THERE is a problem with trying to analyze a nation’s economic system. Experts usually start with an existing economic idea, and then include data from a country to see how they all match up.
Everyone looks at a country’s “consumer spending”. This should be relatively simple and should offer a reasonable comparison between economies. The definition of that term is clear and not complex at all: It is the amount of money spent by households in an economy. The spending includes durables, such as automobiles, and nondurables, such as food.
We can examine data on automobile purchases, for example, to get consumer-spending numbers.
If an automobile is bought in Manila and another in Los Angeles, it is supposed to be a side-by-side comparison. But nothing could be farther from the truth, and there is no reasonable comparison when you look at the quality, and not just the quantity, of the purchase.
In Los Angeles today, you can by a 2015 minivan for $35,000 (about P1.5 million). The cars have the same equipment and are designed to be sold to a buyer belonging to a member of the wealthy class and to his or her counterpart in the Philippines.
But here is the difference: One car dealer in Los Angeles will let you buy the car with a 10-percent down payment and finance the balance at zero-percent interest for 84 months, or seven years. Another dealer will sell you the car with no down payment and finance the total purchase price for five years at an interest rate of 5 percent. They offer two bonuses. They will also give you $1,000 in cash, and your payments do not start for three months.
If car ownership is an indicator of a rich or poor country, then the Philippines is “poor”. We own about one car for every 20 households. In the United States the ratio is two cars for one household.
Furthermore, while we in the Philippines are told that robust automobile sales are part of the reason our traffic is worsening, in the US such sales are a prime indicator of economic growth.
Imagine how much more economic growth we could achieve if every Filipino with P100,000 could just buy a car with zero-interest rate financing for seven years. The Philippines would have a developed economy overnight. Actually paying for the things you buy is a real economic burden.
But, instead, we went with a safe and stable banking system. All private debt, as a percentage of gross domestic product in the Philippines, is 35 percent. In the US it is 200 percent. Also in the US, nearly 20 percent of all banks have failed since 2010. But they sure sell a lot of cars in America.
Image credits: Jimbo Albano
1 comment
US banks made risky investments that made easier for Americans to finance their leisure. And that created the financial crisis. However, the US Fed printed money to bailout these banks. That again deepen the crisis. Since hot money flowed in to developing countries, that created an illusion of economic growth in these countries. PH for instance take this advantage by restructuring its old loans while creating newer loans by floating low interest bonds & bills. While it’s true that by doing this, it strengthen it’s fiscal position, PH govt is however financing non-profitable sectors leaving the burden of more profitable sectors to private sector. The strategy is unsustainable.