The Asian Economic Setting, Analyzed

Nito Doria

[The author is Managing Director, Insstrats (Institute for Strategic Social Initiatives) and currently visiting research scholar and Interim Chief of Staff & Consultant for Special Projects to the Director, Social Research Center, Pontifical and Royal University of Sto. Tomas, Manila. Prepared 2001]

This summary is not a mere condensation of a 52-page paper, exclusive of ten pages of appendices, but a radical restructuring of the presentation so that the ideas could be kept and presented in one coherent piece. The efforts to simplify may be at the cost of elegance; but what is paramount is clarity.

ANALYSIS

With funding from the Volkswagen Foundation, the Club of Rome in 1970 commissioned a team from the Massachusetts Institute of Technology to conduct an investigation into "the world's problematique." In its report entitled, The Limits to Growth,[1] the team identified the world's basic problem, as follows:

The team has examined the five basic factors that determine, and, therefore, ultimately limit growth on this planet- population, agricultural production, natural resources, industrial production, and pollution.

The report appears to have revalidated the Malthusian Scare of a standing-room-only planet rendered nightmarish by the "positive checks," i.e., plagues, wars, or anarchy, and famines, unless the "prudential check," i.e., sexual abstinence, or the various contraceptives, or the ancient horror of infanticide, were to be applied. With Limits to Growth and other literature propelling economic superstitions, the populationists appear to have gotten the upper hand in teeming Asia.

The common belief that poverty results from overpopulation is what gives a seemingly invulnerable stability to the stand of the Malthusians. If, therefore, it were proved that it is overpopulation that results from poverty, the Malthusians would have no leg to stand on. Chapter III of The Limits to Growth itself makes the following report:

The relationship between crude birth rates and GNP per capita of all nations in the world follows a surprisingly regular pattern. In general, as GNP rises, the birth rate falls. This appears to be true, despite differences in religious, cultural, or political factors. Of course, we cannot conclude from this figure that a rising GNP per capita directly causes a lower birth rate. Apparently, however, a number of social and educational changes that ultimately lower the birth rate are associated with increasing industrialization. These social changes typically occur only after a rather long delay.

Or, plainly, the richer people get to be, the lesser their tendency to over-reproduce; and the poorer they get to be, the more their tendency to over-reproduce. Such tendencies, now proven factual as confirmed in The Limits to Growth itself, are precisely what the Malthusian Theory is denying.

That overpopulation results in poverty, thus misidentifies the effect for being the cause, and the cause for being the effect.

In the insect world, as observed by entomologists, an automatic population control referred to as "homeostatic population control," seem to operate to lower the reproduction rate whenever the insect population has reached optimum limits. Perhaps, this is true throughout the lower forms of life that operate by instincts and that are thus saved from being travailed by the "positive checks." Humans, however, are not supposed to operate purely by instincts, but basically by the mind. Thus, among humans, a natural check to population is possible only after the attainment of a certain intellectual level that enables them to control the instincts or rationalize the expressions thereof. It should not surprise anyone, then, that economic progress itself, which makes the attainment of an adequate level of education by a critical mass, such as in the Scandinavian countries, or in Singapore, is the most effective preventive to over-population. Poverty, however, specially "extreme poverty," damages the mind and, therefore, the ability to control instinctive drives. In general, the more developed a man is, the more is he inclined to sublimate his beastly instincts towards higher and nobler pursuits that serve to spiritually edify. Poverty is thus described in the editorial summary of the two-volume research report as "the perfect incubator for dehumanization, the perfect environment for the beastification of man."

Poverty cannot also be attributed to dwindling resources. Except for the debris of rocket experiments forever lost to Outer Space, man cannot exhaust the resources of this planet. He brings nothing into it with his birth; and at his death he brings out nothing from it. In the final analysis, the resources of the planet, after their being used, are simply recycled back into it. Humans consume by using up energy, as in food. Energy, however, cannot be destroyed. It is merely transformed.

It is also not true that under-productivity is the cause of massive poverty. Francis Trevelyan Miller who wrote an admirable volume on World War II has pointed out that the total costs of that war to all the combatants in terms of destruction and the things that were made for the purpose of destruction would have been more than enough to feed, clothe, house, and educate up to university level everyone born on this planet since the birth of Christ up to the end of the war. Indeed, man's amazing productiveness is shown by his fantastic destructiveness in the ultimate expression of his despair, war.

Productivity, therefore, is not the problem. In fact, the problem, specifically in the economically advanced societies, is over-productivity. It is this over-productivity, unmatched by a corresponding enhancement of purchasing power in such economies that is forcing their economic managers to remain protectionists at home and imperialists abroad. The reason for this phenomenon is the tendency of the production of an economy to be funneled into the ownership of a few who thereby become richer and richer, while the many, as a result, become poorer and poorer. The few who become richer and richer, according to John Maynard Keynes in The General Theory published in the 1936 have a very low marginal propensity to consume, though they get to own a big chunk of the purchasing power. On the other hand, the many who have a high propensity to consume, do not get to have a matching purchasing power since they had been impoverished by the inequitable distribution of what is produced by the economy. Many years ago, the UNESCO reported that even in the economically developed societies of the so-called North, no less than eighty million people were groveling below the poverty line. There has been no report that this number has declined. The probability is that it has increased. Relative to productive capacity, the result is also a correspondingly low aggregate demand, resulting in a relatively low employment level, keeping a lot of the labor force jobless. Underlying this phenomenon is the economic principle that says, The demand for consumption determines the direction [and quantity] of the investment of capital and the employment of labor. Supportive of this principle are the notorious facts that where there is widespread poverty there is also massive unemployment and a low capital inventory that is often mistakenly referred to as "lack of capital." That is why despite the seeming paeans for free trade, the highly industrialized countries remain protectionists in their manoeuvres. This is the truth behind the collapse of the Cancun Conference last September 2003.

Before further analyzing the poverty in Asia, first let us present the figures:

FIGURES (THE RELEVANT FACTS)
The Facts	Average for Asia (1999)	For the Philippines (1999)
GrossNational Product	US$1,962,880,000,000 [2]	US$76,876,009,090
Population	3.2 billion [3]	78.4 million
Per capita/day poverty lines
* Implied IBRD poverty line	US$2.00	US$2.00
Explicit IBRD "extreme poverty" line	$1.00	$1.00
Per Capita Income/Day
* Upper 20% of population	$3.02	$5.16
Middle 60% of Population	$1.75	$2.78
Lower 20% of Population	$0.49	$0.41
Income Ratio of Upper/Lower 20% of Population	6.22	12.7
Gini Coefficient	0.361 [4]	0.49
Poverty incidence	30.457%	40.000%
Unemployment Ratio	3.80% [5]	10.000%

Poverty in Asia is not recent but ancient. So it could not be due to Globalization. Globalization has functioned simply to aggravate the situation. What happened here was that after World War II, on the basis of the false premise that poverty was due to unemployment, what were then referred to as undeveloped countries went all out for industrialization. Except, however, for such Asian countries as Taiwan, South Korea, and Singapore, the efforts to industrialize were mostly looking inward to domestic markets that were invariably impoverished and, therefore, very limited. As a result, such newly established industries could subsist only by further leeching the poor through high tariff protections. Their owners justified such leeching by describing their enterprises as "infant industries" to be babied by everybody. After fifty years, these have remained infants, mostly; some have indeed become infantile, having failed to establish themselves in the global market. Examples of such industries in the Philippines are the flourmills and the lone sheet glass manufacturing company, Republic-Asahi, whose request for more tariff protection is currently the subject of complaints from downstream manufacturers using sheet glass.

Among the immediate results of high poverty incidence in Asia are high rates of secular unemployment and underemployment, unemployment being an excess productive capacity that cannot be utilized due to a constricted or impoverished market. Since employment for most is the only way to acquire shares in economic production, this has become the most sensitive area in the Globalization imbroglio. Thus, generally misguided, organized labor is now in a strange alliance against Globalization with its old tormentors, the local industrialists who pay low wages, incapable of competing in a borderless market, and who must therefore depend on the maintenance of tariff protection.

Another popular superstition is that corruption in government causes poverty. But while corruption causes a terrible rage, like Globalization, it merely aggravates poverty but is not its ultimate causes. The poor are easily corrupted because of material need that, under the stringent economic conditions, cannot anymore be supplied through honorable means. The rich, on the hand, get corrupted because, seeing the dire situation of the poor, they are afraid to fall into the abyss of poverty.

Thus, the problem of poverty is two-edged, poverty itself and the fear of poverty.

Having disposed of all the false reasons for involuntary poverty, we focus now on its real cause: the institutionalization of private property over land, which results in landlordism. As early as during his time, Nicolai Lenin observed that "landlordism is the fundamental disease of Asia." It has remained so up to this time - in a more socially debilitating intensity, as indicated by astronomically escalating land prices. Along Legaspi Street in Makati City the price of land can be as high as P500,000 per square meter! In a poblacion[6] of a Third Class municipality, the price goes as high as P2,000 per square meter! The price of an irrigated rice land situated along the highway in such a municipality can be as high as P500,000-P1,000,000!

It's the commercialization of land as a direct consequence of private landownership that is making people landless in their very own respective countries.

Yet even the landless may be conscripted into the Armed Forces, in order to fight and die for a country they have no stake on!

To perceive the atrocity in such a situation, it needs to be pointed out that there are only two - and only two - things in the material world, God-given and man-made, out of God-given materials. The latter is what we call wealth, or materials things produced by man to satisfy human desires and having values in exchange. The former is what is referred as "land," the material universe outside of man and his products. Technically speaking, therefore, the economic concept of land, is all-embracive, as it would include everything God-given, including not just the ground that constitutes the planets and stars but also wild flora and fauna. The right to private property should be applied only to wealth, or man-made objects; whereas, land should remain as the "common field of human endeavor," as John Locke pointed out in the 1600s. The insight that the material world can be dichotomized only into God-given and man-made has led us to this important proposition that is neither communistic, since it respects private property in wealth, nor violative of any of the advocacies in Papal encyclicals. The proposition is thoroughly just, since, as Socrates put it, "Justice is the having and doing what is one's own." And what is "one's own," according to Locke, is what a man has produced through the application of his natural powers, mental and physical, and which he had, by his efforts, separated from what is God-given and, therefore, an extension of his personality. Confecting from Lock and Socrates, we have a modern definition of social justice: The rule in social relationship that provides that whoever produces owns the products. Or: To the producer belong the products. This is the implacable mandate of social justice.

Two centuries ago, David Ricardo rhetorically asked, "So you think that the economic problem is a problem of production?" "No, sir," he answered, "the economic problem is a distribution problem."

The failure to realize that the economic problem is a distribution problem and the wrong focus on production; have led to thinking in circles, to an stultifying and tiresome monotony of societal imbecilities that get recycled election after election.

The distribution problem, however, the problem of the division of wealth among the factors of production, is specifically a moral problem, a problem of justice. Therefore, contrary to those fools who tell us that justice, being normative, has nothing to do with economics as a positive science, justice is, in fact, central to the economic problematique. For without justice, no one could expect any productive, peaceful, and happy cooperation among human beings.

The institutionalization of private property over land has artificially and prematurely marginalized brawn labor towards areas that could support human life only at subsistence level, by operation of a natural law known as Ricardo's Law of Rent. Since marginalized brawn labor is the basis of all wages (including executive salaries) in any economy with pretensions to free enterprise, a landlordist economy is characterized by a low general level of real wages. This is the real cause of the "world's problematique." By enriching a few and impoverishing the many, it constricts aggregate demand.

The Ricardian Rent is stated, as follows: The rent of land is determined by the excess of its produce over that which the same application of labor can secure from the least productive land in use. In accordance with this law, the rent of land is determined by its productivity or yield minus the yield that can be obtained from the least productive land in use, the "margin of production," using the same quantity of labor. Thus land yielding a quantity of 1,000 would have a rent of 300 if the margin of production yields 700, 500 if the latter yields 500, and 900 if the latter yields only 100. The margin itself has no rent, since its yield minus its own yield, as the least productive land in use, is zero.

The institutionalization of private property over land unduly presses the margin of production to lower and lower levels of productivity until bare subsistence level is reached, thus impoverishing the masses, while enriching the landed class.

Land being a fixed resource, landownership is by nature a monopoly over a specific part of the planet. The result is the economic disenfranchisement of the masses that leads to other monopolies. Winston Churchill thus describes monopoly in land as "the mother of all monopolies."

Since production is not possible without land, the rent of land is a priority claim on production. What is left after rent has been paid is what is to be divided between the two other factors of production, labor and capital. In other words, the Law of Wages and the Law of Interests, which determine the rewards to labor and capital, respectively, are mere corollaries to the Law of Rent, which determines payment for the use of land, of bare land, that is, of land exclusive of anything man-made on it. Thus, we can now state the Laws of Distribution, as follows, by first restating the Ricardian Rent.

The Law of Rent. - Rent is determined by the margin of production, rising as it falls and falling as it rises.

The Law of Wages. - Wages are determined by the margin of production, falling as it falls and rising as it rises.

The Law of lnterests. - Interests are determined by the margin of production, falling as it falls and rising as it rises.

It can be seen that these laws are correlatives and have a tight, unmistakable logic. They are irrefragable laws of nature. They are God's laws.

The idea propounded in textbooks, such as Paul Samuelson's, that the rent of land is determined by the Law of Supply and Demand, instead of by the Law of Rent, is among those that have converted economics into a veritable forum of fools.

And if land rent is determined by the Law of Rent, then its corollaries, wages and interests, are also being foreclosed from being determined by the Law of Supply and Demand.

The Laws of Distribution, being component laws, are, therefore, not laws of quantities but laws of proportion. Thus, although quantitatively wages in economically advanced countries, such as the United States, are high, they are also extremely low as a proportion relative to production. As a result, as already pointed out earlier, their economic managers, abetted by economically ignorant organized labor, are forced to become protectionists at home market and imperialists abroad to be able to sell excess productivity.

It is conclusive that the rise in land rents is responsible for the depression of real wages and real interests, wages and interests being mere corollaries to rent. The result is widespread poverty and the concomitant social problems humanity faces today, no matter how many times - a hundred times or a million times - have science and technology increased the productivity of the economy, as indicated by Trevelyan Miller's estimate of the cost of World War II.

The capitalists, however, are being protected from the impact of rising rents on interests, since, generally, the capitalists also happen to be the landlords in Asia. Their surpluses as landlords were what enabled them to become capitalists, in the first place.

Thus only laborers, who constitute the preponderant class of humanity, sink into want and degradation. The intensity of such problems poses a danger to civilization and the very survival of man himself on this planet.

If the privatization of land is the cause of the human predicament, then its abolition is what is clearly indicated by our analysis.

RECOMMENDATIONS

Since the motive for private landownership is the collection of the economic rent, which, by commutation, is transformed into the selling price of land, it is recommended (1)) that this rent be fully taxed away and (2) that the revenues so collected be used to reduce all taxes that now fall on productive enterprise and labor, on the exercise of professions and on consumption. Full collection as a tax of this economic rent will be indicated by the collapse of the price of even the most expensive land to zero. Because the earnings of both labor and capital are but corollaries to the rent of land, such a fiscal measure would put an end to the poverty of the Asian family by reversing the marginalization trend.

A simultaneous dismantling of private landownership in North and South is not a precondition. A political will to unilaterally dismantle such an iniquitous institution in Asia will be enough, as sine qua non, to make the Asians ready for Globalization to reap the benefits of comparative advantage. Thus, the paper concludes with this admonition,

"Before the gifts of science and technology could be generally enjoyed by an increasing number of humanity, the Industrial Revolution required and forced new and humane configurations in social relationships. The changes, achieved through various social legislations, were, of course, grudgingly accepted by the vested interests. Today integration through Globalization mandates, ineluctably and irresistibly, a global "paradigm shift" in social relationships within both North and South, within both developed and undeveloped economies. Only such a shift can calm down misplaced anxieties and silence the strident debates between globaphobes and globaphiles that threaten to bring about another enervating, even deadly, episode of polarization, such as the Cold War in recent history."

FOOTNOTES

1. "The Asian Economic Setting, Analyzed" is a 52-page disquisition, plus ten pages of appendices comprised of Basic Economic Axioms and Definitions, Comparative Ideology, and a Legislative Proposal.
2. Excludes rich Asian countries, Japan, South Korea, Taiwan, Malaysia, Singapore and Brunei.
3. Includes all ADB DMCs (Developing Member Countries). Whole world: Six billion.
4. Excludes rich Asian countries and those without reports, Cambodia and Myanmar.
5. Excludes rich countries and those without reports, namely, Vietnam, India, and Nepal. Employment reporting is seldom truthful in backward countries, esp. with respect to underemployment, which is partial unemployment. There appears a tendency to hide unpleasant facts; esp. in countries ran by tyrants.
6. The expression was originated by Thomas Kuhn in a landmark dissertation, The Structure of Scientific Revolutions.