Reduce IRAs of “non-performing” LGUs?

On 8 February, Noynoy Aquino proposed that the Internal Revenue Allotments of  Local Government Units (LGUs) which do not do their work well should be trimmed down. It’s a nice thought, coming from the idea of reducing waste in government expenditure. The problem with it, however, is that to do so would mean an increase in the president’s prerogatives, of which he has already too many. And if the president will be the one to decide which LGUs to cut the IRAs of, he could very well reduce the IRAs of provinces, cities or municipalities ruled by the opposition.

The Local Government Code, which among other things, provides for the Internal Revenue Allotments of LGUs, also provides for the automatic release of these funds. And with reason. This is to prevent national government tinkering with these funds in order to control the LGUs. I think it is a good idea for the release of these funds to be automatic.

Perhaps it would be a good idea to set up rules (or even pass a law amending the Local Government Code) which would spell out what it means to have a “non-performing LGU”, and then to prescribe exactly how much IRA reduction that will be imposed on it, and what the LGU needs to do to get its allotment restored. This way, the reduction of IRA will go about in an automatic way – that is, devoid of “presidential prerogative”.

Looking into the Local Government Code provision on IRAs, it specifies that the  allotment per LGU is determined on the basis of 50% population, 25% land area, and 25% equal sharing – this, after the initial division of the total internal revenue taxes by: provinces (23%), cities (23%), municipalities (34%) and baranggays (20%) . Now, I see the 25% “equal sharing” as unfairly benefitting small, less populous LGUs.  I suspect that many of the “not well spent” IRAs is connected to this amount given to small LGUs. Why not just eliminate this item altogether? And then make the division into 2/3 population, and 1/3 territory. This would make the allotments go more to the more populous and bigger LGUs who actually need more of the money, and perhaps are finding it hard to finance all their expenses.

And perhaps the IRA amounts should be published by the government on the internet,  as a step towards transparency. This way, the IRA amounts will be known to be public. Of course, it would be best if the full accounts of LGUs  also be on the internet.

Global cooling?

This winter has been extraordinarily harsh – most of the northern hemisphere has experienced below-average temperatures since as far back as Christmas 2009. And after more than three weeks of this, it seems that it is here to stay for some time still. Weather forecasters blame a rare (one- in-60- years-event) for this; there is supposed to be a high pressure area around the north pole itself, which is sending cool air to all areas south of it. And since Europe, North America and Asia are already covered with snow, the air just breezes through unchanged – causing southern areas to receive very cold weather.

People will say that it is rather early to make conclusions about the global climate at this point; after all, aren’t there record high temperatures in Australia? But, I’ll make the point anyway: perhaps this is the onset of a “global cooling” trend, one that neutralizes or even overcomes “global warming”.

Why? The possible answer may lie in the sun itself, which we know to be the source of most of the heat in our planet today. If somehow, the heat coming from the sun is lesser than it used to be; then, this will result in cooler weather. Well, then, the heat coming from the sun IS less than normal; but the thing is, scientists say that this is only 0.1% less than normal. This is because of the solar sunspot cycle, which usually lasts 11 years – the difference between the solar radiation during the minimum and the maximum should be only 0.1%.

Cycle No. 23 ended in mid-2008, meaning that sunspots go down to zero (or almost zero) at this time, and then should have started to increase towards a new maximum. But up to now, almost two years later, the sunspots have not really appeared in numbers again, so far sunspot activity has been really anemic. Thus, Cycle No. 24 has NOT started, and we are in an extended minimum sunspot period.

So, what about it?  Well, the thing is that the last time the sun had an extended period without sunspots was  during the Maunder minimum (1645-1715),  when the world had a “Little Ice Age” with extremely cold winters (the Thames and even the Rhine froze during winter). Scientists aren’t exactly sure why this happened, so we are still in the dark about this. However, this means that the drop in solar energy is more than the usual difference of 0.1% between the sunspot minimum and sunspot maximum.  And this is the point where we may be at. What if the sun continues not to show its spots? then, we may be seeing a start of another Little Ice Age.
All this talk about an extended sunspot minimum is still quite speculative. Who knows, maybe the sun is about to come out of its slumber and start showing its spots? But what if the sun continues with its minimum sunspot activity? Then we will be in for a shorter or longer period of cold weather.

What about global warming?
I still believe that human activity is to blame for an increased greenhouse effect, and that a growing portion of the heat from the sun is kept inside the atmosphere as the CO2 concentration grows. However, if the sun is sending out less warmth, there will be less heat to dissipate or retain.
Thus, even though the world’s climate may get cooling influences from the reduction of solar radiation for a time; the warming trend is set to continue once the sun resumes with its usual amount of radiation when the sunspot cycle resumes. Which is to say that what we may be having is a temporary respite from global warming  and not a total cooling trend. And instead of shelving our plans for alternative energy sources and adaptation, we should make the most use of this “extra time” that we have been given to catch up with our anti-global warming measures for the time when the sunspots return.

Raise teachers’ salaries

Richard Gordon proposed during the 29 January 2010 forum that if elected as president, he will raise teachers’ salaries to Php40,000/month. 

Php 40,000 a month in 6 years. This seems to be a tall order, especially in the light of the fact that average pay today range at Php 11 to 14 thousand a month. Even if we just double salaries, the education budget will rise from about PhP 168 Billion in 2009 to more than PhP 300 billion. And this will still leave us with salaries below P30,000/month.

But let us look at things from another angle. The Philippines spends an average of US$ 138/year/student. This is much lower than that of Thailand which is at US$ 853/year/student (Singapore spends $1800, Japan spends $5000).  Even if we strive only to reach 50% of the Thai expenditure/student, there will be enough funds to raise teacher salaries to P40,000 and to spend more money on buildings and other facilities.

Why should the country spend so much on education? Well, because it cannot afford not to. The Philippines’ main “export” product is its people – from Overseas work, to call centers, it is our people and their educational level which is our main product. The products that we make in the Philippines are also knowledge-intensive.  We cannot afford not to raise the educational level of our people.

And I think it is a good idea to improve the whole education system at the same time. The government should also go on a intensive building program for schools, and strive to reduce class sizes to between 40-50 from the present 100. The Kindle (or other eReader) should be acquired and eventually distributed to each child – to ensure that each child has enough books and reference materials. And adult and alternative education should also get a budget boost.

Congress is already quite open to raising the salaries of teachers. During this last Congress, the House passed HB4734 that gives a PhP6500 raise to teachers, and the Senate passed SB 2408 giving them a PhP 9000 raise. So, it is just a matter of the president prioritizing this case, and even pushing for a higher increase in salaries together with a thorough improvement of the performance of the education department.

A Kindle for every student?

In a forum on 29 January, Richard Gordon said that if elected as presidenthe will provide a Kindle (an eReader distributed by Amazon) to every public school student in the Philippines. At first glance, this seems like grandstanding on his part – after all, his chances of becoming president are not very high – but on second thought, it seems like a good idea. After all, what is to prevent a future president from implementing good ideas coming from Gordon, or any other presidential candidate.

Phase-in
A Kindle for every public school student. In the Philippines, there are 21 million public school students. If a Kindle is given to them all at once, this would cost (at US$100/unit wholesale) $2.1 billion, or about PhP 84 billion. Compared to the budget for education of PhP 167.9 billion, this seems like a big amount.  However, since it takes time to put the program together, and since we aren’t sure whether we would trust Grade 1 pupils with the device, let us say that the program initially distributes Kindle to first year high school students, which would number about 1.5 million.  If this is so, the cost will be about PhP 6 billion, which is reasonably within the education budget. Later, the program could be widened in steps until it reaches Grade 4.

Negotiate
The program should be put together after extensive negotiations with Amazon and perhaps other suppliers of eReaders. Not only should we get a good wholesale price (Gordon’s estimate was $100/unit), but more importantly, we need to also arrange that Philippine-based publishers get a big share of the download-price (the price for downloading the e-Books, which should be only 10% to 20% of the price of the printed book).  Since practically all elementary and high school books are published in the Philippines, the shift to e-Books should not be a great loss to them.

Wide Use
Then, the Kindle program should aim at all students, eventually. This means that university students, and students in private schools should also benefit from the program. I propose that the government offer this to them at the wholesale price, also in a phased program.  With the university students, this would mean that the books which are published abroad will have to be obtained from Amazon itself, with the provision that the overall cost should not exceed 20% of the print book cost.

Wide use of the Kindle will enable students to download more than just their textbooks – reference books, and even leisure books would then be available, and many people will download these. Even newspapers will come out in Kindle format.

The Kindle program will have various positive effects. First of this will be the cost savings from not having to print (and pay for) so many books. If they are distributed to first year high school students, they will use it for four years; and save a lot on the cost of the books.

Then, there will be the environmental effects of not having to print so many books. This may take time to measure, but eventually, with so many books not being printed, it will count.

Transform banks to be guardians of financial system

President Obama is proposing to force banks to stop “trading for their own account”, pointing out that they were using people’s money for speculative purposes; and that if their investments go sour, the government will bail them out anyway because of the possible fallout on the financial system as a whole. This would mean that “investment banks” will again be separate from ordinary banks. This was to ensure that banks stick to serving the general public.  And that the government would support these activities of banks, but not their own speculative ventures.

An added advantage of this approach is that banks would not need to hire traders for their speculative ventures – and it is these traders’ bonuses which have raised many an eyebrow among the general public. Let the pure investment banks do this kind of thing – and if they go under, too bad for them.

But it is not only the speculative nature of  bank activities which should be stopped; it is also their sheer size. Banks that become so big become “immune” to failure, and this means that risks of all kinds are taken, in the knowledge that if they don’t work out, the government will bail them off. After all, risky mortgages are not “trading for their own account” activities. But big banks will be able to underwrite such mortgages the next time around, because they’re immune to failure.  Thus, banks should be reduced in size, so that they would be open to failure, and thus, their risk-taking behavior will also become more rational.

Banks should be “boring”, as in reliable stewards of people’s money. They should be stable and base their business on the principle of creating value through their loan policy and business-support services.  Banks should not go after the “fast buck”, looking for profits from short-term transactions. Those kinds of activities should be done by investment houses and hedge funds.

What about banks’ investment activities done for other parties? Well, I guess this would still belong with banks. However, more and more, people will prefer to invest using index funds, for stocks and even for bonds.  Also, there is also a growing tendency for investments through internet banks; making this activity more of a service with low margins.

I don’t know if Obama will succeed in breaking up the banks, and restricting their activities.  But I think that banks should indeed be transformed into stable guardians of the financial systems, and no longer be the financial “cowboys” that they’ve been till now.