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The Misadventures of the Street Strategist Vol 1 to 13
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Hyperwage Theory Part 09
Hyperwage Theory Part 9
Chapter 9: The Myth of Cheap Countries
The Hyperwage Theory is probably the most revolutionary economic thought in recent history. Before this, the last two recent ones could be Marxism and Keynesian economics. Thus, this theory could be the source of extreme ridicule or, the same could be the source of supreme honor for the Street Strategist in the annals of intellectual history. Not bad for a one-man thinking machine of limited talents and unlimited imagination.
I hereby challenge all the famous economists in this country and the world for that matter: As an economist, what have you contributed to the intellectual history of mankind? That’s the criterion of a PhD dissertation, isn’t it? A dissertation is supposed to contribute to the overall knowledge of mankind.
But what have you accomplished so far? You have become a dean of the school of economics. You have become the highest ranking economic policy maker of the land. You have become a finance minister. You have become a central bank governor. Wait, you have even become a president of the country. Dr. Economist, you have become all these, but what have you really accomplished? Have you built a better mousetrap or have you realized that the mousetrap is not the solution? Remember this: do not do things right. Do the right things.
I believe the Hyperwage Theory is a direct, concrete, actionable, elegant single-stroke solution to Third World poverty. Why don’t you join hands with me and put your PhD into good use for something revolutionary?
Recap
In Part 1 (Strategy of Poverty), I revealed the strategy of poverty unwittingly perpetrated by Third World governments and their economists.
In Part 2 (Hyperwage Theory Unveiled), I unveiled Hyperwage Theory with the surprise feature that the solution to a Third World country’s poverty rests on the country’s valuation of the labor of the poorest of the poor. I argued that domestic helpers should be covered by the minimum wage law, and that they should be paid wages with actual purchasing power.
In Part 3 (Paradigms), I laid out the paradigms needed to appreciate the Hyperwage Theory, and attempted to illustrate that it comes as a direct natural logical and elegant consequence of the same.
In Part 4 (Aimless Strategies), I disparaged the aimless strategies of the World Bank and government economists with their “beating around the bush” solutions and their insistence on an inflation-centric First World economic theory for Third World countries.
In Part 5 (The End of Modern Theory), I described the helplessness of modern economic theory in solving both the economic and non-economic problems of the Third World.
In Part 6 (The Wealth of the Nation), I argued that the wealth of the nation depends on the valuation of its lowliest worker and not on the accumulation of excessive profits by a privileged few.
In Part 7 (Labor as Unit of Currency), I discussed the ineffectiveness of the World Bank’s purchasing power parity (PPP) and proposed to labor-hours as useful unit of currency for international comparison.
In Part 8 (Mispricing of Labor), I illustrated the mispricing of labor in Third World countries using the Big Mac.
In this part (The Myth of Cheap Countries), I will further illustrate that contrary to economic myths, Third World countries are actually more expensive than First World countries, this time using a very basic and very comparable commodity – electricity.
Comparable commodity
When I introduced my own Big Mac labor-hours index, I also pointed out that The Economist could have made a useful index rather than the exchange rate parity they focused on.
When I disparaged the ineffectiveness of the World Bank’s Purchasing Power Parity (PPP) I pointed out that it could have gone a step further and made a labor-hours index.
But there’s a lesson to all these. The Street Strategist is never afraid to stick out his neck and challenge established ideas, even if it means challenging the intellectual empire of the World Bank with its billions of dollars in annual maintenance.
By such a stroke of intellectual defiance, he arrives at fresh perspectives and radical viewpoints. Seeing what everybody else has seen and thinking what nobody else has thought.
Let me illustrate: Which is more expensive, France or Laos? Given the traditional textbooks in schools of economics throughout the world, this is a trick question. After all, it would probably take a minimum wage worker in Laos a day’s work to buy a 330-ml can of Coke in Paris.
However, as a result of the Hyperwage Theory and its appertaining paradigms this is no longer a trick question.
Without the guidance of the Hyperwage Theory we know by experience that people would leave Laos any minute for France, and yet somehow have this dissonant sensation that Laos is cheaper than France.
Using a very simple (emphasis on ‘simple’) index, now we could now reconcile the dissonance. Using labor-hours, Laos is more expensive than France on products and commodities that really matter to the economy such as electricity and oil.
Yes, indeed, why not compare living conditions in terms of basic comparable commodities like electricity?
Examine Exhibit 5 where I compiled selected First and Third World electricity rates converted to US$.
Exhibit 5 (Cost of Electricity: 1st vs 3rd World Countries)
Country
Cost of 100 KWH in US$ Min Wage in US$ Hours to Work for 100 KWH
France 9.59 9.60 1.00
UK 9.72 8.96 1.08
Germany 9.21 8.29 1.11
New Zealand 8.42 6.54 1.29
Australia 14.67 10.83 1.35
New York
7.40
5.15
1.44
South Korea
6.21
2.49
2.49
Taiwan
6.35
2.33
2.73
Japan
18.34
5.62
3.26
Brunei
5.49
1.37
4.00
Singapore
10.49
2.35
4.47
Hong Kong
13.46
1.92
7.00
Thailand
8.27
0.65
12.68
Philippines
11.16
0.66
16.86
Malaysia
6.58
0.32
20.83
Indonesia
12.92
0.33
39.49
India
8.81
0.13
68.75
Cambodia
17.75
0.22
82.05
China
9.06
0.11
82.15
Myanmar
7.99
0.10
83.07
Vietnam
10.00
0.09
113.61
Bangladesh
8.04
0.05
176.45
Laos
12.79
0.05
263.49
Source: International Energy Agency, Department of Energy USA, Department of Energy Phils, Energy Regulatory Commission, Street Strategist.
Analysis
Based on my research, in France, using the simple non-weighted average of industrial and electricity rates, a kilo-watt hour costs about Euro €0.076, thus about €7.60 for a 100 kwh bill. On the other hand, the minimum wage in France is €7.61 per hour. Thus, it takes only an hour for a laborer to work for 100 kwh of electricity.
In Laos, electricity costs Kip 1,053 per kwh, while the minimum wage is around Kip 400. Thus it takes 264 hours of work to pay for a 100 kwh bill.
Thus, under Hyperwage paradigms, we have arrived at a mathematical validation of the common sense fact that the people of Laos will fly to France any given day.
Before this analysis, our economic viewpoint (Laos is a cheap country) was not in consonance with everyday experience (people fleeing Laos)
Now the ranking of France, UK, Germany could be skewed either way because of the difference in averages and exchange rates but whether UK or Germany is cheaper than France on a labor-hour basis is not the main theme. The crux of our argument is First World vs. Third World valuation of labor.
Sometimes, my estimate of minimum wage where the country has no minimum wage laws could be skewed but then the general trend is there. In my research, I have actually compiled almost every minimum wage in the world.
First World
In the above list of 23 countries, all the rich countries have the lowest electricity rates using labor-hours. This is purely consistent with the Hyperwage Theory’s prediction that rich countries value their labor higher than poor countries. And this is not merely out of pure magnanimity. There is actually a positive upward spiral effect of giving purchasing power to the lowest workers due to increased domestic demand for goods and services. Plus, the Keynesian multiplier effect that redounds to the national income of a country.
Look at the performance of the First World economies.
It takes only an hour of work in France and UK to pay for a 100-kwh bill.
In Germany, it takes 1.10 hours despite the fact that Germany has long been a high-wage country, one of the highest in Europe.
The minimum wage in France is about €7.61, in UK it is £4.85, in Germany it is €6.57 per hour. In Germany, like most European countries, there is no law on minimum wage but their collective bargaining units are strong. We use these CBAs as reference wages.
New Zealand and Australia, the South Pacific twins, have almost similar labor-hour equivalence. It takes 1.29 hours in NZ and 1.35 hours in Australia to pay for a 100 kwh-bill.
East Asian countries
The herd of East Asian counties, some members of the OECD, and some of the most wealthy nations in the world occupy a middle rank in the electrical rankings.
In South Korea, it takes about 2.49 hours, in Taiwan 2.73 hours.
In Japan, one of the most expensive countries in the world, it takes only 3.26 hours while in the Philippines it takes about 16.86 hours. Which is more expensive, Japan or the Philippines?
In Brunei, it takes about 4 hours but then remember that the minimum wage workers there are not the citizens of Brunei but the poor Thai, Indians and Indonesians. There is no minimum wage law in Brunei but these foreign workers get about B$18 per day.
In Hong Kong, it takes 7.00 hours compared to a cheaper Singapore with only 4.47 hours. However, bear in mind that in Hong Kong, it is the Filipino teacher working as a domestic helper that pays the 7 hours of work equivalent. The HKG natives themselves could well afford because they get higher than the maids. The poorest East Asian country would be Malaysia with 8 hours of work.
South East Asia
The supposedly cheap economies of China, Philippines, Thailand, and Vietnam are in reality not that cheap. In fact, they are more expensive than First World countries.
Poor countries are more expensive. Did you learn that from economics textbooks?
Thailand leads this region at 12.68 hours.
In the Philippines it takes about 16.86 hours while Indonesia weighs in with a bad 39.49 hours. Whew.
In India, it takes about 68.75 hours of work while remember it takes only 1 hour in France.
In China, it takes 82.15 hours to work for a 100-KWh bill. By the way, in poor provinces the minimum wage in China is 190 yuan per month (US$0.11 per hour), while in Shanghai it is 635 Yuan (US$0.37 per hour).
Cambodia, Myanmar, Vietnamam, Bangladesh, and Laos are the worst in the list (not necessarily in the world). It takes 82 hours in Cambodia, 83 hours in Myanmar, 113 hours in Vietnam, 176 hours in Bangladesh, and 263 hours in Laos.
Based on these economic facts alone, where are human rights in these countries?
The Myth of Cheap Countries
In Japan, it takes only 3.26 hours. In the US, it takes about 1.44 hours to pay for 100-khw. In the Philippines about 16.86 hours. That’s a ratio of 11.7:1.
In other words, you would have to work in the US for only 1 year and that’s the equivalent of 11.7 years in the Philippines.
You have only one life to live: Are you going to waste your life for 12 years in the Philippines when in fact you need only to sacrifice for a year in the US? Think, quick.
When I started this series, I know you dismissed the Hyperwage Theory immediately. Now, I have delved deeper and deeper into the realm of economics and economic data. This is no longer about paradigms and generalizations. This is about calculating data from a different angle.
As I have promised under the tutelage of the Street Strategist, you will never look at economics the same way again. I have not changed the facts. I have changed the way you think.
Can you imagine that? We have turned economic theory on its head. The poor countries are actually expensive, and the rich countries are actually cheap. Tell me, isn’t that exciting?
Funny, I heard that last week, one reader who is not even an intellectual brought a compilation of Hyperwage articles to the P1 million bingo bonanza at one of PAGCOR ‘s casinos to read in between the games. A marine transportation graduate reading Hyperwage during lulls in a casino? Wow, that’s more amusing than the office of the Secretary of Finance calling up BusinessWorld’s librarian to get hold of Part 1 of this series. Very amusing, really.
Anyway, I have to go for the moment. The Street Strategist has once more shattered another economic myth – the myth of cheap countries.
(Thads Bentulan, June 30, 2005)
* * * * * ∯ * * * * *
To join the mailing list send an email to streetstrategist-subscribe@googlegroups.com
A PDF copy of the entire book on Hyperwage Theory is available currently for free.
Send an email to streetstrategist@gmail.com for the latest edition.
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