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A calamitous state of calamity
“When Manila sneezes, the entire country catches a cold”— modified Wall Street quote.
I would have to side with the business sector in its opposition of the declaration of a prolonged and nationwide state of calamity due to Ondoy, Pepeng et al.
The government may have all the good intentions for declaring a state of calamity. It wants to freeze prices of basic goods, to help about a quarter of Metro Manila residents who continue to recover from the recent killer floods.
But while price controls will directly benefit hard up flood victims in the NCR, it will eventually result in a production slowdown (especially when prolonged) as prices of goods are rendered inelastic, in reference to supply or demand changes.
In a capitalistic economy supply, demand and price are market forces that should remain free. The very nature of supply, demand and price is such that these market forces adversely react to each other’s stimulation.
If prices are controlled, businesses may not be able to produce enough (because they need more capital to cope with the rising demand). Under a price freeze scenario, revenue margins and capitalization are impeded. This could result in underproduction and pave the way for more economic woes such as business foreclosure or job cuts in the coming months.
Underproduction due to a price freeze will also aggravate the shortage of goods. In Metro Manila alone at the height of Typhoon Ondoy, grocery stores already ran out of noodles, sardines and many other basic items as demand rose from both victims and relief donors. How can the government assure consumers in the provinces that producers can keep up with the demand and still maintain a steady supply outside Metro Manila?
Already the Makati Business Club warned the government about a prolonged nationwide state of calamity in the context of a price freeze. The unhealthy business environment it creates can spark market jitters when many of the country’s businesses are still recovering from the global financial crisis.
And a year-long nationwide state of calamity mulled by Malacañang does not only affect multinationals. It will surely debilitate small entrepreneurs and farmers.
Small and medium businesses will feel the crunch as consumers limit spending to bare essentials during hard times. Unlike big businesses that are well-oiled to withstand waves of recession, small and medium enterprises may run out of resources to keep themselves afloat.
Farmers and agricultural producers from the provinces that are not affected by the calamity will likewise be deprived of windfall income from the rising demand for agricultural products such as rice, vegetables, livestock, fish and other marine products.
It’s a precarious position for the country’s agriculture as the Department of Agriculture is already redoing production targets in the light of past and future crop damage due to typhoons. If farmers cannot produce more, the country’s food supply in the coming months will definitely suffer.
Farmers are also facing tough competition from the government itself. Under a state of calamity, the government keeps the option to import food. It will flood the market with rice and other products from other countries giving farmers and producers a run for their supposed income and profits. Reduced gains will leave farmers no choice but to plant less next year.
The government should instead enforce a price freeze only in the affected areas and only for a brief period of time. It should just make sure mechanisms are in place to fight hoarding, supply manipulation and other unscrupulous business practices especially in areas not directly affected by calamities. That’s government’s foremost mandate anyway.
Messing up with free market forces of prices, supply and demand to help some 2 million Metro Manila residents affected by floods may be a noble thing to do for now. But (with all due respect and sympathy to the victims, myself included) it will also make life more miserable for the remaining 88 million Filipinos and businesses in many other parts of the country because of the economic slowdown that will ensue.
This is why the Makati Business Club describes the nationwide state of calamity “an overkill”. The whole country will really bear the brunt as a result of using excessive and aggressive steps to help the nation’s capital.
It’s sad that even in times of calamity the Philipines can still be very Manilacentric!