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Jan 28

Two discouraging signals

The Inquirer editorial yesterday (Queendom for a horse) took a critical look at AFP chief’s term extended.The editorial says the possibility that Esperon will serve longer than an additional three months should be considered. The editorial cites the following laws and decrees: Presidential Decree 1638 as amended by Presidential Decree 1650, and Republic Act 8186 as amended by Republic Act 9188, as well as the provisions of the Constitution (since Esperon term extension possible only in case of war – Palace). It also makes reference to GMA’s speech during the AFP Change of Command Ceremony, November 28, 2002.

Photo Rel092706C
Today, the news is Esperon: 4 months ahead may be bloody: General expects stiff NPA resistance. Whether this is posturing or Esperon’s real intention, remains to be seen. But if he really does believe the AFP is capable of liquidating the NPA in the hills, what would be his basis for this?

Randy David gives us a clue. In The tragedy of the rural poor, says something unprecedented is going on. We’re used to the sight of people moving to the city from the province, attracted by the glitter and opportunity of life in the big city. David says what’s going on today, though, is that people are moving to the city not because they are attracted by opportunity, but because they are fleeing the collapse of rural life in the provinces. There is a difference, he says, and it is troubling -an unintended consequence, he says, of defective land reform. This reminds me of an assertion by the economist Mike Alba who pointed out no one is quite sure, because the government mechanisms for monitoring it have broken down, of how much formerly productive agricultural land has been converted to real estate and other purposes. He also points out, and if he knows it the military knows it, too, that efforts to organize the peasantry are at their lowest ebb since the 40’s and 50’s.

On a related note, see Solita Monsod’s Two challenges, where she says the ranks of the truly poor have shrunk while most Filipinos have become slightly poorer across all classes.

Politically, the weekend had news that Arroyo douses plot vs Speaker via phone call — Ermita and that as Congress resumes session, GMA tells Rainbow Coalition to stand by JdV. The scuttlebutt, however, is that the changes in the executive and legislative departments are scheduled for later this year. Among the targets are Lakas stalwarts. Supposedly Executive Secretary Ermita will finally be eased out around May, to be replaced by the current DILG Secretary, Puno. Speaker de Venecia, on the other hand, will be removed from the speakership near the end of the year. Meanwhile, attempts to amend the Constitution will gather pace in the middle of the year.

Now this is what interests me about the other big weekend news, Melo named Comelec chair. His appointment, to my mind, can’t be evaluated properly until the other presidential appointments to the Comelec are announced. And even then, it all depends on whether the administration will then send signals it wants stability until 2010 or will pursue constitutional amendments aggressively. If it pursues amendments then the first task of the new Comelec Chairman and the new commissioners will be to preside over a plebiscite that will be manned by the same mid and lower level Comelec people tasked with the 2004 and 2007 elections. Which means individuals like Christian Monsod, groups like the PPCRV, and even the Cardinal Archbishop of Manila (who strongly backs the candidacy of Howie Calleja, for example, for a Comelec commissioner slot) might find themselves quite disappointed with their nominees, after Appointment of Melo as COMELEC head welcomed. But if constitutional amendments don’t take off, there is room for moderate optimism for 2010.

My column for today is Individualistic yet part of the whole. One of the books I mentioned, Profiles Encourage, is reviewed by Rodel Rodis. See also two commentaries in the papers: Filipino Diaspora as a Form of Revolt and Going beyond ‘Same same’. You may also want to participate in Janette Toral’s Important Issues on Philippines 2010 Election.

Speaking of elections, overseas, Obama’s big win keeps his hopes alive. Interesting reading in Slate’s The Super Tuesday Strategy Guide.

Concerning the prospects of an American recession affecting our part of the world, see Asia Won’t Get Away Clean in The Asia Sentinel, as well as Live it Up, Asia! (which doesn’t apply to us).

And for future discussion: Parag Khanna’s Waving Goodbye to Hegemony:

At best, America’s unipolar moment lasted through the 1990s, but that was also a decade adrift. The post-cold-war “peace dividend” was never converted into a global liberal order under American leadership. So now, rather than bestriding the globe, we are competing – and losing – in a geopolitical marketplace alongside the world’s other superpowers: the European Union and China. This is geopolitics in the 21st century: the new Big Three. Not Russia, an increasingly depopulated expanse run by Gazprom.gov; not an incoherent Islam embroiled in internal wars; and not India, lagging decades behind China in both development and strategic appetite. The Big Three make the rules – their own rules – without any one of them dominating. And the others are left to choose their suitors in this post-American world.

The more we appreciate the differences among the American, European and Chinese worldviews, the more we will see the planetary stakes of the new global game. Previous eras of balance of power have been among European powers sharing a common culture. The cold war, too, was not truly an “East-West” struggle; it remained essentially a contest over Europe. What we have today, for the first time in history, is a global, multicivilizational, multipolar battle.

In Europe’s capital, Brussels, technocrats, strategists and legislators increasingly see their role as being the global balancer between America and China. Jorgo Chatzimarkakis, a German member of the European Parliament, calls it “European patriotism.” The Europeans play both sides, and if they do it well, they profit handsomely. It’s a trend that will outlast both President Nicolas Sarkozy of France, the self-described “friend of America,” and Chancellor Angela Merkel of Germany, regardless of her visiting the Crawford ranch. It may comfort American conservatives to point out that Europe still lacks a common army; the only problem is that it doesn’t really need one. Europeans use intelligence and the police to apprehend radical Islamists, social policy to try to integrate restive Muslim populations and economic strength to incorporate the former Soviet Union and gradually subdue Russia. Each year European investment in Turkey grows as well, binding it closer to the E.U. even if it never becomes a member. And each year a new pipeline route opens transporting oil and gas from Libya, Algeria or Azerbaijan to Europe. What other superpower grows by an average of one country per year, with others waiting in line and begging to join?

With the new Big Three, the author then says the task is to identify the “Second World”:

To really understand how quickly American power is in decline around the world, I’ve spent the past two years traveling in some 40 countries in the five most strategic regions of the planet – the countries of the second world. They are not in the first-world core of the global economy, nor in its third-world periphery. Lying alongside and between the Big Three, second-world countries are the swing states that will determine which of the superpowers has the upper hand for the next generation of geopolitics. From Venezuela to Vietnam and Morocco to Malaysia, the new reality of global affairs is that there is not one way to win allies and influence countries but three: America’s coalition (as in “coalition of the willing”), Europe’s consensus and China’s consultative styles. The geopolitical marketplace will decide which will lead the 21st century…

Second-world countries are distinguished from the third world by their potential: the likelihood that they will capitalize on a valuable commodity, a charismatic leader or a generous patron. Each and every second-world country matters in its own right, for its economic, strategic or diplomatic weight, and its decision to tilt toward the United States, the E.U. or China has a strong influence on what others in its region decide to do. Will an American nuclear deal with India push Pakistan even deeper into military dependence on China? Will the next set of Arab monarchs lean East or West? The second world will shape the world’s balance of power as much as the superpowers themselves will.

As for our part of the world,

America may seek Muslim allies for its image and the “war on terror,” but these same countries seem also to be part of what Samuel Huntington called the “Confucian-Islamic connection.” What is more, China is pulling off the most difficult of superpower feats: simultaneously maintaining positive ties with the world’s crucial pairs of regional rivals: Venezuela and Brazil, Saudi Arabia and Iran, Kazakhstan and Uzbekistan, India and Pakistan. At this stage, Western diplomats have only mustered the wherewithal to quietly denounce Chinese aid policies and value-neutral alliances, but they are far from being able to do much of anything about them.

This applies most profoundly in China’s own backyard, Southeast Asia. Some of the most dynamic countries in the region Malaysia, Thailand and Vietnam are playing the superpower suitor game with admirable savvy. Chinese migrants have long pulled the strings in the region’s economies even while governments sealed defense agreements with the U.S. Today, Malaysia and Thailand still perform joint military exercises with America but also buy weapons from, and have defense treaties with, China, including the Treaty of Amity and Cooperation by which Asian nations have pledged nonaggression against one another. (Indonesia, a crucial American ally during the cold war, has also been forming defense ties with China.) As one senior Malaysian diplomat put it to me, without a hint of jest, “Creating a community is easy among the yellow and the brown but not the white.” Tellingly, it is Vietnam, because of its violent histories with the U.S. and China, which is most eager to accept American defense contracts (and a new Intel microchip plant) to maintain its strategic balance. Vietnam, like most of the second world, doesn’t want to fall into any one superpower’s sphere of influence.

It’s a lengthy article but well worth a read.

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219 comments

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  1. UP n student

    Sounds reasonable, especially since metrics-per-capita (when family sizes are increasing) should do “worse” than metrics-per-household. I suppose the answer is in the details. (Ca t may know the answer to this question:) What “things” get added into GDP that does not get added into income, or vice-versa?

  2. nash

    UPN et cvj

    tama na yan, baka mapagsabihan kayo ng “don’t debate with me about economics”

    😀

  3. cvj

    Nash, sanay na ako.

  4. cvj

    INE, just saw your link, thanks as well.

  5. UP n student

    💡 Last shot across the bow:
    Conclusion: OFW-income makes GMA looks good one more time.

    To get from GDP to National Income, one has to factor in (i) depreciation, (ii) indirect tax, and (iii) Filipino income earned overseas, and (iv) Income earned by Foreigners on Philippine soil.

    NDP= GDP – Depreciation
    NI=NDP-Net foreign income earned in @@@- Indirect tax

    NDP = net domestic product
    NI = national income

    Net foreign income earned in… = (income earned by the rest of the world – income earned from the rest of the world)

    [ I don’t have numbers, but my sentiment is that 💡 OFW-income explains the “gdp-vs-income” anomaly and that OFW-income increased much more dramatically 2003-to-2006 than income-by-foreigners-from-Philippine operations. ]

  6. UP n student

    oooops… NI = ( GDP plus OFW-income) less ( others }

    Forget what I said…
    Now I have to figure out if I need to worry definitions for “national income” and “family income”.

  7. UP n student

    Maybe the answer is a dramatic increase in income earned by foreigners from Philippine operations , like mining. Someone better send a check to Monsod to pay for one consultancy-hour so she nails this question down.

  8. cvj

    UPn (at 2:23am), perhaps you’re right. I was also thinking along those lines although i had in mind income paid to foreigners for smuggled goods. Yeah, i’m hoping the economists should look for an explanation especially that this sort of divergence has been happening for the past 10 years (since 1997). It’s a wonder that Monsod only pointed this out last week.

  9. UP n student

    Mangahas, in an Oct 2007 article, also mentioned the “GDP-is-up but Income-is-down” anomaly. He acknowledged a discrepancy; provided no explanation. In fact, he said
    I accept the contemporaneous growth in GNP and decline in family income as factual results of the best efforts of the government statisticians. The growth in one and decline in the other are not contradictory.

    At the same time, I do not suppose that either set of data is perfect. Surely both sets can be improved, in terms of estimation procedures. But until such improvements are made, one must make use of everything that is available. To accept one set of data as fact and deny the other set as falsehood would be foolish.

  10. UP n student

    FIES reports total 2006-family income at P3-trillion (nominal), or about US$62Billion (using 48-to-1 exchange). Much more important, family-income is only 50% of Philippine GDP which is $115Billion. This means that if the unlucky-half goes “down 3%” and the other half goes up “7%”, then GDP will go up 2%.

    As for mining : December 2004 is when the Phil Supreme Court handed down a ruling permitting foreign investments in the Philippine mining sector.

  11. UP n student

    You get voted into Malacanang at the FIES-household-by-household level but the big bucks are at the GDP tens-of-billions-of-dollars level.

  12. hvrds

    Read the fine print when going over GNP/GDP growth by the expenditure approach or the value added approach through production. The estimates for the informal sector is huge.

    It is a broad estimated measure of expenditures of the three main agents in the economy. Business, government and households and the glaring statistical discrepancy that comes with it that will reach 5% of the total figure estimated. It does not measure whether expenditures are made by cash or credit. The statistical discrepancy to round off figures includes the informal sector – smuggling.

    In the Philippine context

    GNP which includes income flows from abroad minus income flows outbound + GDP= PCE (includes annual household, government and business consumption) +public and private capital formation + export -import of goods and services. (almost always negative)

    It is the net income that comes from OFWs that covers the merchandise trade deficit and sometimes the service trade deficit.

    If there was an honest to goodness audit of the volume of smuggled items it would reach close to $5-10 billion dollars.

    The value added method measuring of economic activity is easier to do since formal producers have to file their reports to the government. Out total exposure to foreign trade is over $90 billion (exports +imports)officially.Our OFW incomes also pay for the cost of foreign capital being repatriated abroad apart from profits from foreign investments on top of imports.

    You add the net inflows of hot money in the financial markets and you have a strong peso.

    It is in the expenditure report where government is hard pressed to get data. That is what fiscal policy is all about. But only 2M+ out of a potential labor force of 45+ million file an income tax return and pay income taxes.

    Another important feature of measuring incomes or consumption alone by this method misses the income gains through capital gains. This is for the rich and landlords. . Their peso assets are more valuable today than two years ago. They can buy more dollars with less pesos. Housing prices in the Bay area (S.F.) of the U.S. and in Manhattan are as strong as ever. Foreign money is keeping valuations up.

    A lot of rich people are now turning over their properties to be liquefied through property developments. Foremost of them is Mar Roxas of the Araneta Center. Megaworld is building condos and office spaces for BPO services on the property of Mar Roxas and family. Hence he has to protect his interest and ask for a strong dollar because if the currency bubble in pesos strength were allowed to fester they would lose their markets for BPO and condos for OFW would become too expensive.

    The capital gains in land valuations for the Mar Roxas family in the Araneta Center will not show in the expenditure report nor in the value added report through production.

  13. cvj

    hvrds, thanks for the explanation and pointing us to the fine print. (among others, i stand corrected in my comment at January 28th, 2008, 8:58 pm above). i’ll incorporate this (and other parts of your comments) in my analysis. i’m consolidating my thoughts in this blog entry:

    http://www.cvjugo.blogspot.com/2008/01/tale-of-two-statistics-family-income.html

    If as you say…

    Another important feature of measuring incomes or consumption alone by this method misses the income gains through capital gains. This is for the rich and landlords.

    …then that means our Gini coefficient understates the level of inequality.

    Upn, i agree that GDP is a measure of Business Income + Family income. A portion of that business income should go to households (as dividends or reduction in equity). You’re therefore right to point out that there is a big portion of business (or non-family) income.

    It could be possible, as you say, that a portion of that 115 billion are business profits that are repatriated to foreign nationals. (hvrds mentioned above that it is ofw remittances that facilitates this repatriation)

    It could also be additions to retained earnings, but if this is the case, we have to question why this does not show up as an increase in capital formation.

    This leads us to a third (non-mutually exclusive) possibility that it reflects capital gains on real estate that hvrds has mentioned in his post. If so, then this is probably one area of the economy that needs to be considered for further taxation.

    I agree that both figures are most likely the obtained from the best efforts of the government statisticians who have no political agenda. However, i disagree that we can simply accept the discrepancy without understanding where these come from. It makes sense to understand what goes behind each of this conflicting descriptions of economic reality in order to evaluate the normative claims that are made in conjunction with these statistics.

    For example, you notice that the present administration has been emphasizing one aspect, i.e. Growth in gdp as an economic achievement while downplaying the fact that since 1997, average family income has been falling back to late 1980’s levels.

  14. UP n student

    cvj: You’ve already identified a “traditional” equation for GDP, namely:
    gdp = pce + gc + cf + x – m

    where:
    pce -> Personal Consumption Expenditure
    gc -> Government Consumption
    cf -> Fixed capital formation
    x -> Exports
    m -> Imports

    Again, Philippine 2006 GDP is about $115Billion
    (while FIES reports total 2006-family income at P3-trillion (nominal), or about US$62Billion (using 48-to-1 exchange).)

  15. UP n student

    See below for a description of how FIES is obtained. It uses about 41,000 household “sample-points (out of a total of 17,403,000 households as of 2006).


    How is it conducted?

    The FIES is conducted through personal interviews using a family schedule or questionaire called FIES Form 1.

    The respondent for FIES is any knowledgeable and responsible member of the sample family.

    What are the areas covered in the sample survey?

    The FIES covers all 78 provinces of the country including all cities and municipalities in Metro Manila. The sample includes 3,416 enumeration areas or barangays with approximately 41,000 sample households.

    What specific data are obtained?

    Source(s) of family income, in cash or in kind such as:

    ..salaries and wages from regular, seasonal, or occassional employment
    ..net share of crops, fruits and vegetables produced or livestock and poultry raised by other households
    ..enterpreneurial activities
    ..other sources of income (cash receipts from abroad, domestic sources, and others)

    Level of family consumption by expenditure item such as:
    ..food, alcoholic beverages, and tobacco
    ..fuel, light and water; transportation and communication; and household operations
    ..personal care and effects, clothing, footwear, and other wear
    ..education, recreation, and medical care
    ..furnishing and equipment
    ..taxes
    ..housing, house maintenance and minor repairs
    ..miscellaneous expenditures
    ..other disbursements

    Number of family members employed for pay or profit, or as wage, salary or own-account workers

    Housing characteristics of families, their facilities, utilities, and others

    Other related information

  16. inodoro ni emilie

    up n:

    this should clear up all these prententious display of expertise in gdp when one has not even gone to the fies original source to determine how much it accounts as a component of the national income measurement, and for treating the survey (oh, but were you not flag down for suggesting that a survey of sort even exist?) as if it were a longitudinal study (“hey monsod did not factor in increases in family membership”). 🙄

    of course you know where am coming from, up n. 😉

  17. UP n student

    i-n-e: cheers!! no worries… the sun shines, if not tomorrow, then the day after. 🙂

  18. anthony scalia

    nash,

    “basta ako puzzled talaga ako. tito vic and joey have probably earned more individually than willie and yet i don’t see them driving ferraris.”

    but Tito Sotto owns a BMW dealership!

  19. vic

    nash, anthony..read a newspaper story about these two main characters in our city, both notorious it their own way. one is Peter Munk, miner, philantrophist, and the other, Conrad Black, newspaper magnate, Lord of Crossharbour, both wealthy. The story goes this way..Black showed Peter Munk his customized Aston Martin and Peter asked him how He could afford It? Of course we all Knew that Black was convicted of Frauds and Mail Frauds in the U.S. while Peter Munk was so honoured of giving more than $80 Millions of his Personal wealth for the University Hospital Heart and Lung Centre…even wealthy people are different….

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