Forget About Open FDI, Let's Open #SahodItaasPresyoIbaba Stores Instead

A really disastrous decision!

Before the Buwan ng Wika ends, I want to write about those who have been demanding "Sahod itaas! Presyo ibaba!" (Raise salaries, lower prices). Back in 2022, I wrote an article discussing why the demands for higher salaries, lower prices of goods, and handouts for all are a recipe for disaster. I could laugh at people who believed in the promise of PHP 20.00 per kilo of rice promise of Philippine President Ferdinand R. Marcos Jr. Before that, people had been demanding #SahodItaasPresyoIbaba during the reigns of the late former president Benigno Simeon C. Aquino III and former president Rodrigo R. Duterte. 

Image by Sabrina Jiang © Investopedia 2020

I did explain why the model doesn't work. In the cost of production, you need to account for everything that happens including salaries. Raising salaries during inflation can actually worsen the situation. It's because sticky inflation happens with cost-push factors (ex. cost of gasoline, cost of raw materials), expectations of people, wage increases, and temporary inflation (ex. tax rates). However, no matter how I might try to explain it to them, they might say that I'm just supporting some "Fascist government!" I talk about the need for open FDI, and they say that I'm just letting foreign businesses "invade" the country. Financial and economic illiteracy is more fun in the Philippines huh?

They can rally all they want demanding for #SahodItaasPresyoIbaba. However, that has never generated a single long-term job. All it has done is to fill the streets with litter. During COVID-19, they have further worsened the spread of the virus. How can they claim to rally responsibly? I refuse to believe that the rallies for #BlackLivesMatter didn't help spread COVID-19. The news of the USA having the worst cases of COVID-19 is not a joke. These clowns have been making demands. Instead of making demands that are plain economically disastrous--they better show off to everyone that they can build the businesses that they want.

How the business model of #SahodItaasPresyoIbaba should be done

They demanded cheaper prices of goods and higher salaries right? Some even demanded a raise in salary to PHP 750.00 per day. This is what I suggest they do. They better start making businesses that offer that model. They can probably start opening up shops that offer the salaries they want and the prices of goods they want. If they want to show how good they are in business--they better prove first that their demands can work.

If they want to prove Marcos Jr. wrong (and he can be proven by simple economics since not even Vietnamese rice can be that cheap)--why not start selling the rice at PHP 20.00? They should only use local rice all the time. Let's say that the price of the rice is PHP 1,650.00 for a start. Divide PHP 1650.00 by 50 kilograms and you get PHP 33.00 per kilogram. Would they be willing to sell each kilo of rice at a PHP 13.00 loss. If we're going to say they sold 1,000 packs of that rice per day--they're generating a loss of PHP 13,000.00 per day. Let's multiply it by 30 working days--can they really afford to lose PHP 390.000 per day? That's just the price of rice. What about the other goods such as other food items? Can they really afford to sell those items lower than the purchasing price? They have to pay for transportation (which involves gasoline), for employment, for utilities, and the like. 

They demanded PHP 750.00 salary right? I wonder how they intend to cover up paying PHP 750.00 per employee (and they might get gullible people to work for them at first). Can they afford to pay PHP 750.00 per head if they keep selling all their goods and render their services below costing? They need to be true to the promise of paying their employees PHP 750.00 per day. Maybe, they can give all the good conveniences along with airconditioner and the like. They can start to brag of long lines of employment because they pay PHP 750.00 per day.

Business seems fine, right? There are a lot of people working for #SahodItaasPresyoIbaba right? Who wouldn't want a salary of PHP 750.00 per day? Who wouldn't want to buy rice at PHP 20.00 per kilo and other stuff like that? These #SahodItaasPresyoIbaba stores now have a lot of employees and customers. There will be customers lining up to the next subdivision. Chances are some businessmen will be temporarily incapacitated because they refuse to sell PHP 20.00 per kilo of rice and the like. Maybe, some gullible people will choose to work at #SahodItaasPresyoIbaba because of the higher salaries than what others could provide. Right now, it's just impossible to pay that much money because of supply and demand. For the founders of #SahodItaasPresysoIbaba stores--they're above the law of economics!

I could imagine how these stores would crumble. Can they afford to pay PHP 750.00 per day if they hardly make a profit? They're all selling at a loss whenever they sell all their rice at PHP 20.00 per kilo. Just imagine if they were selling Ganador at PHP 20.00 per kilo when it's expensive. Can they even pay for the utility bills they may be using? Chances are these idiots would be using the airconditioner all day hence dramatically increasing the cost of electricity. They may not even conserve water which will increase the cost of water bills. At the end of the day, they start to have their utilities cut, unable to sustain their huge army. The customers will soon go back to buying more expensive rice because theirs might be poorly maintained. The employees will go on strike because they can no longer sustain the higher salaries they promised. 

How FDI, not #SahodItaasPresyoIbaba stores will work better

I believe what the late Lee Kuan Yew said and what Kishore Mahbubani said not because I'm mad at the Philippines. Singapore used to be a third-world country and these two knew how to let a third-world country rise. Some say that Singapore waited for the businesses to thrive before it became a hub for FDI. That's proven wrong in the book From Third World to First. Mahbubani had already long defeated Hilario Davide Jr. before a debate could begin. Mahbubani is the founder of the Lee Kuan Yew School of Public Policy, was involved in world economic forums with the UN, and saw Singapore rise from rags to riches. That's why I trust Mahbubani over Davide Jr. Davide Jr. never founded any real school of public policy. 

How can FDI help? The book From Third World to First then talked about Vietnam. LKY spoke with the late Nguyen Duy Cong aka Do Muoi. Do Muoi had the Doi Moi program which allowed Vietnam to become a major agricultural hub During times of scarcity, the Philippines even imports rice from Vietnam. Why is the Philippines becoming too reliant on imports? It's because of too many restrictions on FDI. I wrote about Vietnam as an agricultural hub. I also wrote about Masarang Foundation in Indonesia. I also wrote about whether or not FDI-friendly countries' cheaper price of onions is just a coincidence.

The idea that FDIs equals natural resources deterioration is a fallacy (read here). Any company that doesn't follow environmentally friendly practices will destroy the country. In this case, I would support an FDI that can provide environmentally-friendly investments over Filipino investors who don't (read here). LKY also had his plans for a green Singapore. The irony is that those Filipinos who protest against FDI, saying it will destroy the natural resources of the Philippines, hardly clean up after each and every rally. How can they talk about environmental friendliness if they're so fond of littering? How can they talk about preserving the environment through protectionism if they can't even follow simple environmental guidelines? Some corporations fail to follow rules but these guys are still dumping stuff here and there. They're no different than the corporations that they hate so much!

With FDIs, there can be better networks for local Filipino businesses. I wrote about how MNCs can help in a buy local campaign. FDIs can help in buying local raw materials. It would be more ideal for a milk tea company to buy sugar from Bacolod than to have it shipped all the way from Taiwan. It would be ideal for FDIs to avail of local transporation services whenever available. Having more public service providers would help local businesses build better networks. If your customers have competition the form of FDI--isn't it time to get the FDIs as your customers? For example, a rice merchant sees that his customers now have competition. It would be like selling rice to the competition. The FDIs would end up buying quality local rice because it'd be cheaper. The idea that only FDIs will get rich if you let them invest in the Philippines is very third-world (read here).

The real solution is open free markets. FDIs aren't there to destroy but help. Also, FDIs are not loans. Sri Lanka didn't get into Chinese FDI but a Chinese loan. Those hermetic countries like North Korea and Venezuela can keep blaming their richer neighbors but it won't help their suffering citizens. His majesty, President Kim Jong Un (who's more like a king) can blame South Korea and China all he wants but fail. Venezuelan President Nicolas Maduro can keep blaming the USA all he wants but fail. The blame game has never improved anybody's life. The use of FDIs as part of the whole collective scheme worked. It's because local businesses that know how to innovate, take advantage of FDIs to build better networks, and the like will survive competition. Those who don't are destined to fail.

Would you still want to open a #SahodItaasPresyoIbaba store?