ReInventing Philippines Inc.,

Competition is stressful.  Can you imagine a business or an individual having to prove himself again and again?

The United States economy is the richest, and stressful economy because it fosters competition.  Many people complain about it but there is no other way.  Oh there is.  There is always the short cut way of asking government to choose sides, and choose the winner. Indeed, this is playing out in all areas of the world.  But everytime the winner wins because of government regulation rather than free competition, we all lose. We end up with products that are more costly, or less than the best.

Every week, four hundred thousand Americans lose their jobs, and another 600,000 change or leave their jobs voluntarily.  ON the other hand, about a million or so  find new jobs. How stressed is that?

This is the 21^st century malady. Competition brings out the best in us.  Unfortunately in an effort to get winners, there will be losers. Can you imagine if the Olympics, or the American idol  ( or the Philippine elections for that matter) was rigged, and not the best wins?  Would you still be interested to watch it?

We have to welcome change, and maybe what separates the winner is the willingness to change, and to accept change.

In a recent survey of executives from the United states and Europe, businessmen were asked: “ What is the opposite of change?  The Americans mostly answer: stagnation.  The European answer: stability.

What’s your take?  I guess our ability to change, and to continue to compete will determine how high we will be able to go.

Most government officials envy business people. They think that the entrepreneur earns a lot of money, and it is only right that the government gets its pound of flesh as contribution, a very small part of what the entrepreneur makes.

The reality is that business is not that easy. The failure rate of new businesses within the first five years varies from around 40 to 80 percent.  In most areas, competition is now so fierce, that a business that pays back the investment within 4 to 5 years is already considered a gem of a find.  A business may only have superior returns if it has already established a reputation, or it has a sort of monopolistic market share or brand name.

I am not kidding that it seems that every year I run the business, I seem to issue a bigger amount going to various government agencies than what I see growing in my money account. Let us take a dive.

Assume that an entrepreneur invests 50 million pesos to set up a facility in a locality.  Let us say that the business generates sales of 70 million and earns 5 million pesos every year.

Of this, let us say that the various business taxes, income tax, permits, real property assessments, doc stamps, VAT , regulatory fees, and others total to 2 million. That means the entrepreneur makes a net of 3 million and 2 million goes to the government.

However, let us say that the business also hires 100 people, the average of which gets P10,000 per month or P130,000 per year. That is 13 million pesos per year in payroll.

For a person earning P130,000 annually and is single, he can be assessed close to P10,000 in income taxes, as well as P15,000 annually in Social security, Philhealth, and Pag-ibig contributions.  That is P25,000 per person or 2.5 million for 100 workers annually.

So in short, the government benefits yearly in the tune of P2 million in company taxes, plus another P2.5 million in taxes of personnel and payroll taxes, plus a potential of over 50 million in local purchases of the firm, it can be safely said that the government is as much a beneficiary of the business than its investors.

When I was studying for my MBA in the City University of Hong Kong, my professor gave me a statement that seemed like an Eureka moment.   Many of the university professors acted as advisers to many government units in China, and he shared with me an insight.

He said, “ we used to advise China that it would be a great benefit to China to attract foreign businesses to set up shop in China to export and earn dollars.  Now we are revising our thinking.  We think that any foreign business that set up shop in China, whether to sell locally or for export will benefit China”.

After all, what country has been found to grow poorer because too many businesses, foreign and local, set up shop there?  The more businesses and competition, the more the consumer benefits, and for the government, the more taxes.

What is the distinction between a Filipino and a foreign company?  It used to be that we don’t like foreign companies because they will send back the money that they earned, thus effectively denying us the impact of their profits while the local is supposedly here to stick with the community through thick and thin.  But now any company, can send money around the world, and can effectively salt profits abroad.

What matters is businesses provide jobs, introduce technology and expertise, treat workers decently, practice green, and pay taxes.  As Deng Xiao Ping, former premier of China said famously, “ Don’t care whether the cat is black or white, as long as it catches mice.”

And look at our airlines, our telecom companies, our retail, and hotel industries today.  Are we not all better off because more are here?  Competition brings out the best in us, and the efficiency and better products, especially the lower prices benefits all.

Regulate if we must.  Deny if you need to.  But the default should be – the more the better!

In 2000, hoping to reduce the high unemployment rates, the French government passed a law mandating a reduction in the workweek from 39 hours to 35 hours. The government had hoped that if France worked fewer hours, companies would have to hire more people.  The law however, failed to lower the unemployment rate, and it was stuck at 10 percent.

The rise in labor costs had the predictable effect of reducing job creation while increasing the incentives for businesses to automate.  In 2005, the French Assembly watered down that law.

Our attempt at holiday economics seems to be based on the same principles that there are a fixed number of hours to be worked, and by declaring more holidays, businesses would hire more people.

It was also envisioned that more holidays means more people can go out and spend. This was patterned after Japan.  The Japanese, however, were overworked and had very high savings.  A holiday would afford them rest, and would afford them to go out and spend, helping the economy. The problem is that the Filipinos don’t really have that much savings to spend on the first place.

This is the same as trying to benefit the worker by raising minimum wage.  However, services like products follow the law of supply and demand -when prices are expensive, you buy less.  When wages rise, businesses will hire less people.  This attempt to subvert the law of supply and demand creates an insider/outsider problem. If you have work, you are better off, but if you are an outsider, ( no job), it actually lessens your chances of getting hired.

Declaring more holidays does not benefit the businesses nor the worker. You don’t grow the economy by working less.  You grow it by increasing your productivity and working more.

Productivity is efficiency that maximizes output while minimizing inputs.  In the United States, it is the most important indicator that is tracked every quarter. If your productivity is going up, it almost always follows that your competitiveness, as well as your quality of living goes up. Regretfully, it is not given much importance or credence in the Philippines.

If low wages were the sole barometer of where companies want to invest, they would all be going to Africa.  When NAFTA ( North American free Trade Agreement) was signed which allows Mexico free access to the United States market, it was predicted that the Americans would lose their jobs to the Mexicans, who are willing to work at minimum 5 or 6 times less salary.  But that has not happened. If the American worker is more educated, and skilled, and as a result can produce units or value 10 times more, then he can still be a more valid alternative.

The reason why China is so strong, is that while its wages have doubled since 2000, its productivity have risen almost fourfold. In contrast, productivity of the Filipino workers was noted to have risen only 2.3 percent in the 1995 -2000 timeframe, and by a marginal 0.9 percent in 2000-2005.

Take, for instance, two firms, firm A and firm B, with the same level of output. Firm A however utilizes lesser input than firm B. Thus, firm A is more productive. With lesser usage of input, it is expected that firm A will have a lower cost of production and can charge a lower price for its products. Consequently, it is likely to have a larger market share and higher revenues.

Improving productivity through skills training and education is essential in attaining global competitiveness with the end goal of achieving sustained economic growth.