The solution to economic problems

By John Mangun / Outside the Box

THE Philippines grapples with the problem of poverty and everyone knows exactly what the solution is: jobs.

We spend countless hours discussing why economic growth is not spreading down the economic food chain and we all know exactly what the problem is: jobs.

The government battles with revenues being insufficient for its spending plans because there is not enough tax revenue and we all know exactly where that additional revenue could come from: jobs.

And successive leaders assure the public that they are trying to solve the situation of a lack of jobs.

That great wise man in the Stars Wars universe, Jedi Master Yoda, put it very simply, “Do or do not. There is no try.”

But government keeps “trying” and not doing it.

Perhaps we need to look at what a “job” is. A job is being paid to provide a service or to produce and supply a product to others in the economy that they are willing to pay for. To be paid for doing a job well, you must offer the goods or services in an efficient and profitable manner. Profit means that there is some money left over after selling a product or service and paying all the associated costs.

One thing that surprises about the current administration’s job-creation problem (and there is one no matter what the press releases say) is that the current secretary of finance outlined his jobs program in 2004 when he was secretary of trade and industry.

Secretary Purisima said then that, “To create one job which pays the minimum wage in a micro or small-sized enterprise, that enterprise needs to allocate around P50,000 in capital investments.” For a high-paying job it requires P1,000,000 in investment.

So what is the problem except maybe that the campaign slogan should have been “With jobs, there is no poverty?”

According to Secretary Purisima, to create 250,000 high-paying jobs and 5 million standard jobs, it requires an expenditure of some P500 billion.

The secretary clearly outlined his plan in 2004. “If we would be able to help improve [existing Filipino] SMEs’ productivity level, its impact on our country would be tremendous. The country could generate over 800,000 new jobs if each SME would add one employee. If we had spent as much time helping Filipino business in the last years as we did attracting foreigners, we really might have created jobs.”

To create just these 800,000, 200,000 high-paying and 600,000 standard wage in the SME sector would cost some P230 billion. And 800,000 new jobs would have a significant impact on the economy and poverty.

The government’s typical response is to ask where the money is going to come from to fund a job-creation program.

The government spent over P20 billion on the Conditional Cash-Transfer Program last year and that amount would have nearly funded the 600,000 standard-wage jobs.

The difference between the projected budget deficit and what was actually spent was P100 billion, which could have been used to create jobs. Had the government increased the 2011 annual budget by only 6 percent, Secretary Purisima’s job-creation program would have been fully funded and 800,000 more Filipinos would have jobs today.

It is a simple exercise to discover how much added revenue would have gone to the government from those added jobs and how much larger and faster the nation’s economy would have grown.

Jobs require investment in sustainable business, not handouts. The government can be the largest source of investment capital in the country. However, it takes a long-term vision, as Secretary Purisima explained, and it takes the desire to make the government a meaningful engine of economic prosperity.

Interestingly, Secretary Purisima also said this before the Supreme Court in 2004: “Various offices of the Executive branch found that we can quickly channel the private sector’s energy into industries where we have proven to be highly competitive, where our natural endowments clearly give us an edge. Mining is one industry in which we clearly have a competitive advantage. One great advantage of the mining sector over other industries is that this sector has an almost 100-percent value added which means that almost all of the elements of production are sourced locally.”

Perhaps this person needs to be listened to more often and given more attention.

On a personal note, thank you to all who attended the seminar on Saturday, some pictures are posted on the MangunOnMarkets Facebook page. It was my pleasure meeting you. We are planning to do this again in April so please e-mail me at john@mangunonmarkets.com if you are interested.

E-mail to mangun@gmail.com and Twitter @mangunonmarkets. PSE stock-market information and technical analysis tools provided by CitisecOnline.com Inc.