Our country is poor.  It is developing fast, but nevertheless, it has a good way to go.  A former Philippine president was noted to have asked his economic advisers why the people were poor.  One of them answered, that basically it is because of the ‘law of supply and demand’.  The president was touted to have quipped, ” Then let us repeal that law.”

And I believe governments all over the world keep trying hard to artificially ‘influence’ this law of supply and demand.  Basically, a journalist recently noted that since a small majority of the people owned a huge amount of wealth, what we can do is simply to double the minimum wage, with a good amount of statistics and facts to show how it would eradicate poverty in one swoop.  With an unemployment and underemployment rate of over 20%, you can imagine what that kind of move would engender — it would virtually fuel inflation, and probably double the unemployed.  Nevertheless, I wrote my reaction to this proposal below which is self - explanatory.

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I am sure you are familiar with the laws of supply and demand, and how for many years, people try to subvert it either by artificially inflating the price a consumer should pay to favor the supplier, or subsidizing it with a price to make the supplier viable while favoring the consumer.

In most cases I know, it does not work, at least not on a long term.  I believe that if you base it on the fact that  if we still have a high amount of unemployment and underemployment despite the low minimum wage set, then it must be that there was an attempt to alter the normal supply and demand by asking the employer to pay a higher price than would otherwise dictate, and therefore is not on equilibrium.

I have no doubt that the Philippines will grow, and Filipinos will become richer.  But I always believe that it will be better served by focusing on the other side.    By analogy, I mean that it is hard for a buyer to pay P2,000 for a China copycat watch that would normally be worth P1,000, but it is not difficult to find a buyer willing to pay P100,000 for a genuine Rolex watch that is otherwise worth P110,000.  If you want a businessman to go crazy and throw money at you, let him see the value proposition of it, and they will fight over it.  I always tell my people that the best long term businesses are not those that create something worth P100 with a cost of P180 and is able to sell it for P200 (because of market protection), but rather one that creates a value of P200 with a cost of only P100, and sells it for P180.

And therefore, the solution of the problem must be that instead of forcing employers to pay a higher price, focus be put in making sure that we educate and equip our people.  When their skills and experience brought to the work can bring P50,000 per month  to the company, I am sure every entrepreneur would work for the chance to hire him at P35,000 or more irregardless of how much is the minimum wage.

Of course, we know that we cannot be entirely be a free economy.  Safeguards must be put, and minimum standards have to be instituted to protect the people who still cannot afford to protect themselves, and therefore a good minimum base is ideal.

Also, by not being an entirely free economy as yet, ( meaning if we restrict foreign businesses in conducting businesses here in the Philippines), we also have a double edged sword of protecting the local businessmen, but also preventing the coming in of employers who otherwise ( because of the markets that they served) have the need and resources, and therefore sees more value in the skills of our labor, and willingly able to pay more for it.

These moves ( providing good minimum base, and allowing the labor free access to world employers to allow them to get the best price) will be a good short term solution, but long term, the sustainable way to progress is to insure that the people we are trying to move up will gather the skills and education that will allow them to move up.  In short, I am a firm believer that success cannot be bestowed, and at best, every successful person should at first conduct himself as a person who have earned that right, and becomes worthy of that success, before becoming a success.