Why Filipinos

Are Not Rich

T
he Street Strategist has arrived at the conclusion that
the poor Filipinos are not rich because they do not
have money.
This is a very simple concept but it takes a genius
to appreciate its simplicity.
You may notice that I am trying to explain “why Filipinos are not
rich” in contrast to “why Filipinos are poor.”
Is there a difference? Yes, there is.
In asking “Why Filipinos are not rich,” the implication is that the
normal state of events should be that Filipinos are rich and we have
to explain if ever they are not in the normal state, that is, we have to
explain why Filipinos are not rich when supposedly they should be
rich.

Diminishing circle
Anyway, let us proceed.
The Street Strategist has arrived at the conclusion that the poor
Filipinos are not rich because they do not have money.
The Filipinos have no money because the country’s wealth is
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inequitably distributed in favor of a few rich.

Wealth is inequitably distributed because the labor sector does
not have a bigger share of the wealth.
Labor does not have a bigger share because they are mispriced
and undervalued.
Labor is undervalued because they do not have an equal footing
to enter into a fair contract with the rich employers.
A hungry stomach does not last one day of bargaining.
To gain a stronger footing, the government should step in and
prescribe a higher minimum wage.
But the government does not want a higher wage because they
are afraid the businesses would have lower revenues as a result of
higher labor wages.
The businesses cannot maintain their revenues in the faces of
higher costs because the demand for their goods and services do not
increase.
The demand for goods and services do not increase because the
labor class are not rich, therefore they have lesser disposable money.
The people have no money because the wealth is inequitably in
the hands of a few rich.
Thus, we are locked in an ever diminishing circle.

Community of inequality
Let’s view this from another perspective.
According to a World Bank study, 1/3 of the wealth of the
Philippines is owned by only 5% of the Filipinos.
This is a huge disparity.
This is an egregious distribution of wealth.
In economics, the Gini coefficient is the measure the gap between
the rich and the poor.
What does this statistic mean?
Try to visualize a community of 100 of your friends.
For every PhP100 spent within this community, after all is said
and done, these expenditures and incomes will eventually settle as
asset or wealth distributions.
Of every PhP100 in asset, PhP33.3 goes to only 5 of your friends
(PhP6.70 per pax).
The balance of P66.6 is distributed among the reminding 95
friends (PhP0.70 per pax).
Can you imagine how inequitable that is? That’s a ratio of 9.5 to
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1, or 950%.
And did you forget something?
Those 5 friends of yours were actually not doing any work at all.
They were playing golf all day, while your other 95 friends were the
ones toiling under the hot sun, fighting against each other,
backstabbing each other, and knocking on doors at night to sell
products.
Is that fair?
What is really callous is that your rich 5 friends have billions of
money that they could not possibly consume in ten lifetimes.

Single solution
And yet you ridicule me for proposing a single solitary action,
that is, a legislated minimum wage of P20,000 ($400 at $1=PhP50)?
Please remember, I am not advocating communism, socialism, or
confiscation of property.
I am only advocating the correct valuation of labor, the world
market price for labor.
Why can’t our teachers be paid like the teachers in Singapore?
And Singapore has zero natural resources to rely on unlike the
Philippines?

Squander
Myth: The Filipinos are poor because they squander money.
I heard so many upper class people say this. I even heard on radio
somebody who cited their rich neighbor whose children squandered
their inheritance.
But many Filipinos are fortunate enough to inherit wealth? A few
thousands? We have about 35 million workers, and that’s the
majority. They have nothing to squander.

Job search
Myth: The Filipinos don’t look for jobs.
I find this too simplistic. Filipinos are looking for jobs so much
so that millions of Filipinos in search of work worldwide.
Maybe there are too few jobs here in the country. I have repeated
many times why is there only a few jobs around.
That is why I wrote several chapters on the topic of job creation
as a result of the Hyperwage Theory.

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Maybe the jobs are not paying well enough.

If the actually wages are lower than the threshold reservation
wage (the point at which the worker is indifferent if he has a job or
not), then maybe that’s the reason they do not apply for jobs.
Remember if you work in the US for one year that is equivalent
to 10 years in the Philippines.

Lazy
Myth: The Filipinos are lazy.
You must be kidding me. Give each one a minimum wage of
PhP20,000 and you’ll see. Currently, among the best workers abroad
are Filipinos. And you and I both know that.

Unsaving
Myth: The Filipinos don’t save.
Of course, the savings rate in this country is low.
Of course, the Filipinos don’t save. We have half of the country
living below the poverty line and you expect savings?
But the top 5%, yes, they do save. Save for what?
Should that money be shaved off a little bit and shared back to
the workers in form of higher wages that will be used to buy the
goods and services owned the same top 5%?
It will all go back to the businessmen anyway.

Naturally rich
The Filipinos are naturally rich.
If we monetize the value of our entire natural resources
nationwide we would have a higher per capita wealth than Hong
Kong, Taiwan, or Singapore.
But why is it that these city-states have a higher per capita income
than the Philippines given that fact that they have no natural
resources?
Simple. They put a value to their intellectual capital and human
capital.
In Hong Kong, if you can’t afford to pay about PhP25,000 for a
domestic helper, then don’t have one.
If you can’t afford to pay PhP30,000 for a sales clerk, then don’t
be in business.
But do you know that happened?

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Businesses flourished.
And they have domestic helpers who are nurses or principal
teachers from the Philippines.
th th
Hong Kong is the 4 or 5 largest financial center in the world
and it is only about 1/5 the size of Cebu province and it have zero
natural resources. It imports water from China, can you imagine
that?
Singapore imports vegetables from Indonesia or Malaysia.
Why aren’t the Filipinos rich when in fact they should be?
It is because the minimum wage workers are paid slavery wages,
very far from the world market price for labor with is the US price.
Since they have slavery wages, they have little purchasing power.
With little purchasing power, there is little domestic market.
When there is little domestic market there are few businesses.
When there are few businesses, then there are fewer employees, and
since there are fewer employees, there is little purchasing power.
And if there is little purchasing power there is little domestic
market and so on and so forth.

Few rich, thin middle class

The Philippines has a very thin middle class, as with any other
Third World country.
It is the middle class who provide entrepreneurship, the small
businesses that is 95% of the number of establishments.
Again, this thin middle class is due to the egregious
concentration of wealth in the top 5% of the population.
How do we then solve the inequitable distribution of wealth?
With only one stroke.
A legislated minimum wage of about P20,000 ($400) probably
staggered over five years.
I am tempted but would not discuss here all the economic
benefits and non-economic benefits of Hyperwage Theory because I
had done that in my 33-chapter book.
Before anyone criticizes Hyperwage Theory, it would do justice if
you read it first.
In the same manner that I read as much economic textbooks and
journals before I finally set into writing my idea of Hyperwage.
What I am saying is this: The Filipinos are not rich but that is not
what is supposed to be.
We have the natural resources that should have given us the
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power of the purse, the power of wealth.

The Filipinos are supposed to be rich. And there is one solution
to correct this anomaly. Give labor its true value.
Suppose the businesses give back PhP100 billion in wages back to
the people.
Assuming a propensity to consume of 80%, the economic
multiplier is theoretically 5 times, and the entire nationwide
economy will be richer by PhP500 billion.
This is the beauty of Hyperwage Theory. Instead of business
annihilation, there would be economic redemption. Again, I have
discussed this fully in my book on Hyperwage.
I hope I can meet my Henry Dennison, the multi-millionaire that
Harvard economist John Kenneth Galbraith called crazy but who
eventually caused the latter to reverse his economic thought.
If you recall in my Hyperwage book, Dennison argued that the
rich few like himself have a bigger share of the income stream which
sucks the economic wealth away from the economic system.
Dennison argued that the income stream to the poor should be
increased.
Who will be my Dennison who would believe the Street
Strategist’s Hyperwage Theory and become its advocate?
And who will be my Galbraith?
As I narrated previously, the famous Galbraith was once a
Harvard professor who flipped his economic thought and reversed
his ideas and finally adopted the very radical, ridiculed, and
controversial ideas of John Maynard Keynes.

Asymptotic hyperinflation
Will there be hyperinflation under Hyperwage Theory?
I have discussed this fully and the answer is that there will
asymptotic hyperinflation, that is a hyperinflation with a ceiling, and
that ceiling is the world market price.
Let’s take a look at this illustration. This is a simple one but if we
analyze common products (vegetables, cooking oil, paper,
newspapers, etc.) in this manner, we will have a clear idea of what
asymptotic hyperinflation is.
Assume a person eats half a kilo of rice a day. With a domestic
helper’s wages of P2,000 per month, then a person earns PhP76.90
daily.
Assuming the current price of rice is PhP30/kg then he will
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consume PhP15 of rice daily. He will have a net on only PhP61.90 per
day.
On the other hand, under Hyperwage, is monthly rate is
PhP20,000 and his daily rate is PhP769.
What will be the price of rice under Hyperwage? About
PhP50/kg? Where did we get this price?
We assume a comparable quality of rice in the expensive city of
Hong Kong which is priced about PhP50/kg.
Surely, we could not be above Hong Kong’ price under our
Hyperwage Theory.
Thus, after spending for a half kilo of rice, the helper obtains a
net of PhP744.

Net disposable income

So which is better, a net of PhP46.90 under our current low wage
regime or a net of PhP744 under Hyperwage Theory?
What if rice surges up to PhP100/kg? This means our rice will be
higher than that in the US or Singapore or Hong Kong?
That’s seems impossible. We could not be above these expensive
cities, could we?
Even assuming it is PhP100/kg, but how much rice can one eat?
Still half a kilo so that will cost him PhP50 daily, and his net is
PhP719 daily.
Now, apply the same to a can of Coke, a kilo of cabbage, an IBM
Laptop, an Ericsson cellphone or a Sony TV.
How do we know what will be the prices when we adopt
Hyperwage? Simple, call the US or Singapore prices, and you can use
these prices as your reference prices.

IBM pricing policy

Do you really think the price of an IBM laptop will rise 100%
once minimum wages are raised 1,000%?
No way.
It may rise by 5% to 15% but never by 100% because the world
market price for an IBM laptop is our reference point.
If laptops are being sold in this country at P100,000 each, do you
really think it would be sold at P200,000 because the minimum wage
is now P20,000?
Why should we pay double than US prices?

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See my point?
At any rate, I have discussed all these issues in my 33-week
discourse on Hyperwage Theory in 2005.

Human capital
There are several factors of production in an economic system.
Our economic theories emphasize the benefits of using the market
price of each of these factors.
Our theories frown upon subsidies because they distort the
allocation and efficiency of capital.
Yet, there is one factor that is not merely an inanimate factor of
production, a factor that cannot be made to wait for market forces to
determine its price.
This is human capital.
In the Third World countries, if we wait for market forces to
determine the market price for labor, such time may never come in
our lifetimes.
Why? Because a hungry stomach cannot wait for market forces. If
First World countries value labor at $7.50 per hour, without
government intervention, do you think human capital in Third
World countries will stop working unless paid the market price of
labor?
They cannot survive half a day without food. They will accept
anything to survive.

Why aren’t Filipinos rich?

What makes a country or its people rich?
Education? We have a literacy rate that is one of the highest in
the world at 95% or more, yet we are belong to the poorest of
nations. Can we econometrically say that education is what makes a
country rich? Statistics says no.
Natural resources? We have one of the richest natural resources
in the world, yet we belong to the Third World. Surely, natural
resources is not what makes a nation rich, is it? Statistics says no.
English? We are the third largest English speaking country in the
world, but we wallow in poverty not wealth. Is English what makes a
country rich? Japan, Korea, Taiwan, and Hong Kong don’t have half
of our English skills, yet why are we mere domestic helpers to them,
rather than being their rich employers? Or is there a possibility that

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English is not such a relevant factor we think it is? I admit the BPO
industry has employed hundreds of thousands but do you really
expect us to become a First World country with this? This is Third
World mentality. To attract call centers to the Philippines, we need to
slave our college graduates as phone operators? Isn’t it possible that
we will perpetuate our status as Third World workers for First World
businesses?
Low wages? For the last hundred years our strategy has always
been low wages but why are we poor? Maintaining low wages means
that you want the people to earn less than their US counterparts and
therefore keep the people in check under the strategy of poverty. Yet,
how come low cost of labor did not help our businesses become
world-class players like Nokia or Intel or Samsung? Isn’t it obvious
that maintaining low wages has kept us in Third World status? Can
you economically argue that low wages are what makes a country
rich? Statistics says no.
Low purchasing power? Low wages means low purchasing power.
Answer me this: Does SM or Ayala go to Maasin Leyte because of low
wages? No. The big businesses go to places where the people have
purchasing power.
Purchasing power is due to high wages of the people.
Isn’t it obvious that Jollibee goes to the US because of the high
purchasing power despite the high labor cost?
Why is SMC in Australia? Why is ABS-CBN in Saudi Arabia?
Economically, what makes a country richer, low purchasing
power or high purchasing power?
Yes, indeed, why aren’t Filipinos rich? Why is there a huge gap
between the rich and the poor? Why is management paid 100 times
higher than the lowest employee in this country while in some
countries it is only 10 times?
What is your solution to correct this situation?
As I have pointed out, it is not high education, it is not natural
resources, it is not command of English, and it is not low salary that
makes a country rich. It is how you value the poorest of the poor. It is
how you value least of the least. It is how you value human capital. It
is giving labor its true world-market value. It is Hyperwage.
( * * * * * Thads Bentulan  January 18,25, 2007 * * * * *)

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This article summarizes some ideas

contained in the book "Hyperwage Theory,"
which discusses a new theory of improving
the wealth of individuals and nations.

To obtain a free copy of the e-book

"Hyperwage Theory" send an email to
"streetstrategist@gmail.com"

To view a list of books (with sample chapters

and table of contents) visit
http://streetstrategist.googlepages.com/

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