Hoax

Ibon Foundation is pulling a hoax on all of us.

Presenting itself as an economic think-tank, Ibon tries to justify the unreasonable demand of other leftist groups for a hefty legislated increase in the minimum wage. They claim that a legislated minimum wage increase will not fuel inflation further – only if enterprises absorb the additional labor costs by trimming their profits.

There’s the rub. Ibon, in its alternative universe, imagines enterprises enjoy such large spread in profitability that they may absorb the larger labor bill and not pass it off to the consumers. That is not supported by the data.

What the data tells us is that over 90 percent of our workers are employed by medium, small and micro enterprises (MSMEs). These enterprises struggle to meet payroll requirements. They have more workers per unit of capital and generally speaking smaller margins.

Too, enterprises are not charitable institutions. When confronted with rising labor costs, their first (and most logical) response is to cut down on the workforce. In every enterprise, there is a threshold where acquiring labor-saving devices could be cheaper than holding on to an unsustainable payroll. A higher minimum wage will force enterprises to shed labor, adding to the army of the unemployed.

If the increase in the minimum wage is substantial, large enterprises will shed workers and numerous MSMEs will be forced to shut down. By the single act of legislating a much higher minimum wage, the leftist trade unions could double our unemployment rate and set back gains in reducing poverty by at least two decades.

Recall how, during the eighties and the nineties, the once mighty leftist trade unions constantly pushed up the minimum wage and organized frequent general strikes. Our once competitive garments industry simply folded up and left for neighboring countries. Hundreds of thousands of jobs were lost. Unemployment spiked. Poverty incidence rose.

There are international benchmarks for the cost of labor. If we push up our minimum wage, we will also be pushing out our enterprises that employ the most labor. We have to constantly keep an eye out for comparative labor costs.

There is a good reason why minimum wage issues are better left to the regional wage boards. By doing so, we are able to adjust wages to comparative costs of living on a regional basis. By adjusting wages to match regional costs of living, we are able to encourage the dispersal of investments to the lower-wage regions. This produces a more balanced, more inclusive pattern of development in the long run.

A legislated wage increase will gloss over the delicate regional variances in the cost of living. It will reverse years of gain in dispersing investments across the archipelago. It will cause the poorer regions to become even poorer.

Too, there is something inherently wrong in politically dictated wage setting. It is insensitive to the nuances of the market. It creates enough uncertainty to discourage long-term investments in our economy.

If the inherent goal is to cut profitability rather than cut costs, no one will invest in our economy. That runs against the grain of market sensibility and economic wisdom. We will be infinitely worse off if we adopt this as our operative goal.

In a word, the proposed legislated minimum wage increase is totally wrong. Politically dictated wages can only work in a centrally planned economy. All centrally planned economies in the constructivist mania of the 20th century failed miserably and at great social costs.

If Ibon and their NatDem allies in the House of Representatives want a nationally legislated minimum wage, they might consider migrating to Venezuela. What was once Latin America’s most prosperous country is now, thanks to Chavismo, a failed economy with the highest rate of malnutrition in the western hemisphere.

Moon Jae-in

South Korean President Moon Jae-in, who met with President Rodrigo Duterte this week, is a leader worth watching.

He is the first South Korean leader in recent memory to be comfortable on the diplomatic stage and confident of his country’s place in it. His immediate predecessors, notwithstanding South Korea’s rise as an economic power in its own right, all seemed shy to engage the bigger nations and deal with the North Korean problem by taking the bull by the horns.

President Moon is a quiet, self-effacing sort of leader. But his politics is audacious and his diplomacy bold. Note that this son of migrants from the north was a human rights advocate in his youth and nevertheless served his country as a commando in South Korea’s Special Forces unit.

Moon is not shy about his advocacy for Korean unification, impossible as that goal might be given the circumstances.

Over the past few months, he performed a series of nearly impossible feats. He managed to cajole his North Korean counterpart to participate in the Winter Olympics hosted by South Korea. Building on that breakthrough, he sent several missions to Pyongyang on exploratory talks. The process culminated in the precedent-breaking summit between Kim Jong-un and Moon at the border outpost between the two countries.

It was Moon who brokered a summit meeting between Kim Jong-un and Donald Trump. When the summit meeting seemed in jeopardy because of Trump’s volatility, a second summit was held on very short notice between the two Korean leaders. One can only imagine the hectic but efficient diplomacy Moon has been running to keep this summit on schedule.

If monumental gains are achieved on the Korean peninsula, the Nobel Peace Prize should go to Moon, not to Trump.