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Why I'm Not in Favor of Nationalization of Utilities Mixed with Protectionism

ToonPool

There's the call of leftist fools to stop privatization. Many still believe that utilities should be run by nationalization rather than privatization. I've been reading on Facebook where some fools believe that allowing foreign telecommunications companies (telcos) to invest in the Philippines will "risk security". Any telco will risk security if there are no laws to regulate it like the Data Privacy Law. Just because I support private enterprises doesn't mean that I say the government is hands-off. On the other hand, the government has the duty to set rules such as fair compensation, proper employee treatment, safety measures, and the like to make sure that we remain in healthy competition. Some people who keep protesting against the privatization of industries I believe (1) want the government to provide for all the needs of the people (which leads to dictatorship, eventually), (2) have some agenda as to why they're doing it, or (3) these people are protesting without knowing what they're talking about.

I think this is the problem of having nationalized industries. I decided to take a look at the oligarchy problem. Two major storms in my life (Ruping and Odette) made me think of the slow restoration. I can't blame the power companies for their slow restoration. For instance, I can't blame VECO for taking "too long" for these reasons--(1) there are plenty of customers, and (2) there are safety procedures to follow. Clearing up the road was one daunting task after Odette. After that, there are so many places that need to be restored. In operations management, that would be a bottleneck. It's already a few private utility enterprises vs. a huge crowd's demand. The demand for electricity with so few power companies makes it expensive and performance can be easily compromised. There's the stress of biting more than one can chew.

We need to think about where the real problem is. I don't need a Ph. D. in economics from the Ateneo De Manila Univesity (ADMU) or the University of the Philippines (UP) to understand it (in part). The issue is supply and demand. Privatization isn't a bad idea unless there are too few private utility providers. Let's say that we start to nationalize all industries. Let's have the government seize all the utility providers. That means there will be no more Globe and PLDT for telcos. That means we will no longer have private water companies. Everything must now be government-owned. Some people still want the government to provide for their needs. Even "better", we will discourage foreign direct investors (FDIs) from establishing utility plants. It may sound good (at first) but we can expect performance to dwindle. It's because supply will eventually go down and the demand goes up. What happens is that when you've got a monopoly--you're going to have a sudden increase in prices. The law of supply and demand is something learned in middle school and high school. It's not something you need a degree in economics to understand at a certain level!

Instead, the idea of capitalism (while some socialists have adopted free-market policies such as China and Vietnam) is private enterprises fill in the supply and demand gap. There's still government intervention or regulation involved such as tax collection, labor laws, intellectual property rights, and the like. The government still intervenes when private enterprises break certain laws to protect the business environment. I think the problem with Odette's aftermath could've reached Venezuelan levels of catastrophe if the utilities were all government-owned instead of government-regulated private enterprises. However, privatization isn't enough because it would be dumb if too few businessmen are trying to fill the demand of an entire island or even 7,107 islands with an entire population.

That's why I felt Andrew James Masigan's sentiment that the Public Services Act of 2022 is long overdue. I feel that FDIs are needed to help the utility sector. More competition will not only make the local businesses shape up if they want to survive. It will also fill in the supply and demand gap. Just think if utility companies from ASEAN will invest in the Philippines. The Internet will eventually be faster through FDI and more affordable thanks to supply and demand. The Philippines will have better chances to restore power after a disaster when there are more power providers than just this and that. Though when salaries increase, we should expect an increase in prices too. It's because salaries are part of operating costs that will contribute to overall pricing. Companies would be crazy to give high salaries and low-priced products. Such a decision will lead them to eventual bankruptcy.

How will government-regulated competition of private enterprise work? Competitors will not engage in gladiatorial competitions. Instead, these competitors, whether they be local investors or foreign investors will have to follow rules such as paying taxes, labor laws, and intellectual property rights. That means any business guilty of breaking these rules will face appropriate penalties. What happens is that supply and demand are filled. FDIs will be part of the sphere. It would mean that some of them will start investing in the far-flung areas instead of where there's so little supply for the huge demand. It doesn't matter if the business was owned by a Filipino or a foreigner--they're all tax-mapped. Government agencies will buy from private institutions. A foreign telco may provide our government offices a badly-needed server upgrade. They'll buy their chairs and the other equipment from a private institution. They'll get a privately owned construction company to build government infrastructure programs. In the long run, a balance between government and private enterprises is what's needed. We need the government to regulate them through reasonable rules. Meanwhile, we need private enterprises to fill the supply and demand gap for the people. 

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"Long overdue laws finally passed" by Andrew J. Masigan (April 06, 2022)
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