News Analysis Trade

Enemies of efficiency

Goods Market Efficiency, Global Competitiveness Index 2017-18

In the September 2017 Ulat ng Bayan (Report of the Town) survey – conducted by Philippine opinion-polling company, Pulse Asia – the biggest concern of Filipinos was the rising cost of goods. Statistically, more people were concerned about the prices in the shops than they were with wanting the government to prioritise its fight against corruption – far more in fact; 50% as opposed to 28%.

That doesn’t mean they don’t want to see an end to the dishonesty and sleaze that’s been an abiding element of political and corporate life in the Philippines – practically for ever. Of course they do. But high shop prices is something that directly affects them on a daily basis. They can’t get away from it. For example, for a minimum-wage earner in the Philippines, food can account for as much as three quarters of his/her income.

And, though high food costs are unquestionably the thing that distresses them most, prices for everything from hospital bills and the exorbitant cost of medications to horrendous Internet-package payments and crushing electricity charges – the highest in the Southeast Asian region – also greatly trouble them.

All this is the result of a hugely inefficient marketplace where excessive government regulation and corporate greed have come together in a perfect storm to stifle competition and create a ‘take-it-or-leave-it’ approach to consumerism – one in which the interests of meddling bureaucrats and company bosses, seeking to maximise their profits, show scant regard for the needs of the public.

What they’ve managed to create between them is an inefficient market for goods, that not only neglects the consumer, but ensures an unhealthy lack of competition that will continue to impede the economy and hinder its growth.

We normally put little store by polls – and particularly those conducted by organisations with strong political links, which Pulse Asia  has to the former Liberal Party administration of Benigno “Noynoy” Aquino. But in this particular poll the findings are more than borne out by a wealth of anecdotal evidence to show that Filipinos generally are dissatisfied.

So, what does an efficient goods market look like? In basic terms it’s one in which businesses produce goods (and services) with the greatest consumer demand and sell them at the lowest possible prices. In other words, one that gives its customers what they want at prices they’re happy to pay.

To achieve that, the countries where they operate must maximise efficiency in a host of factors to make doing business easier and faster. Governments must minimise their involvement – in other words, get out of the way – while businesses adopt the most economical procedures and processes and gear production to speedy, cost-effective delivery. A perfect world, therefore, is one where business – unimpaired by regulation and price-gouging – thrives as the result of a satisfied consumer sector.

For a closer look at the Philippines’ market malaise, we turn to the 2017-18 Global Competitiveness Index, produced by the World Economic Forum – a comprehensive study that rates the relative competitiveness of 138 countries world wide. Here, under the sub-index – ‘Efficiency Enhancers’ – we look at two indicators: ‘Goods Market Efficiency’ and ’Labour Market Efficiency’.

We’ve condensed these results to show the Philippines in the context of its peer group, the Association of Southeast Asia Nations (Asean) states. Asean member, Myanmar, is not covered in this survey. Rankings shown are the global positions of these countries.

The ‘Goods Market Efficiency’ rankings are: Singapore, 1st; Malaysia, 20th; Thailand, 33rd; Indonesia, 43rd; Brunei, 67th; Laos, 76th; Cambodia, 85th; Vietnam, 91st; Philippines, 103rd.

How did the Philippines manage to come last in this category? Take a look at some of these rankings which the Philippines chalked up for contributory indicators of the efficiency of its goods market. Remember, these placings are out of 138 countries. Number of procedures to start a business, 136th; burden of customs procedures, 125th; extent of market dominance, 119th; agricultural policy costs, 119th; time to start a business, 115th; effectiveness of anti-monopoly policy, 106th; business impact of rules on FDI, 97th.

So, our old friends bureaucratic red tape and market protectionism are clearly the causes. In other words, the sticky fingers of bloated bureaucrats and oligarchs are all over these results. And so, as far as the former is concerned, this breakdown should be studied by the head of every government department so they can home in on where their agencies are causing bottlenecks and creating efficiency failure.

Addressing protectionist practices, meanwhile, needs Congress to get better engaged. It also needs greater involvement by the Philippine Competition Commission (PCC) – after all, this body was founded with the express objectives of implementing the Philippine Competition Act and promoting economic efficiency. Since its formation 21 month ago, however, the PCC appears to have made little headway in either direction.

Now let’s look at how efficient the country’s labour market is. First the results.  ’Labour Market Efficiency’ rankings within Asean are: Singapore, 2nd; Malaysia, 26th; Laos, 36th; Brunei, 47th; Cambodia, 48th; Vietnam, 57th; Thailand, 65th; Philippines, 84th; Indonesia, 96th.

Another shameful performance then. Here, according to the breakdown analysis, this market’s weaknesses lie in a number of areas. Among them are these: high redundancy costs; low female-to-male labour force ratio; inflexibility in determining wages; lack of capacity to attract talent.

Again then, another perfect storm created by government interference and a corporate sector that’s reluctant to incentivise its workforce. Companies shouldn’t be a playground for politicians and bureaucrats to obtrude, burdening business with restrictions and burying it beneath blankets of pedantic paperwork. If these enterprises are to operate to the best of their ability, they need the oxygen of freedom to allow them to grow. For labour markets to be efficient and competitive, therefore, they have to be flexible and they can’t be that if they’re placed in a straightjacket of regulatory requirements

Similarly, the workplace shouldn’t be solely a place where workers clock-in and clock-out; it should be attractive to workers, allowing companies to woo the best and the brightest. They’ll be the most efficient; the ones that will make those companies more competitive. The workplace, then, should be a meritocracy where talent is encouraged and rewarded.

For the purposes of competitiveness, high levels of market efficiency for goods and labour are the Utopian goal. What’s presently operating in the Philippines – thanks to the perennial enemies of a myopic oligarchic business approach, a busybody bureaucracy and prying politicians – is something closer to its dark dystopian cousin.

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