July 9, 2009

If you think you are paying too much for government services, you can thank President Gloria Macapagal Arroyo for it.

Back in January and March 2000, in the very early days of the Arroyo Presidency, Executive Orders 197 and 218 directed all national government agencies and government owned or controlled corporations to increase their fees and fines by not less than 20 percent.

A 20 percent increase would have been bearable, considering that fees and fines had not been raised for some years.  But since the 20 percent was a minimum, every office, it seems, went beyond the minimum.  At the Insurance Commission, some fees were raised ten times.

Not only that, some offices dreamed up some brand-new fees and fines that had never been slapped before.  The higher and more imaginative the fees and fines, the better.

I have a friend who wants to sue his neighbor for encroaching into my friend’s property. But he has not been able to raise the P10,000 filing fee.  And because of the hefty fee, his lawyer has also raised his retainer, and rightfully so.  See the escalating effect of increased government fees?

Where has the money gone?  It certainly did not raise the salaries of government employees.  It certainly did not go to the maintenance of government buildings, considering the sorry state of some of the buildings, especially in the provinces.

Perhaps, the extra collections went to finance first-class airline travel to balmy vacation spots around the world by government officials and their spouses.

These additional fees and fines are actually new taxes without benefit of congressional approval.  Isn’t raising taxes the sole prerogative of the House?

One problem in this country of ours is that every government agency is doing the job of other agencies.  The President raised taxes, thereby encroaching on the power of Congress.  The Department of Communications has taken from the Insurance Commission the supervision of the compulsory third party liability insurance (CTPL). The House wants to amend the constitution without Senate participation. The list is almost endless.

In view of the world-wide economic meltdown, what Malacanang should do is to scrap EO 197 and 218 and roll back fees and fines to pre-2000 levels.  This certainly will be a more effective stimulus package to the citizenry than Bangko Sentral’s cutting its lending rates by thinner and thinner slices.

Then my friend will be able to sue his neighbor and get back his land.



July 2, 2009

Winston Garcia, General Manager and Chief Executive Officer of the Government Insurance Service System (GSIS), was practically screaming to high heaven the other day.  He was quoted in every newspaper recently as saying that government agencies – from cities to municipalities, from departments to corporations – owe GSIS a whopping P40 billion in overdue premiums.  This huge sum could have been invested in good-earning stocks and bonds for the benefit of members.

These arrears jeopardize the capability of GSIS to make good on its promise to pay the statutory death, disability and pension benefits to members, not to mention all sorts of loans against the cash value of a policy.  Even now, members are complaining that it takes weeks to take out a cash value loan.  Worse, after some forty years of long and faithful service, while religiously paying his premium along the way, it takes more than six months before an employee receives the maturity benefits of his policy.

But, in well-run, compulsory life insurance organization like GSIS, there should be no premiums in arrears.  The employer automatically deducts the employee’s premium from his salary.  Congress appropriates the employer’s share in the annual budget.  Where has the money gone?

Garcia said that the arrears have been built up over the past ten years.  But, he has been running GSIS for eight years now.  So, most of the blame for the sorry state of affairs should be placed squarely at Garcia’s feet.

The 1997 GSIS law empowers Garcia to send the erring employers – who act as the collection agents of GSIS – to a minimum of six months in jail plus a hefty fine for failing to remit premiums that have been collected from employees.  But, efforts to enforce the law can be describe as puny and futile.  Have you ever heard of an employer going to jail for failure to remit premiums to GSIS?

Fortunately, some government officers seem to be waking up to the problem.  The other day, Quezon City Mayor Sonny Belmonte, appointed by President Cory Aquino as GSIS General Manager after the 1986 revolution until he decided to go into politics, had a pang of conscience, and coughed up P33 million to update his city’s premiums.  If Garcia mounts an aggressive collection campaign, others are sure to follow.

But to clean up the mess, Garcia should look at GSIS itself.  There is a lot of fat in its internal operations.

First, Garcia should cut down his public relations budget from a scandalous P151,000,000 a year to something like P20,000,000 a year.  The Social Security System with a membership of 25,000,000 (compared to 1,500,000 at GSIS) has an annual public relations budget of P50,000,000.  Right off, the GSIS kitty is richer by P131,000,000 a year.

Second, no more full-page ads.  No more radio programs,  No more TV talk shows.

Third, get rid of your consultants who know little, if any, of insurance.

Fourth, work toward a lean staff.  There is clearly a lot of unnecessary staff.  For example, the head of the public relations office at SSS is an assistant vice-president.  He has a staff of two ladies.  At GSIS, the public relations office is run by a Senior Vice-President with a staff of twelve (count them, twelve). Open a voluntary retirement program.  Those who retire will not be replaced.  No new hiring for the next five years.

Winston Garcia should, at long last, realize that the money he is spending, all too unwisely, is hard-earned money of government employees, more than half of whom are minimum wage workers.

Finally, may I most earnestly suggest that Malacanang should set up a Presidential Commission to look into GSIS, just as President Bush did with the US Social Security System. The Commission should be given six months to come up with a report.  This will not be a witch hunt, but a professional and comprehensive management audit of one the country’s most important institutions.

Once and for all, let us put an end to the problems at GSIS.


June 27, 2009

A statistic that keeps cropping up purportedly to prove the sorry state of our educational system is this: of the applicants for a call center, only 6% survived.  But if the survivors were all what the call center wanted to hire anyway, the 6% figure is nothing to be sorry about.

Some 60 years ago, the Ayala Group embarked on an in-house executive training program, the first in the country.  Every year, a newspaper ad would invite applicants who were good in math and English to fill ten openings.  One thousand would apply.

Ayala got the top one percent of the applicants.  Yet nobody complained about the sorry state of our educational system them.  Eventually, those trainees became the most respected executives in the insurance industry.

There is also a lot of hand-wringing over the supposedly low number of students who are good at physics and mathematics.  But not everybody can be an Einstein.

The important thing is that, if a student is good at physics and mathematics, our educational system allows him access to whatever he wishes to study and specialize on.

When I took up mechanical engineering in 1947, there were only four schools to choose from: University of the Philippines (UP), University of Santo Tomas (UST), National University (NU), and Mapua Institute of Technology.  Today, there are engineering schools all over the archipelago.

And, every year, the graduates from the provincial schools do very well in the professional exams – and in practice afterwards.

In 1947, the student has a limited choice: civil, mechanical, electrical, chemical, mining.  Today, the list is much longer.

There are no sex barriers in our educational system.  A female can take any course she chooses.

There are no social barriers either.  Our educational system does not stratify students by social status.

Finally, there are few financial barriers.  If the child is bright enough, there are scholarships available from grade school all the way to doctorate level.

The good schools are always looking for bright students.  In Ateneo de Naga, 20% of high school students are on scholarships.   At Loyola Heights, Ateneo scours the Marikina Valley.  If a kid is bright enough, he gets allowances for books, clothing, transport fare, on top of free tuition.  His classmates do not know he is on scholarship.  He is finally unmasked at graduation when his parents walk into campus.

My guess, and this is only a guess, is that those who have the knack for science and match are getting the education they want.  You only have to look of the number of engineers and architects and mathematicians that our colleges graduate every year.

Our engineers are building roads and bridges in Afghanistan, operating mines in Irian Jaya, manning ocean-going vessels and American aircraft carriers.

Besides, the country also needs lawyers, accountants, sociologists, linguists, economists, financial analysts, stock brokers, and so forth.  My late father never tired of telling anybody within hearing distance that he took up law because he simply could not do sums.

Are our Asian neighbors catching up?  Let them.  They have a long way to go.  Magaling ang Pinoy.  And even if they do, our world will then be a better place to live in.


June 22, 2009

Early this month, a two-part series in the Inquirer blasted our educational system.  The series started by quoting Senator Angara as saying that our educational system is a “ticking time bomb…that will really blow up in our faces in two or three years.” Former Education Undersecretary Juan Miguel Luz said that after spending billions of pesos, our educational system is “only marginally better.”

Statistics on dropout, participation and cohort survival rates were displayed to prove the sorry state of affairs.

Allow me to analyze the figures from entirely different standpoints.

First, inspite of the H1N1 virus, some 22.4 million students are enrolled in our public and private schools.  That is fully one-fourth of the population.  All over the second and third worlds, and, probably even in the first, that figure is unmatched.  The figure is also larger than the population of Australia or Canada.

Second, the dropout rate may have hovered at around 5% a year, but, if the student population increases by 200,000 a year that means 190,000 new survivors a year.

Third, they say that, of those who enrolled in first grade, only 12% reach college.  That means almost 2,700,000 enter college every year.  That is larger than the entire population of Singapore.

Fourth, even if only one-third eventually finish college, that is still a whopping 900,000 graduates, more than the rest of Southeast Asia combined.

Finally, our colleges and universities no longer just crank out old-line lawyers, doctors, accountants, architects and engineers.  There is a dizzying array of new disciplines a student can choose from.  After all, the country also needs linguists, actuaries, mathematicians, economists, and the latest creatures on earth, the informational technologists.

But what happens to the dropouts?  If they leave the farm, and learn a trade from the technical school nearby, they will find work in the cities.  After all, our home-grown, world-class architects and engineers cannot build a 50-story, 1,000-unit condo building without the help of a horde of carpenters, masons, electricians, mechanics and ditch diggers.

The most valuable characteristic of our educational system is its almost universal access to any kid who wants to go to school.  There are no social barriers.  The poorest child in the most distant barrio can start at a public school nearby.  If he is bright enough, there are scholarships available in high school, college and all the way to the doctorate level.

It is no longer necessary to come to Manila to get into college, as I did 60 years ago to take up mechanical engineering.  Every capital city all over the country is sprawling with schools.  My hometown, Naga City, has 146 schools, including three universities.  There are medical, nursing, nautical, agricultural, architectural, engineering, and nautical schools.  If a kid has the knack for it, he has a wide choice of courses in information technology, including digital illustration and animation (have you heard of that one?).

English is the most widely spoken language on earth.  Our biggest advantage over our neighbors is that we are the third largest English-speaking country in the whole, wide world, next only to the U.S. and the U.K. India may have more English-speaking people, but India is not an English-speaking country.

Oh, sure, we Filipinos speak our own brand of English. So what?  Why shouldn’t we speak Taglish?  Have you heard Americans, British and Australian fracture the King’s English?

For close to three-quarters of a century, the national budget for education has always been larger than that for national defense.  We have more than twice as many public school teachers as soldiers.  Today, that is really saying a lot, considering that the country faces three rebellions.

We should be immensely proud of our educational system.  The trouble is we tend to look at the wrong places.  (More next time.)


June 17, 2009

The longest-running, price-fixing cartel in our history was the fire insurance cartel.

When the fire insurance cartel was first organized is now shrouded in the distant past.  But when I started working with the then Insular Life FGU Insurance Group in 1951, the cartel was already a well-oiled machine.

The price list was embodied in a manual, referred to as The Tariff. Everything – from residential houses to apartment buildings, from embroidery firms to shoe factories, from warehouses to power plants – had a fixed price, called the “rate,” expressed in percent of the sum to be insured.  Deviating from the fixed rate was called a “breach of tariff,” a mortal sin.

The tariff was a British invention, first applicable to the colonies, but later to any country that had a fire insurance industry, with London as its main reinsurance outlet.  The Manila Fire Insurance Association (MFIA) was tied to an obscure office in London called The Fire Offices Committee (FOC), which prescribed new rules and had the final say on any local controversy on pricing.

Then, in the early 1950’s, riding on the new wave of nationalism after the Philippines gained independence, the MFIA cut its umbilical chord with FOC.  Freed from its shackles, the MFIA was worse than any colonizer.

To keep members in line, steep fines were imposed on breaches of tariff.

When the Insurance Code was extensively rewritten in 1974, the fire insurance cartel became the only cartel in our history that had a government license.

Fines for breaches of tariff were raised to as much as a few hundred thousand pesos per violation.  The cartel was so emboldened that, during martial law years, there was even talk of asking the Armed Forces to enforce the tariff.

In 1990, the Insurance Brokers Association questioned the constitutionality of the cartel in Court.  The brokers won the case.  But before the case could become final and executory, the cartel was shaken to its very foundations.

In 1994, in line with the ASEAN free trade agreements, Insurance Commissioner Eduardo Malinis, with the approval of the Secretary of Finance, cancelled the cartel’s license and threw the tariff manual out of the window.  The companies, especially the small ones, predicted catastrophe in the land.

Today, because of free market forces, the price of fire insurance is about one-fifth what it used to be.  Yet, the disaster predicted has never happened.  On the contrary, the fire insurance business today is as vigorous – and profitable – as ever before.

With prices so low, more people have been buying fire insurance than ever before.  The insurance brokers and agents, suffering from a drop in commission income at the start, have recovered.  They now have more clients who bought, not only fire insurance, but other lines, such as accident and health.

What happened to the fire insurance industry should serve as a good lesson for government planners during the current economic downturn.

When consumers are holding on to their money amid uncertain times, the sellers – from restaurants to supermarkets, from grocery stores to department stores – should cut down their prices to attract the consumers back.

If cement were freed from the cartel, the price should settle down in a free and open market.  Then construction should boom, and more cement will be bought, at a lower price per bag, it is true, but at a volume the cement factories may be hard put to fill.

The government’s stimulus plan should include an aggressive program to cut down prices of the most basic consumer goods.

As you can see, a price-fixing cartel is bad, not only to the consumer, but also to the members of the cartel themselves.  When will we ever learn?


June 16, 2009

If all the Senate did in its recently concluded session was to pass the anti-cartel bill, all the consumers in our blighted archipelago should truly be grateful.

The Competition Act of 2009, Bill No. 3197, was authored by Senators Enrile, Trillanes IV, Roxas, and Angara. The title is a dire warning to the cartels that have scourged us: “An Act penalizing unfair trade and anti-competitive practices in restraint of trade, unfair competition, abuse of dominant power, strengthening the powers of regulatory authorities and appropriating funds therefore, and for other purposes.”

The Constitution allows monopolies, but they are regulated.  Meralco is the sole and monopolistic distributor of electricity in Metro Manila, but the Energy Regulatory Board keeps Meralco on a short leash.

Cartels, or combinations in restraint of trade, are not allowed by the Constitution.  But there are no rules. The provisions in the Penal Code are toothless because it is not backed up by a regulatory framework.

What is a cartel? Two or more suppliers or manufacturers colluding to avoid competition and keep their prices high are a cartel.

The most glaring cartel is the cement industry.  When I built my house in 1960, there was more than one cement factory around. The cheapest cement cost P1.90 per 50-kilo bag, delivered at site.  Today, the cement cartel has only one price, P180 per bag in Makati. You can scour the landscape and you will find no product the price of which has soared to such heights as cement.

The banks are also a cartel.  The Bankers Association prescribes the minimum lending rate by members.

Besides price fixing, there are other subtle ways for cartels to ply their evil trade.  For example, cartel members agree to sell their wares only in their respective areas of operation.  Also, a cartel of electric motor manufacturers can agree to assign to each member a certain horsepower rating.

The Enrile bill, for the first time, grants the Department of Justice vast powers to investigate and prosecute on its own.

The penalties are severe.  A natural person who violates the law can be fined at least P1,000,000 or at most P10,000,000, and a prison term not exceeding ten years.  A firm can be fined at least P10,000,000 or at most P100,000,000.

In the U.S., the anti-cartel law is enforced by the dreaded Anti-Trust Division of the Justice Department.  Not even Microsoft would dare cross swords with the Anti-Trust Division.

About 20 years ago, an international conference was held in Glasgow. The conference was to hammer out rules on insurance on nuclear plants, a new line of insurance.  When the agenda reached the item on pricing, the American delegation stood up and begged to be excused.  Had the delegation taken part in price fixing, the Anti-Trust Division would have hauled them off to the nearest jail as soon as the delegation landed back in New York.

About five years ago, the Philippine telecom industry had a conference in Honolulu.  When they agreed to fix prices, the conferees realized what they had done.  They all scooted to the airport before the Anti-Trust Division could grab them.

The Enrile bill now goes to the House.  Let us hope that our wise representatives, instead of pushing for such silly matters as Con-Ass, will quickly approve the bill.

In next year’s elections, all consumers should remember the authors and those who voted for the Enrile bill.

The Enrile bill is long overdue.  But better late than never.

(Next: The Longest Running Cartel)


June 10, 2009

The Comelec has finally closed the deal to buy 80,000 computerized counting machines — worth a whopping P7.2 billion of taxpayers’ money — for next year’s elections.  Somehow, I cannot bring myself to sing Alleluia.

As a result of rampant cheating over the years, our elections have lost credibility.  They no longer represent the people’s sovereign will.

The proposed solution to the problem is to limit, if not eradicate, human intervention by computerizing the circuitous election process.  They say machines do not engage in dirty politics and have absolutely no bias one way or the other.  Automation is the magic carpet we have been looking for…

Oh, really now.  Computerized elections will lead to computerized cheating. In fact, it may even be easier to cheat.  Without computerization, a voter walks into his precinct, shows his voter’s certificate, signs the voter’s list, is given his ballot, which he fills it up in secret, and puts his vote into the ballot box.

Or, after he signs in the voter’s list, he is told, under duress, to go home as somebody else will fill up his ballot for him.

Or, for a price, the voter is told to stay home on Election Day.  Somebody else will vote for him.

In computerized voting, somebody else will simply punch the machine for him.  One dirty finger does it all.

And you cannot sue a machine in any of our courts.  Where can you find a judge who will hear a case against a machine?

What happens if a machine conks out during the counting?  Will a technician be around to fix it?  Will there be a stand-by unit to take over?  What if the trouble cannot be fixed?  Will failure in election be declared? If so, what then?

What will happen if some crazy mixed-up whiz kid still in high school introduces a virus into the system and the entire system comes crashing down?  A so-called firewall might be protecting the system, but an impenetrable firewall has yet to be invented.

Then, we might have no elections – the dreaded no-el.  What then?

In the end, automated elections will only work where it is not needed – in places were there is no cheating, and there are a lot of them around the archipelago, as in the thirty precincts in Bel Air Village Makati, where I vote.

Where, from experience, cheating is rampant, automation will not work. Those who have perennially cheated will find new ways to cheat.

The trouble is that Comelec is trying to tackle pockets of localized problems with a nationwide solution.  Local problems need local solutions.

Finally, those who cheat must be found out and punished. No one here has gone to jail for violating the election code.  In the U.S., the cheats go to jail.  Look at Mark Jimenez.  He made an illegal campaign contribution. The U.S. government extradited him and locked him up for two years.

Anyway, let us hope and pray that that automation will not fail us. If it does, failure could lead to chaos. Heaven help the Philippines.