Free lunches and non-inclusive growth

“Rolls-Royce breaks sales record in 2011, Bentley up 37 percent,” blares a headline in a website devoted to cars. “Luxury car sales speed ahead,” echoes a CNN ticker. There’s got to be something wrong when sales of super luxury automobiles have been shooting up just when much of the world economy—especially the same economies seeing such brisk luxury car sales—is supposedly reeling from crisis. And yet that is exactly what has been happening lately. Last year, Rolls-Royce sold 3,538 cars around the world, the highest in its 107-year history, up 31 percent over 2010’s sales, which was in turn a zooming 171 percent higher than 2009 sales. When global financial markets tumbled in 2008, precipitating an economic downturn, Rolls-Royce sales actually shot up 20 percent on the heels of five consecutive years of growth. During Wall Street’s near-collapse and in its aftermath, the single biggest market for the company’s cars was—guess what—still the United States.

The CNN newscaster reading the news could not resist the comment: “One can tell that the financial crisis has not dented the pockets of the rich who buy these cars.” Canadian singer-songwriter Leonard Cohen has a song that goes, “The poor stay poor, the rich get rich; that’s how it goes, and everybody knows.” As autoblog.com remarked, Cohen might as well have been writing a jingle for Rolls-Royce. If the Occupy Wall Street protesters have been so passionate and so frustrated, blame it on news like the above.

A few years ago, the owner of a well-known media empire invited me for breakfast at a pricey restaurant, his resident statistician in tow, file folders of data in hand. He was bothered by what his statisticians were discovering in the course of studying their markets toward more strategic advertising for their sponsors. They found, for example, that the consumer product with fastest-growing sales then (around 25 percent annual growth) was table wines. They saw similar trends with other products clearly consumed primarily by the rich. In contrast, sales of mass-market products like instant noodles were flat or declining. This was at the time our economic growth had been hitting a 30-year record. “Does this mean that the economic growth we’ve been experiencing is benefiting only the rich?” he asked. He didn’t have to buy me breakfast to know the answer. I think I got more out of that meeting than he did (truly a free “lunch”!), because I obtained even more graphic evidence of what I had already been lamenting earlier: that our economy was experiencing growth that was too narrow, shallow and hollow—and thus benefiting too few Filipinos.

Some time after that, I wrote an article titled “Unnecessary hurdles,” on how we Filipinos have become experts at making things more difficult for ourselves than need be. I cited, among other things, how hard it is to start a business in this country, requiring, on average, twice as many procedures than what is typical for East Asian and Pacific countries as documented by the International Finance Corporation. The article got me another free lunch, this time from the owner of a nationwide business empire with hundreds of branches all over the country.  It was not statistical data this time that this taipan brought, but pages upon pages of reports from his branches in various parts of the country, detailing a host of imaginative fees and taxes that local governments were charging them.

“How can we expect local businesses to thrive if our local governments keep squeezing them?” he fumed. Congress had done its part by enacting laws designed to encourage small local businesses, including the 1989 “Kalakalan 20” Law (RA 6810) and the more recent Barangay Micro Business Enterprises (BMBE) Law (RA 9178). Their authors expected them to unleash a surge of energy in the small and medium enterprise (SME) sector nationwide. But 22 years after Kalakalan 20 and nine years after the BMBE Law, the surge has yet to be seen. Why?

We are told that many local governments are not inclined to push the incentives for small businesses granted by these laws, due to a shortsighted perception that these will deprive them of revenues. Worse, we hear too many stories of mayors and local officials greeting prospective investors with “What’s in it for me?” rather than “How can we help your business thrive?” Even worse, it’s a common tale in this country that a new mayor or governor would be the owner of most of the successful businesses in the locality by the end of three terms.  They systematically build economic power in their local domains by acquiring businesses “Pacman”-style while in power. Local insiders would tell you, in hushed tones of course, of the various means employed to accomplish this—from pouncing on troubled (e.g., heavily indebted) businesses to outright coercion via blackmail, intimidation (e.g., kidnapping) or even murder. Sound familiar?

And yet letting locally based small and medium businesses flourish—including branches of nationwide companies—would be the best way to have the economy grow on a broader base, and spread the benefits of growth more widely. But if it is local governments or local executives themselves who stifle entrepreneurial initiative through excessive taxation, shakedown or intimidation, then we shall remain an economy where Rolls-Royces and red wine are the fastest-growing sellers, and Leonard Cohen’s “Everybody Knows” is our apt anthem.

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The launch and book signing of “No Free Lunch: Economics in Bite-Sized Pieces” will be held at 6 p.m. today at Powerbooks at Greenbelt 3. I thank readers for their support over the years.

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E-mail: cielito.habito@gmail.com