How Private-Owned Businesses Finance Government Spending
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| Business 2 Community |
I was thinking about how some people still think traditional communism is a good idea when it isn't. Maybe, one can say (or I did say it once) that communism works because of Vietnam and China. However, both China and Vietnam have adopted some form of capitalism even if they still considered themselves socialists or communists. The late Do Muoi (who died on October 1, 2018) and Deng Xiaoping both understood that, while they lived, private enterprises and foreign direct investment (FDI) would effectively finance their communist states. It was something that traditional communists like Karl Marx and Mao Zedong failed to see. The late, great Lee Kuan Yew mentioned both Do and Deng in his book From Third World to First.
I've been noticing Filipino leftist Facebook pages such as the League of Filipino Students, Anakbayan, Bayan Muna, Migrante International, and Philippine Anti-Fascist League want to go against capitalism. Yet, even Deng who felt that the "socialist way" was better opted for the return of private enterprises and for the invitation of FDIs into China's special economic zone. Do in his Doi Moi program did likewise. Both Deng and Do met with Lee discussing how their countries can become investment hubs. Both China and Vietnam managed to emphasize having free markets with FDIs to finance their expenses. They both understood one thing--free-market enterprises finance government spending. They understood they needed to simply have reasonable restrictions to avoid exploitation and fair competition.
How do private-owned companies finance government spending?
Both private enterprises and the government play a role. The government regulates the cycle to make sure there's no overflow or underflow. The government creates policies like the Fair Competition Act, Competition is good when it's on the healthy side. Unfortunately, leftists have a very bad view of competition such as it will derail. Yet, competition has made great men and women, great. Why would we want to brag about Filipinos winning gold medals abroad if we don't want competition in our own country? Do you think Lydia De Vega won her award without competing and losing a number of times? Do you think Hidelyn Diaz automatically won her award? These people had to compete, win and lose a few times before they got their awards. Competition makes you find out your strengths and your weaknesses. When you find your forte--work to enhance it. That's what happens with the competition. That's why the government should remove the 60-40 restrictions and allow Foreign Direct Investors (FDIs) to participate provided that they follow rules. FDIs will still be, after all, bound to government rules.
This is what is called capitalism. Capitalism is defined by the Investopedia as a system in which private individuals or businesses own capital goods. The production of what's needed for supply and demand is produced by market economics. If there's a demand for raw materials then private individuals will be selling these raw materials. If there's a demand for clothing then private individuals will produce them. This allows people to own a certain limit of private property and people can have more limited room to work on their businesses. A person can own the land or rent the land from a private owner.
The government still needs to control businesses through legitimate means. The government would act as teachers or referees in the business to ensure fair play. Whether an investor is local or foreign--they're both required to follow government rules. These means of control are as follows:
- Businesses need to be registered in various places. A different business permit is required per branch. If a business is in another city then it must register in that city. A business in Cebu City and a business in Mandaue City have both different permits. That means a business on another island (ex. Bohol) must get another permit.
- Businesses also need to comply with registrations such as the Department of Trade and Industry (DTI), City Health, the Department of Environment and Natural Resources (DENR), and the Bureau of Internal Revenue (BIR) to name a few. All kinds of permits such as the business permit are needed. This will regulate businesses such as being able to watch out for abusive business practices, not opening liquor bars near the schools, and the like.
- When businesses earn a certain level of income--they are immediately taxed. Businesses will soon enter the Value Added Tax (VAT) zone where 12% of VAT is paid monthly, there's the quarterly tax, and there's the annual Income Tax Return (ITR). Depending on how much a business earns becomes taxable. The monthly taxes are accompanied by every other taxes will finance government spending. It means more legitimate businesses mean more taxes collectible.
- Land ownership is still subject to land taxes. One can't just own land without it getting taxed by the government.
Meanwhile, taxes won't be the only thing that will finance government spending. Another bank investment is called bonds. Government bonds are government securities where people lend their money to the government. It's the private citizen that's lending money for government expenditures. For example, I placed some money in the Retail Treasury Bond (RTB). The RTB makes government securities available to retail investors. That certain amount I set aside is used for government expenditures The government is using my money to finance its expenses. When people buy bonds--they're lending to the government. The government will be using other people's money to finance their expenses. In the process, interest will be paid in the bonds (in the form of coupons) until the said maturity date of the bonds. Some people may end up selling their bonds if the market value is higher than what was initially invested.
How can the government get investments through bonds? It would be either through private-owned businesses or employees of private-owned businesses. Any sensible employee will choose a good-paying job with good working conditions. Any sensible employer will pay just rates and give working conditions to create employee morale. Any sensible employee realizes that profit isn't just short-term but long-term. Any sensible person with money will certainly want to invest. Government bonds become another basket to put some of one's own money into. It would be better to put more money in a safer investment and less money in a more aggressive investment. Bonds would be part of the investment to finance government spending. Though, it's also suggestible to put some money in other bank funds such as Long Term Negotiable Certificate of Deposit (LTNCD), Unit Investment Treasury Find (UITF) which uses stock units, AXA's Chinese Tycoon, get a Variable Universal Life (VUL) insurance, and any legitimate ones to diversify. The bonds would be a safer start though I don't suggest discontinuing it either. People will put money into bonds which will finance government spending. Corporations may also invest some of the money into bonds too. Regardless, it will end up funding government spending as well.
Why an increase in FDIs (MNCs or not) will also help in government spending
In contrast to what IBON Foundation's the late Neil Doloricon wants us to believe--foreign investments don't get profits without leaving anything for the economy. In contrast, FDIs only get rich based on net profits after taxes. FDIs will invest in one'sr country and they will be regulated through various rules such as fair labor laws, fair competition act, and taxes. The market doesn't regulate itself. The government must make sure that laws and regulations are justifiable. It would be 100% okay for an FDI to own 100% shares ownership as long as they follow laws such as the fair labor treatment, fair competition act, and they pay taxes. The shares ownership is how much net profit after taxes is kept by the firm. Just because they don't have a Filipino partner doesn't mean that the country gets nothing. It's because they will still be taxed every month. Failure to pay taxes can result in heavy consequences such as eventual shutdown and deportation from the country.
If there are more FDIs then think about one thing--more taxes for the people. True, those who are newly employed wouldn't get the income tax. However, as the position of an employee goes higher, or as salary goes higher, eventually the yearly income may put them into the taxable bracket. It would be like if an employee starts getting higher pay--they may no longer be tax-exempt. As an FDI earns more money--the higher the taxes collected will become. These will add to government funding. FDIs would also give local businesses better chances to grow through competition, by becoming new customers (which expands the network) and through better supplies and services (which expands the network too). Local businesses may soon start using local and imported stuff to grow their businesses. It's like how a person makes budbud or using imported stainless steel pots and an imported grinder to make their efficiency and effectiveness better. Sure, people will probably still mix the ground stick rice or taro by hand but their usage of modern equipment made it faster. In turn, these local businesses will gain more money as they gain better connections via FDI.
Besides, if FDI generates more employment then common people can start investing little by little. A regular employee may start to set aside some money for a treasury bond. Small as it is but if more employees invested in treasury bonds--it will continue to finance spending for the government. If employees started receiving higher salaries due to better economics--they will have more money to invest and bonds can be a good place to start. It will create more of an effect that not only because FDIs will have to pay taxes--employees may start investing in government bonds for as low as PHP 5,000.00. An FDI influx will totally give the government more boost to finance any future projects for public utilities. It would be like having more money to fix public transportation such as trains, more money to upgrade infrastructure, and more money to do anything necessary for a better country.
Lessons from history to learn why the abolition of private property doesn't work in the long run
A lesson can be learned from China's two rulers namely Mao and Deng. Mao wanted to create an idealistic utopia which he wanted. Mao decided to try his so-called "Great Leap Forward". The "Great Leap Forward" was based on idealism. I wasn't too surprised that protectionism caused Mao's plan for the "Great Leap Forward" not to work. The Great Leap Forward was full of absurd economic measures. Just reading about how they wanted to produce their own grains and steel on their own made me comment on how idiotic it was. The very idealism of Mao really failed. The quality of steel that Mao made was best-called pig iron due to how bad the steel quality was. Mao's plan to beat the Western capitalist society with his absurd methodology was laughable until you know how many people died. Mao can play the blame game all he wants but it doesn't hide that his idealism is at best a failure.
Deng, however, decided an entirely different approach. Deng was a 74-year-old man making him almost as old as U.S. President Joe Biden when he first took office at the age of 79. Deng would be three years older than when outgoing Philippine President Rodrigo R. Duterte stepped into power. Yet, Deng was an old man who was open to new stuff. Deng went to the U.S., enjoyed the place, and decided to say, "China is open for business." Deng also met with Lee along the way as mentioned in From Third World to First. Deng's meeting with Lee was expounded in three chapters of the book. Deng himself was a man who decided to screw the Maoist view and introduce free markets into China. Deng even allowed private property ownership to a certain extent. Though a communist, Deng is hardly ever mentioned by Filipino commies because of his free-market views. Deng also encouraged the Chinese entrepreneurial spirit which paid off in a long time.
I was thinking that Chinese electronics may be the next best thing. I must admit that I currently use some "commie products" from Xiaomi. A Miband, a Mibox, and a Xiaomi POCO phone all come to mind. I don't think Chinese products would soar the market if competition with other companies didn't happen within China. True, I still believe China needs to loosen its state capitalism. However, without free markets, China wouldn't be a superpower. Vietnam has been an assembly plant for South Korea's Samsung. So far, Vietnam hasn't manufactured any Koryolink phone. Hopefully, Vietnam's plans to release a new Vietnamese smartphone will also soar globally too. Vietnam has had huge investment hubs so I guess it's only a matter of time before Vietnam creates its own "commie phone". Not exactly a "commie phone" because it's not given for free.
That's why it must be stated that the abolition of private property is a failure. After all, there are privacy issues. Privacy is needed as much as transparency. Sometimes, students need to study in private to get better test scores. Sometimes, students need to attend review classes for better test scores. I underwent a review class and had my private studies during my graduate school comprehensive exams. Public property and private property are two important factors. Hasn't it that private enterprises have helped maintain public property too?
References
Books
"From Third World to First--The Singapore Story: 1965-2000) by Lee Kuan Yew
Harpers Collins Publishers
Websites
"Capitalism" by The Investopedia Team, reviewed by Marguerita Cheng, fact-checked by Pete Rathburn (Updated: March 20, 2022)
"DENG XIAOPING'S EARLY ECONOMIC REFORMS"
"Retail Treasury Bonds #25"
"The Deng Years: An Impressive Turnaround" by China Mike
"What Was the Great Leap Forward?" Written by The Investopedia Team, Reviewed by Michael J. Byle (Updated: September 22, 2021)
