Why price controls and subsidies are unfair

Why price controls and subsidies are unfair image

Text: Tito F. Hermoso / Photos: | posted January 28, 2011 14:39

Let the guilty pay for their sins

Protests galore

Its always top of the hour news. And with yellow journalism ever being the norm than the exception, media is full of aggravating stories about price increases. Every time there's a price increase - oil, power, toll, fares, rice, water, LPG, etc. - there is always a noisy group of protesters, usually from the minority, claiming to represent the "masses", demanding a price roll back, regardless if the government can afford a subsidy, a consequence of price control. Sometimes, the government buckles to populist pressure and succumbs to these most unjust of policies. But then who pays?

No profit, no business

Once a business cannot make a profit, they're better off closing for business as to continue losing money is unfair to its owners and debtors. So if the business cannot survive because a few noisy people representing the "masses" want cheap if not free - oil, power, tolls, fares, rice, water, LPG, etc. - who will provide? That's when government, as they demand, should step in. Government will pay the private supplier the price difference between market and what the noisy protestors demand. But, ultimately, the same question arises; who pays for the subsidy? Haven't they heard that the government doesn't have a bottomless pit of money, if it wanted to print its way out of the mess?

Injustice for all!

Price controls and subsidies are unjust. Though they are legitimate redistributive social justice and economic tools, they should only be used until a level of stability is achieved. To prolong subsidies and price controls, mean favoring the noisy minority with an irrevocable entitlement, which is always at the expense of the silent majority.

Not enough rich taxable individuals/entities

As it is the government is being asked to spend more than it earns. It collects as much as it legitimately can from the wealthy and the prosperous. In exchange for providing a hopefully safe and honest environment for business transactions to transpire, it collects VAT, sales tax, capital gains tax and the like. It applies a wealth tax on real estate property, luxuries and inheritance. With some 2 million genuinely "net" rich individuals, supporting 98 million not so rich fellow men, there is bound to be a huge shortfall.

Should Davao subsidize Muntinglupa?

So when some jeepney operators in some rich town in Metro Manila or some public officials claiming to speak for bus operators and truck haulers in the Bicol provinces demand a subsidy for the increase in SLEx tolls or a price cap on the toll, who will the government take the difference from? It will come from the majority of Filipinos who do not benefit from the "services" of jeepney operators in the Metro or bus lines in Bicol. Thus, is it fair for the Davao banana farmer, Ilioilo cane planter or Zamboanga trader to subsidize the toll of a few jeepney drivers in Manila? Not likely. Likewise, if MRT ridership is government subsidized to the tune of 38Pesos per ticket, from where is that money to pay for the subsidy coming from? Yes, from all us, from our tax inputed goods and services created by us 98 million or so Filipinos across 6,999 islands who do not need the MRT. That is not fair at all.

The fuel tax way is to pay as you go

Lucky for us, we have an example to follow. This is the pay as you go system. The more we use a good or service, the more tax we pay. The more we eat, the more tax we pay. The more we consume, the more often we pay tax. Take fuel. Compare the sales agent who lives in Sta. Rosa, takes the SLEx to work to Makati, 5 days a week in his 1.3 liter car with the arthritic Forbes Park matron who goes to San Antonio mass every day in her V8 SUV. Our sales agent will consume 30 liters a week, while our Forbes Park matron will consume 10 liters. Now it would seem unfair to the struggling agent, but then justice is blind - it doesn't matter if you are rich or poor, athletic or arthritic. If you burn more fuel, regardless, what you do, you pay more. That's the justice of pay as you go.

Pricing flexibility influences social behavior

In time, pay as you go can be useful in changing consumer behavior to improve, say, the environment. For instance once the Skyway stage 2 is finished, it is conceivable that the Class 2 toll for end-to-end travel for the elevated section and the at grade section be made equal if only to encourage trucks and buses to use the elevated Skyway to minimize the concentration of stinking heavy goods vehicle emissions at the at grade Skyway.

Let the guilty pay for their sins

Here's more. Why would the people of Visayas and Mindanao subsidize the denizens of Central Luzon and Southern Tagalog just because they recklessly filled up their national highway system with uncontrolled urbanization, mini malls right on the road edge, illegal settlers, reckless franchises for all kinds transport from 3 wheels to 6 clogging up towns and provincial roads, thus necessitating the creation of limited access expressways, expressways that could only be built with private money? And the same denizens keep electing public officials who can never seem to stop this reckless congestion, thus pushing most traffic into the "expensive" toll expressways? As you can see, these congested towns are getting what they paid for; they vote for public officials who promote congestion, and they get the congestion they deserve. Now they want the rest of the nation to pay for their sins by having us subsidize their fuel and their tolls? The mistakes in Luzon should serve as a lesson for Visayas and Mindanao before congestion forces them to charge tolls on their diversion roads.

Free to get stuck vs. pay as you flow

Skyway tolls are high simply because the two free service roads exist at the expense of SLEx real estate. The only recourse was to invite Citra to fund and build the elevated Skyway for us. Look at the difference. The Skyway flows while the free Service road is a parking lot most of the time, albeit, free. Again, should the people of Romblon and Misamis pay a subsidy for the Skyway users because the government allowed the free Service roads to exist in its current form?

Welcome them

The limited number of "net" rich individuals/entities is surely not enough to raise the living standards of the 98million or so. Borrowing for mega buck infra projects bumps up our foreign debt ceiling. Instead, we need foreign investment, in many sectors that are closed to foreign ownership because it is reserved for nationals. But for how long? Should the nation's future remain hostage for the sake of national ownership? There should be a deadline for this as the oligarchy cannot reserve "juicy" infrastructure and public utility opportunities while our infrastructure and public service backlog stretches back to 25 years. If they can't afford to fund it now, it should be bided out to well capitalized foreign groups. Is it just to make the majority of consumers suffer a higher price just for the sake of nationalism? At what point will public welfare continue to be sacrificed at the altar of nationalism?

The unrepealable Law

Like everyone else, these protesters should pay as they go. The Law of Supply and Demand, despite what some politicians say, is not for repealing. We won't need the Supreme Court to tell them that.

In the meantime, the government should no longer foster this regime of injustice. Just because a few noisy Luzon politicians and pro-jeepney street marchers demand a toll fee subsidy, it doesn't mean the Iloilo cane planter, the Palawan fisherman, the Cotabato coconut farmer and the Surigao trader should pony up.