Liberal Economy

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Talk is cheap – because supply exceeds demand.

Man walking along a road in the countryside comes across a shepherd and a huge flock of sheep. Tells the shepherd, “I will bet you $100 against one of your sheep that I can tell you the exact number in this flock.” The shepherd thinks it over; it’s a big flock so he takes the bet. “973,” says the man. The shepherd is astonished, because that is exactly right. Says “OK, I’m a man of my word, take a sheep.” Man picks one up and begins to walk away.

“Wait,” cries the shepherd, “Let me have a chance to get even. Double or nothing that I can guess your exact occupation.” Man says sure. “You are an economist for a government think tank,” says the shepherd. “Amazing!” responds the man, “You are exactly right! But tell me, how did you deduce that?”

“Well,” says the shepherd, “put down my dog and I will tell you.”

Target beneficiaries: Indigenous people

Objectives:

• Resource tenurial improvement for IPs supported by microfinance
• Ips to participate in the free market thereby improve their quality of life
• To replicate/serve as model for other NGOs
• Influence legislation

Activities:

1. Training and education
   • trainings on skills and livelihood
   • Paralegal trainings
   • Gender and equality trainings
   • Training on access to capital
2. Networking
3. Policy Advocacy
4. Legal Assistance
5. Access to capital thru micro-finance

For the past two days in this training program, we have had a lot on insight in the workings of economics. Why one action may have more pronounced side-effects than the intended desire. That most of the best intentioned economic policy decisions to help the poor may actually be depriving them of a better life!

A glaring example of this would probably be globalization. “Globalization is evil!” is now the battle cry of people of claim to protect the poor. Although I am sure that most, if not, all of these people truly care for the poor, the discussions in the past three days clearly shows that they are pushing the wrong issues!

Globalization is good and it helps the poor. The case study if the Bangladesh textile industry success and the Indian information technology industry’s tremendous performance clearly show’s this.

Although some may argue that these examples only benefits the businessmen, industrialists and the rich may be looking at it, at best, in a very narrow view. As the case of the Bangladesh garments industry success have shown, the effect have been so remarkable that the impact can be seen on both the economic status and social system of the communities and individuals. And these effects could be seen in all instances where globalization or trade liberalizations has stimulated the establishments of new industries in poor regions.

The immediate effects of the case studies cited are obviously income for people directly employed by new businesses. More income therefore translates to independence, dignity and freedom. The immediate economic gains suddenly transforms into social gains.

This increase in the supply of money will now spur new industries that will support the needs of people who suddenly have money to spend, thus creating more opportunities for more people to earn and have livelihoods.

This argument alone will support that notion that globalization is good! But aside from immediate economic gains realized by those employed with these new industries, more profound effects in the institutions of the countries benefited by trade liberalization can be found.

In the Indian experience in information technology, the boom of the software industry affected positive changes in many areas and institutions in the country. Areas like the education system, telecommunications infrastructure, government development plans, wage levels, business management systems and issues like child labor, health care and human rights among other things are now pressured to improve and keep up with the success of the industry. These changes then make the business environment more conducive for more industries to develop, thus sustaining progress!

Clearly the globalization will help alleviate poverty!
Why then are most nations unwilling to open up there markets?

Fear is probably the most evident answer. Anti-globalization activist constantly paint a picture of a world in economic gloom and poverty if globalization succeeds. But the picture they are painting is not the future, as they contend, but the present! Poverty is prevalent because there are a lot of obstacles for the benefits and wealth of the world economy to reach them. And what the anti-globalization activists are doing is to add more obstacles, or at best fortify these existing obstacles!

Fear is a very powerful tool used, if not, abused by many who oppose free-trade. And in most cases, these are the very people who have vested interests and would want to protect these interests by doing away with free trade.

It is also clear in the discussions that free trade is not an instant or overnight fix to poverty. Most would agree that it is the step on the right direction because at the very least, it creates opportunities. And all the government has to do is step aside and get out of the way. The government should facilitate the process involved in business rather than be an obstacle.

It is also clear in the discussions that there is abundant and real concern to protect the poor and that everyone should make an effort to alleviate there plight. The concern of the anti-globalization activist for the poor cannot be questioned and must be applauded, but perhaps they are pushing the wrong issues! As I have said in my opening statements, the best of intentions may, in the final analysis, be doing more harm to the poor!

The road to a world free from poverty may be long and hard, but if we more and act together “sa sibuyas, may tigas!”

Dennis “Kuya Kim” Uy

The leadership training gave us the opportunity to revisit once again the concept of a market economy.

Market economic system is one where individual consumers and produces through their interaction in the so-called market determine the answer to the basic economic problems of production. Adam Smith in his monumental work in economics described the working of this system as the “invisible hand”.

One of the most important and powerful theory in market economic system is demand and supply. In discussing demand and supply, it is important to look first intonconceptmofmmarket.

When we speak of market, most often people think of a place where goods and being sold to consumers. Thus, a market actually brings together buyers and sellers. It acts as intermediary between buyers who demand goods and services and sellers who produce or supply goods and services.

Demand

Demand refers to the willingness of consumers to buy a particular good. It is both a common sense and an everyday experience that the amount people will buy of a particular product depends on its price. To further illustrate, economists devised a concept called demand schedule. A demand schedule is a tabular presentation of the amount of goods consumers are willing and able to buy at different level of prices over a given period of time. The graphical representation of demand schedule is the demand curve. The demand curve is a downward sloping curve from left to right. This characteristic of the demand curve is due to the inverse relationship between price and quantity demanded. As price increases, quantity demanded decreases, vice versa. This is the so-called law of demand. Figure 1 shows an example of a demand curve.

*Abridged discussion of the theory of demand and supply from the book “Principles of Economics for Filipinos” by Castaneda et.al./1st edition ©2006 (Mutya Publishing House)Change in Demand

Change in demand means a shift in the demand curve, that is, a change in the position of the entire demand curve. A demand curve shifts either to the right or left, upward or downward in response to change in any of its determinants except price. The determinants of demand are those factors that affects consumer buying. Take the case of a food commodity. Other than the price of the food, other considerations such as our present income as well as our taste and preferences affects the amount we desire to purchase. Among the determinants of demand are price of the product, price of related products, income, and taste and preferences.

Figure 2 illustrate a shift in the demand curve. The change from DO to DR is called a rightward shift which means an increased in quantity demanded. On the other hand, the shift from DO to DL is leftward shift which indicates a decrease in quantity demanded.Supply

Supply refers to the amount of goods and services firms are able and willing to produce at a given level of prices over a period of time. Firms are responsible in the production of goods and services, and it does this by employing the factors of production. We assume that firms are guided by single motivation, that is, to realize as much as profit as possible. It is obvious that profit is directly related to prices and it then follows that higher prices means more profit for the firm.

Like a demand schedule, we likewise have supply schedule analogous to that of the demand schedule. However, a supply schedule shows the amount of goods or services that firms are willing and able to sell at different level of price. The graphical presentation of the supply schedule is the supply curve. The curve slopes upward, which means that there exists a direct relationship between price and quantity supplied. As price increases quantity supplied increases, and as price decreases quantity supplied similarly decreases. This is commonly referred to as the law of supply. Figure 3 shows an example of supply curve.

Change in Supply

Like the demand curve, a supply curve also may change in position, either to the right or left. The change in position is due to changes in the determinants of quantity supplied. Among these determinants are cost of inputs (raw materials and labor), price of related goods, and technological change. A change in any of these factors may cause the supply curve to shift to the right which means an increase in the supply or it may change going to the left indicating a decrease in the level of supply. Figure 4 illustrate the concept of change in supply.

Market Equilibrium-Demand and Supply

We had presented demand and supply separately in the previous discussion. In this next part, we will combine our analysis of demand and supply to determine the price of a good in a competitive market economy.

Equilibrium Price and Quantity

What we are interested to know is how products get price. To answer this, we determine the market equilibrium, that is, the equilibrium price and quantity. The equilibrium position is the price at which quantity demanded is just equal to quantity supplied. As shown in figure 5, graphically, equilibrium is where the demand curve is tangent to the supply curve (point EQ). At the equilibrium price level, the amount of goods consumers are willing and able to buy is just equal to the amount sellers are willing and able to produce.

Effect of Change in Demand and Supply

A change in one of the determinants of demand, ceteris paribus, will have the effect of shifting the demand curve either to the left or right. When the curve shifts, this will result in a change in the equilibrium level assuming the supply curve to remain unchanged. Likewise, a change in the supply curve brought about by changes in its determinants, assuming demand to remain constant will result in an adjustment in the equilibrium level.
The change in the equilibrium price in the market as a result of changes in demand and supply is important in policy formulation on the part of the government. Achieving the desired level of equilibrium means the adoption of policies that will have an impact on the determinants of demand and supply.

Surpluses and Shortages

Setting the price at the equilibrium position is desirable because at this point there is neither shortage nor surplus. As earlier mentioned, the amount people want to buy is exactly the amount firms are going to produced.
When price is set at a point other than the equilibrium level, this will create either a shortage or surplus. At a price below the equilibrium level, consumers desire to purchase exceeds the amount producers are willing and able to offer for sale. This situation presents a case of an excess demand causing shortage of goods or services as demand is greater than the supply. The amount of shortage is shown by the vertical distance of the demand and supply curve in figure 7 (between points ED and ES).

In contrast, when we consider price above the equilibrium level, this will create an excess supply or what we call surplus. Above the equilibrium level, the amount of supply exceeds the amount consumer demand of a given product.

Government Intervention in the Market Economy

The market economy basically operates through the invisible interaction of demand and supply. However, in practice, the entire economy is not left out entirely on demand and supply in determining price of goods and services. Oftentimes, the government intervenes in the market by altering market equilibrium. It does this in two ways, that is, by setting a floor price or ceiling price. Floor price means that the government mandates a minimum price that must be paid to a good or service. The best example of this is the minimum wage law. The law mandates the payment of a minimum amount of wage that must be paid by employers. The latter cannot pay less than the legislated amount of minimum wage.
On the other hand, ceiling price is when the government mandates a certain limit on the amount that must be paid on a given good or service. Producers cannot charge an amount greater that the ceiling price. An example of this is the rent control law, which mandates that lessors cannot increase the amount of rentals beyond the ceiling provided by the law.
Government intervention in the market is necessary to protect certain sectors of the economy that might otherwise be discriminated from the operation of the market mechanism. In setting floor price on minimum wage, the government wishes to protect the working class by ensuring that they receive from their employers a sufficient wage enough to sustain a decent living. Likewise, the rent control law seeks to make available to the public affordable rental on apartment units that might not otherwise be possible if the cost of rent is left solely on the market.

The minority Liberal Party in the city council of Santiago have successfully passed a local bill calling for the reconstruction of irrigation facility in the city’s two remaining rural barangays – Barangays Luna and San Jose – unserviceable by an irrigation system.  The bill was authored by Councilors Polet S. Silverio, Arlene Jane Alvarez-Reyes, Jun Cabucana, and Romy de Jesus.  The measure was, likewise, affirmed unanimously by the majority of the city council.

Under suspended rules, the measure according to the local legislators and officials of the National Irrigation Administration (NIA) will hasten agricultural and fisheries development of these two remote barangays.  The NIA technical experts provided the program of work of the project entailing around 500 thousand pesos for gas, labor, construction materials and rental of heavy equipments which will be funded under the fiscal budget of 2007.  Barangays Luna and San Jose (about 11 and 12 kilometers from the city proper respectively) relied mainly on the abundance of the rainfall in their palay, corn, vegetable and fresh water fish production.  According to rural folks, the establishment of the irrigation facility will surely double if not triple their harvest and in result provide additional income to farm workers, increase the value of their land and ensure them of enough rice supply and food security.  This they added would neutralize the scarcity felt in the countryside.

-Polet Silverio

On the context of agrarian reform, it will be an effective tool for the poor if it is implemented with a “complete package scheme”.  The complete package scheme provides not only the land for the farmers but other necessary livelihood support and farm inputs such as credit facilities, education, and cooperative development.

 

Credit Facilities

-         modeled but modified version of the “failed MASAGANA ‘99” experience

-         provide the farmers the fundamentals to start and build capitals through microfinance

 

Education

-         provide the farmers with the necessary trainings that is responsive enough to their needs

-         provide the appropriate technologies in farming so as to equip the farmers with the necessary skills in innovating their sector

-         educate the farmers with the guidelines on environmental sustainability

 

Cooperative Development

-         this will enable the small farmers to organize themselves as a collective group that would further enhance their competitiveness

-         this will also enable small farmers to trade with other cooperatives