demand, the NG now indirectly determines the company’s operations and profits.
It wouldn’t take long where public officials will serve on the board of Grab.
Grab has transformed into utility enterprise similar to Meralco.
Importantly, Grab’s viability has become entirely dependent on its ability to please the NG.
Aspiring entrepreneurs haven’t given up though. A ride-hailing app company, Arcade City, offered to operate its transport services last week. Because it had not obtained a go-signal from the LTFRB, the company was labeled a ‘colorum’ and ordered to cease from operations.
While it may be true that LTFRB has recently granted several TNVS franchises to domestic entrepreneurs (Hype, Hirna, Go Lag), the paramount concern would be to survive from the hazards of an increasingly repressive regulatory regime. That’s unless of course these companies are indirectly owned by the political or bureaucratic class or by the state itself.
The lack of perspective even by the establishment experts on the current transition to a neo-socialist state has been striking. The sharp drop in the ranking of the Philippines compared to the world, in the observance of the rule of law, has prompted a popular economist to sound the alarm bells.
Statistical comparisons won’t be necessary for us to see this. All it takes is to merge theory with observations of real events, as shown above.
