Wednesday, April 05, 2006

Part 4 - Hyperwage Theory: Aimless Strategies


Table of Contents

Part 2
Part 3
Part 4
Part 5
Part 6
Part 7
Part 8
Part 9
Part 10

Part 12
Part 13
Part 14
Part 15
Part 16
Part 17
Part 18
Part 19
Part 20

Part 22
Part 23
Part 24
Part 25
Part 26
Part 27
Part 28
Part 29
Part 30
Part 32
Part 33

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The Misadventures of the Street Strategist Vol 1 to 13


Hyperwage Theory Part 04

Hyperwage Theory Part 4

Chapter 4: Aimless

The Hyperwage Theory could launch the Street Strategist as the world’s most infamous intellectual eunuch. In the same breath, the Hyperwage Theory could land the Street Strategist the fastest Nobel Prize in Economic Sciences in history. You bet on the former, I’ll bet on the latter.

In Part 1 written in 2002, I revealed the strategy of poverty unwittingly perpetrated by our government, or any Third World country for that matter.

Our president visits every First World country and begs: “Come to our country. Give us your dirty, smelly, greasy work; any job that your rich people are no longer willing to take on. We offer our country as your dirty kitchen, your smelly pigsty, your greasy garage. Don’t worry about wages. We will give our laborers the lowest wages possible. In fact, if you come to us, we will make sure you stay in our country forever because we will keep our laborers forever poor by giving them low wages forever. We will make sure that our laborers will always be paid lower than your own rich people. Always. We will never allow our people to taste the wages of your First World country. We will always be a poor Third World country and you will always be a rich First World country. So what are you waiting for?
“We have cum laude graduates from UP or Ateneo who are willing to break down the rhythm of their biological clocks by working all night in graveyard shifts in call centers. Come to our country now. We have law graduates who are willing to work in call centers answering questions from your country’s spoiled secretaries who don’t even know what a diskette is. One call center employee was even one of the bar topnotchers in the last bar exams. How much more qualified can we get? Our law graduates in call centers are extremely happy working for $1.50 per hour, while you are paying mere high school grads in your country at $15.00 per hour. Your country’s one year wage expense is equal ten years in our country. One is to ten. Can you see the difference? That’s how we undervalue our labor. It’s actually our own style of modern-day slavery.
“You should also know about our domestic helpers receiving only P2,000 per month or $0.15 per hour. Yes, that’s how poor we want them to be.
“Come now, we want you to exploit us. We will even have your photos taken with me in our presidential palace. And again, don’t worry, we will maintain our poverty as a Third World country and you will maintain your wealth as a First World country. In fact, our local companies will buy your software, your CPUs, your computers at prices higher than these computers are being sold in your own country because we have to pay for freight, import duties, VAT, and of course, profit to our companies. We are willing to pay higher than First World prices for your products using our Third World salaries. We will perpetuate this system. This is our country’s unwritten, unwitting strategy of poverty.”

In Part 2, I described the 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. We must recognize that domestic helpers should be part of the minimum wage law, and that they should be paid wages with actual purchasing power.

In Part 3, I laid out the paradigms needed to understand the Hyperwage Theory. I hope I have convinced you that with those paradigms, the Hyperwage Theory comes as a direct natural logical and elegant consequence.

Actually, as early as Part 2 when I described the Hyperwage Theory you should have seen how it purports to be the panacea for the Third World, and I don’t even have to explain further. But if you still can’t see how it works, I don’t blame you, although my respect for your intellectual capacity has just gone down.

There are three basic rejections to the Hyperwage Theory.
First: We cannot afford it. (Sen. Manny Villar raised his eyes to the ceiling thinking before saying these words, according to the radio host who interviewed him last month.)
Second: There will be massive unemployment. (Guillermo Luz of the Makati Business Club reacted immediately when I proposed Hyperwage to him five years ago.)
Third: There will be hyperinflation. (Everybody from the domestic helpers whose cause I am championing to the economics PhDs who are brainwashed by inflation-centric economics are ganging up on me. All together now: “Hyperinflation!”)

Surprisingly, Dr. Bernardo Villegas of the University of Asia and Pacific, in a brief chat at Mr. Raul Locsin’s wake supported the idea of Hyperwage although I was not able to give my figure of P20,000 for the domestic helpers. He would have been floored by the staggering amount I am proposing.

Wage range
At this stage, although I will discuss this in future installments, I would like to say that just because I plan to raise the wages of domestic helpers ten times from P2,000 to P20,000, it does not mean that all salaried workers will get a ten-fold increase. No, it’s not that at all. Here are the ranges:
Domestic helpers – P20,000 per month
Janitors – P22,000
Factory Workers, Messengers – P25,000
Secretaries, Sales Clerks – P50,000
Entry level engineers, teachers – P70,000
Middle managers – P150,000
Bank Managers – P200,000

By the way, in Japan, it is common that the salary of the highest company official is only about ten times the salary of the lowest. Salaries thereat are more equitably distributed.

Why not P50,000 or P100,000 per month as minimum wage? Smart Aleck. This only means your brain stopped working. But I’ll answer this impertinent question later. Don’t worry.

By the way, I’m not saying an instant one-time wage increase. We can have a staggered increase of 20% annually for five years. (Of course, using real wage rates, not nominal rates, so the nominal increase will be higher than 20% each time.)

The first casualty of the Hyperwage Theory are our minds. Our brains stop working. And we cannot see the logical and direct consequences of the Hyperwage Theory. This is the reason I spent Part 3 discussing the paradigms behind the Hyperwage.

But do you know what is the biggest irony I have observed given the Hyperwage Theory? You will be surprised big time.

The biggest irony of the Hyperwage Theory is that the labor groups themselves are skeptical about it. Why are they skeptical about it?

Labor do not think they deserve such a hyperwage with high purchasing power. That’s why they are skeptical. They don’t think they deserve it. That’s the biggest irony.

Again, the labor groups want survival wage, on the other hand, I want to grant them purchasing that could cause the explosion our own domestic demand thereby accelerating the Keynesian economic multiplier.

This is why even the most militant of labor groups could not even think of the Hyperwage Theory in the first place.

(In fact, when a TV host asked the reaction of former BusinessWorld columnist, now Party-List congressional representative Teddy Casino, the latter said that their group was not even asking for wages as high as the Hyperwage but just wages for survival. I’m more Marxist than the Marxists. Two days later Casino used the P21,000 threshold for a tax relief proposal in order to increase the purchasing power. Why do we have to beat around the bush with tax reliefs, etc which in turn will create distortions and loopholes? Do it in one single clean stroke - minimum wage of P20,000 to give helpers purchasing power and everything else will follow.)

Circular flow
Again, this is jumping the gun, but let me assure the businessmen one thing. Under the macroeconomic theory of circular flow, households receive incomes which are their wages from businesses. In turn, these incomes will become household expenditures which will be the incomes for the businesses.

What does this mean? Any wage increase, no matter how big, should not worry the businessmen because the households will spend all of them anyway. All wage increases will go back to the businessmen whenever the households spend. And remember, almost all households spend all of their incomes. Whatever the businessmen will give to workers as wage increases will be given back to the businessmen.

What will happen though is that in the initial stages (at the start only), the businesses will have to take some of their retained earnings and give it to workers as wages. Their profits will be slimmer in the initial stages. But once the workers spend it back, their profits will be higher.

And by the way, just because wages will be raised does not mean that businesses cannot raise their selling prices. Will there be hyperinflation? Why, which country has a cheaper price for Nokia 9500? Singapore or Philippines? Which country has a cheaper HP Tablet PC, USA or Philippines? Compare the prices of goods there in relation to their wages. Which has a comfortable margin? Again, that’s jumping the gun.

Businessmen don’t be stingy, you will reap back all wage increases anyway because under the circular flow theory of macroeconomics, all household incomes will be spent to buy your goods and services.

Note that we don’t have to print new money, therefore no inflation, in a manner of speaking. What is involved is simply redistribution of existing wealth from the pockets of the rich families where they are stagnant, to the active economy where they will be circulated and subject to the Keynesian economic multiplier. From stagnant to circulating, that’s a good change.
See, I have shown you a glimpse of what’s in store ahead. Hyperwage Theory is possible under the current economic theories. I don’t think any PhD economist will disagree with this.

World-class failure
After more than 50 years, I consider the World Bank a world-class failure in eradicating or minimizing world poverty. How much more time shall we give these World Bank economists before we have to finally declare their economic theories, policies, and actions a failure? Is this all that the economists can do? Do they need another 50 years?

Although, this is jumping the gun once again, allow me to demonstrate the failures of the economic theory espoused by the World Bank and First World economists.

The Gini coefficient (measure of wealth inequality) has increased. In some countries the Gini has increased by 5 to 9 percentage points, in some countries from 10 to 19 points, and in some countries more than 20 points. In other words, in two decades, world inequality has even risen. We will discuss this later. This is only a taste of discussions to come.

A student after one semester of poor performance will be marked “failed.”
How much longer do we have to wait until we finally declare that our economic theories and policies are a failure?

Has it ever occurred to you that the World Bank, with its mandate of solving world poverty, has been using the wrong economic theory all along?

This is very crucial because if we use the wrong tool we will never solve the problem. Train 3 will always be on Track 3. Train 1 will always be on Track 1.

By rejecting First World inflation-centric economics, I was forced to start with a zero-base theory until I formulated the purchasing power-centric Hyperwage economics. And lo and behold, I ended up with the wages of the domestic helper as the key.

Have you ever read the anti-poverty strategies of the World Bank? Or the Asian Development Bank? Visit their websites. There’s even a copy of the Philippine poverty strategy. There was a Millennium Summit in 2000, and the Philippines was represented there. Forthwith, there came out a paper called Poverty Reduction Strategy and Poverty Monitoring. Get it from NEDA or World Bank’s website. Do you know that we have allocated P6.1 billion of poverty alleviation funds? In year 2000, the Philippines had the highest incidence of poverty in Southeast Asia where 12.7 percent of the population were living at $1 per day compared to Vietnam’s 9.1% However, I will focus this series on ideas first, then statistics later.

From where I sit, these documents from all over the world are a bunch of motherhood statements.

Yes, these documents are full of statistical data, but that’s the only thing good about them. They have monitoring parameters but almost zero strategies. Poverty strategy studies from all over the world have maximum data analysis but minimum strategy formulation.

About the only strategy I see in their documents is the word “strategy” itself. All these poverty strategy studies are a commingling of useless recommendations by economists paid at First World salaries attempting to strategize for Third World economies using First World economic theories. On the other hand, Third World workers are paying for goods at First World prices using their Third World salaries. Do you know that the price of gasoline in the US about P32 to P34 per liter while in the Philippines it is already P31? Whatever is the exact figure, you know what I mean.

Of course, that’s my personal opinion, World Bank being a failure, I mean. In the same manner that I declared that the two million accountants in the world do not know how to teach debit and credit, I also hereby declare that the millions of economists in the world do not know how to solve the economic problems of the poor countries.

Beating around the bush
Before you waste your time reading the anti-poverty studies of the World Bank, let me describe to you what they are. They are merely solutions that beat round the bush. With this mind-set try to analyze our own country’s anti-poverty strategies. Not only ours, but all those from Third World countries. Tell me if I’m wrong: they are beating around the bush.

Problem: Why do our doctors go to the US as nurses leaving us with skeleton medical teams? The doctors’ reason: High wage. Government solution: Enact a law banning doctors from leaving to the US within 5 years after graduation. Isn’t this beating around the bush?

Problem: Why do our teachers go to Hong Kong as lowly maids leaving our educational system in ruins? The teachers’ reason: High wage. Our government’s action: Don’t solve this problem. Continue exporting our teachers so that they can remit OFW salaries to help our dollar inflows.

Problem: Why do workers in Singapore or US do not go on strike because of high oil prices while our workers do? Their reason: Their high wages are not heavily affected by oil prices. Our government’s action: Raise transportation fares further aggravating the poor worker.

Changing horses
Do not change horses in the mid-stream. So they say. What I’m saying is, I think we were riding on the wrong horse since the beginning and we are getting nowhere. We are running around in circles.

There’s no hope in sight but a mere maintenance of the status quo.

We must change the way we think. It is high time for a new strategy. Seeing what everybody else has seen and thinking what nobody else has thought.

Don’t be fooled by the statistics and econometrics of the economists. Challenge their theory, after all, it is only theory.

Why do we refuse to see the solution? Why do all the biggest companies in the world want to invest or set up shop in the USA when it has one of the most expensive labor and business costs in the world?

Does Toyota go to the US because the country has low wages? In fact, does Jollibee go there because of low wages? Does San Miguel Corp go to Australia because of low wages there?

Don’t worry, guys, I will address all the loose ends of the Hyperwage Theory. If you have thought of any fault about it, I probably have thought about it before you did. After all, I have formulated this theory for almost a decade now.

Nevertheless, I will get you excited about economics as a subject more than your teachers ever did. I just did, right? When I declared all World Bank economics are junk, I got you excited, right?

Face it, ladies and gentlemen, businesses flock to an economy which have high wages. Isn’t that completely opposite to how we are selling our country? It is high time for the Hyperwage Theory and the Nobel Prize that comes with it.
(Thads Bentulan, May 26, 2005)
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