Born into a class, you’ll die in that class

by Rigoberto Tiglao on November 20, 2014

That’s not some Marxist firebrand sloganeering. It’s one of the many insights one can conclude from an academically rigorous book that came out earlier this year by economic historian Gregory Clarke, “The Son Also Rises: Surnames and the History of Social Mobility” (Princeton University Press, 2014).

Ingeniously using as data the prevalence of surnames in elite groups over the centuries in several countries and constructing a mathematical model involving the mass of data unearthed, Clarke demolishes a long standing myth: That modern civilization, especially under democracy and capitalism, have made it possible, for the first time in humanity’s history, for a determined person to escape his social status and move to a higher economic stratum.

“The fact is that after a century of redistribution, public education and social policy seem to have done nothing to improve the social mobility rates. Social mobility is no higher in modern Sweden than in the United States or even preindustrial England,” Clarke writes. Clarke’s investigation yields the same conclusion in different nations (Sweden, USA, England, India, China, Japan, and Chile): social mobility is so slow that it takes centuries for one family’s wealth to dissipate.

Quite surprisingly, Clarke concluded that even such communist political upheavals as China went through in the 20th century hadn’t really overthrown the elite. After the communist takeover in 1947 and even after the Great Cultural Revolution that Mao claimed eliminated the “last vestiges of the old Chinese ruling class,” it is still the descendants of the old Chinese families that had dominated the pre-communist civil service that are now at the top echelons of power of the Communist Party.

In short, Clarke says, the social class your grandfather was born in is the predictor of what yours would be now.

Think about it in your own personal experience. Your gardener’s children and grandchildren most likely will be as poor as he is, as his grandfather and great grandfather were. The children of a woman who did our laundry for decades, I recently found out, even after her heroic attempts to put them to school, remained impoverished minimum-wage laborers.

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Cover of book on social mobility, or lack of it.

Buena familia
There is a quaint term the Filipino elite use to describe themselves, which reflects the rigidity of our class structure: Buena familia. If you lose your wealth in bad business decisions or squander it on gambling, you would never lose your buena familia status.

A recent reunion of my Ateneo high school batch mates reminded me of this reality of the class-structured world. With, of course, a few exceptions (as there are in all phenomena of nature and society), those whose parents were capitalists are capitalists while those whose parents were professionals (especially doctors, but including teachers) and corporate executives are professionals and corporate executives. Living in an advanced capitalist society had no impact at all: Those who emigrated to Canada and the US were in the same social class their parents and their grandparents were born into.

Out of a hundred or so in our batch, probably just a handful had moved out of the social status they were born into: one who, after failing in most jobs he took on made his mom-and-pop roasted-chicken business into a billion-peso food conglomerate; one who was lucky to marry into a rich family and cleverly invested his in-laws’ wealth in high-profit ventures; one who stumbled upon a new industry nobody knew at that time would boom in the next ten years — information technology. But these are the outliers in the bell curve, my average classmate remained in the social status they were born in.

The issue of social mobility has become a hot topic, indeed, in the US, with economists’ new studies after the Reagan era that the American Dream has turned out to be a myth. Thomas Piketty’s unexpected bestseller “Capital in the 21st Century” had crunched mountains of data that conclusively showed that the nature of capitalism itself has led to concentration – untenable he theorizes – of wealth in America, and that the myth of wealth democratization there and in the Western world owed to the unique impact of World War II on the economies of the US and the rest of the world.

Nobel Prize winner and New York Times columnist Paul Krugman’s studies have also demolished the myth that in America, anyone can be rich. He points out in a recent column his observations on US society that are also applicable to the Philippines:

“Here’s what you need to know: Yes, the concentration of both income and wealth in the hands of a few people has greatly increased over the past few decades. No, the people receiving that income and owning that wealth aren’t an ever-shifting group: People move fairly often from the bottom of the 1 percent of the top of the next percentile and vice versa, but both rags-to-riches and riches-to-rags stories are rare.”

It is not individual greed, or lust, or selfishness that is the root of evil in this world. To borrow a term used by a Russian novelist to describe the inevitability of death, the “most general evil” in the world that no religion, no “Ten Commandments” had ever pointed out as Evil, is society’s class structure that condemns billions of humans to live a life of misery — those born into the have-not social class.

Root of many evils
It is the root of many evils in the world: Wars as undertaken by ruling classes to expand the foundations of their class and crimes against property as desperate attempts to claim upper classes’ wealth.

In fact, it has been religion that had helped foster the myth of a classless society. Kings, nobles, clerics, peasants, laborers are all children of God, and each is assigned his place in life by the Deity. If you don’t like your social status, just be patient and wait to enter the classless Heaven. Every Sunday is a ceremony called the Mass in which everyone in Church is made to feel that they are all equal.

In the modern era, the emergence of states in which the people vote rulers into power has served to mask society’s class structure.

The myth foisted is just as in the political realm, each citizen has one vote and therefore all citizens are each, in the economic realm each citizen has as much opportunity to be rich.

Masked, though, are factors that would make one rich, which the have-nots will never have access to: Wealth, transferred to you by your parents or grandparents that would make up your first working capital; clan and social networks, which Filipino-Chinese businessmen have particularly relied on for capital and business connections; education, especially an expensive MBA, preferably from US universities; even your parent’s predispositions, for example, a Chinese businessman hammering day in and day out on his son’s or daughter’s head that his or her fate can only be “take over the business.”

Feudal-age Shakespeare was wrong when he wrote in Julius Caesar: “The fault, dear Brutus, is not in our stars, but in ourselves that we are underlings.” It’s certainly not due to one’s stars, but to one’s ancestors, at least as Clarke’s rigorous research shows.

If Sweden, England, and the US — after more than a hundred years of efficient bureaucracies, strong states independent of elites, and wealth redistribution policies such as high income and inheritance taxes — still have low social mobility, it’s certainly a lot worse in our case. Our leaders aren’t even aware of this most general evil in the world. Such a long, long journey our nation has to take.

P83 billion unused for coconut-industry poverty alleviation

by Rigoberto Tiglao on November 16, 2014

It could be another case, as worse as its lead-footed release of funds for Yolanda-devastated areas, of the Aquino Administration’s criminal inefficiency and sluggishness in undertaking real reform programs. Or there may be a worse explanation.

Since September 2012 – two years ago – the Supreme Court finally ended nearly two decades of litigation and ruled that the P82.8 billion that originated from the so-called coco-levy imposed during the 1970s by the strongman Marcos were absolutely government funds that could be used only for the coconut industry.

This huge amount of money represented the monetization of 31 percent of shares in San Miguel Corp. bought through entities under the United Coconut Planters Bank on August 12, 1983, which the Supreme Court ruled were financed out of the so-called coco-levy, and therefore, government funds.

However, unlike other government funds, the money could be used only for the development of the coconut industry and the welfare of coconut farmers and workers, as this was stipulated in several Marcos decrees in the 1970s which ordered the collection of the levy.

It is a desperately needed fund.

Much of the country’s poverty is actually due to the backwardness of the coconut agricultural sector, which has, in effect, trapped farmers and landless workers in it over the decades. It is a sick agricultural sector since most of the coconuts are more than 60 years old, and its yields are diminishing each year as poor farmers are incapable of replacing them with new trees.

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Nearly P14 billion cash keeping UCPB afloat?

 

Nearly half or 10 million out of the 23 million Filipinos living below the poverty threshold are in provinces whose main crop is coconut, and whose main product is copra, or the dried meat of coconuts that are pressed in mills to produce coconut oil. The two insurgencies – Islamic and communist – have mainly emerged in these dominantly coconut-producing provinces, such as Maguindanao and Eastern Samar, as extreme poverty, probably more than ideology, has driven the people there toward rebellion.

The shares were originally common shares until government and San Miguel Corp. – with the Supreme Court’s approval – converted them in 2009 into preferred shares at the redemption price of P75 per share, higher than the market’s P54 per share price in 2009.

The shares were redeemed – converted to cash – on October 5, 2012, with San Miguel remitting to government a total of P82.8 billion. This consisted of the P56.5 billion value of the shares, plus P13.6 billion in cash dividends as preferred shares from 2009 to 2012.

Where is the P12.7 billion?

There is a further P12.7 billion in dividends, accumulated when the shares were still common shares from 1984 to 2009.

According to Presidential Commission on Good Government chairman Andres Bautista, a Presidential Task Force San Miguel “collectively decided to remit the P56.5 billion to the National Treasury, while the P13.6 billion cash dividends on preferred shares were deposited” in the United Coconut Planters’ Bank (UCPB).

(The Supreme Court ruled in November 2012 that 72 percent of the shares in the bank are government owned. For reasons I cannot fathom, the bank’s chairman for several years now has been tycoon Menardo Jimenez, who also chairs the GMA7 Network.)

Mr. Bautista informed me that the P12.7 billion “could have also been remitted to the National Treasury,” although he wasn’t sure about this. Bautista has not clarified where this part of the money is kept.

There hasn’t been an official explanation why P13.6 billion of the proceeds has been kept at the UCPB, in effect defying the Supreme Court ruling that ordered it remitted to the government, which should have deposited it in an official depository bank – which UCPB isn’t.

It appears, though, that without this money deposited in it, UCPB would go under.

The bank has been in deep financial trouble since 2009 that has required an infusion of P42 billion of public funds – P12 billon as advances from the Philippine Deposit Insurance Corp. and P30 billion in deposits from the Bangko Sentral ng Pilipinas (BSP). To keep the bank afloat, the BSP also had agreed not to recognize “temporarily” the P28 billion in losses the bank had accumulated.

“Without the extraordinary measures put in place by PDIC, BSP, and the national government itself, most recently in 2009, UCPB would cease to operate,” Purisima wrote.

One legal, albeit flimsy, justification, though, for putting the P13.6 billion in UCPB is the claim by UCPB and its wholly owned subsidiary Coconut Planters Life Assurance Corp. (Cocolife) that they had an 11 percent ownership of San Miguel shares monetized. They argued that other than the proceeds from the levy, they also invested their own funds in the companies – the so-called oil mills — that bought the San Miguel shares in 1983. These shares would total P15.6 billion, out of the monetized shares.

Government vs Government

The government-controlled UCPB had filed a case in the Makati Regional Trial Court to claim their supposed share in the P82.8 billion fund, against which the government agency PCGG protested. The PCGG elevated the case to the Supreme Court, which so far hasn’t acted on the case but has ordered the Makati court not to proceed with a trial.

According to an August 28, 2012 confidential memorandum of Finance Secretary Cesar Purisima to President Aquino, UCPB and Cocolife have been carrying in their balance sheet the value of the San Miguel shares they claim are theirs. This means that these have, in effect, bloated these institutions’ financial data.

“If the San Miguel preferred shares which UCPB claims ownership of in its proprietary capacity were to be removed from its balance sheet without compensation … this would result in UCPB’s capital adequacy ratio falling below required levels, and would be grounds for BSP to place the bank under prompt corrective action, receivership and eventual closure,” Purisima wrote in his memorandum.

The portion of San Miguel preferred shares that were subsequently redeemed and which UCPB claims ownership of account nearly half of its assets (as of end-2010), Purisima reported.

Similarly, “if these shares were to be removed from (Cocolife’s) balance sheet without compensation, this would result in Cocolife’s equity falling below required levels, and may be grounds for the Insurance Commission to revoke or even not renew the license, “ Purisima wrote.

However, even excluding the P13.6 billion proceeds of the San Miguel shares kept at UCPB and the P12.7 billion, which remains unclear where it is being kept, the Aquino government would have P56.5 billion at its disposal to inject into the coconut industry so as to uplift the poor who remain trapped in its sorry state. On the basis of a conservative interest income of 5 percent, this Administration could have P3 billion every year at its disposal to undertake poverty alleviation measures in the industry or start the much-needed rehabilitation program.

This Administration has not spent a single centavo for such a purpose, two years after the Supreme Court gave it the money.

After two years –- worse than the Yolanda rehab plan being approved a year after the typhoon devastated the Visayas – there isn’t even a master plan how the P83 billion would be used to rehabilitate the coconut industry and lift its poor small farmers and workers out of abject poverty.

All the National Anti-Poverty Commission, which was tasked to prepare the master plan, has been able to produce was a PowerPoint presentation with little detail for implementing its purported plan.

It could be another instance of this Administration’s incompetence, its sheer inability to do things.

The other explanation is that its geniuses who had thought of and implemented the Disbursement Acceleration Program have concocted a scheme to use the proceeds of that huge P83 billion fund – still unaudited – for the Administration’s campaign kitty in 2016, or maybe even to siphon off into their yellow purses.

The interest income alone of that P83 billion fund amounts to, at a 5 percent rate, a huge P4 billion, which means that just by sitting in some bank it would have earned P32 billion from 2013 till next year.

Where have all the senators gone?

November 13, 2014

I mean the real senators as we have known them in the past, who lived up to the etymology of the term (from Latin senex, old man), and who embodied the ancient tradition of the Council of Elders of selfless people who had no other interest or motive but to share their wisdom accumulated over [...]

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Marcos: The Great, Tragic Reformer

November 11, 2014

Last August 22, as if timed as a counter-event to the August 21 commemoration of Ninoy Aquino’s assassination, the darkest point of the 13-year dictatorship – the University of the Philippines’ top officials launched the first extensive pro-Marcos revisionist history of that era. Of course, the book’s title wasn’t that above. The author, economist Gerardo [...]

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At last, somebody stands up to bullies

November 9, 2014

The bullies are Senators Antonio Trillanes 4th and Alan Cayetano, as well as the Senate Blue Ribbon Committee itself. It should be more appropriately named the Yellow Ribbon Committee, since under this Administration, it has acted merely as President Aquino’ demolition crew. That ‘somebody’ is Vice President Jejomar Binay, who had refused to let himself [...]

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Exposed: The govt’s biggest boo-boo on the Yolanda fiasco

November 6, 2014

A year after the Yolanda disaster, the biggest boo-boo of President Aquino’s top officials tasked to deal with the Super Typhoon remained unexposed, or at least not given the appropriate media reportage. If our Senators are so fond of investigation, this is one issue they should probe—after all, the archipelago, again and again will be [...]

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Soliman, Abad dupe ‘Open Government’ body

November 4, 2014

Secretaries Corazon Soliman and Florencio Abad have accomplished a major feat that could be likened to pork-barrel queen Janet Lim Napoles winning a trophy as one of Ten Outstanding Women in the Nation’s Service. What the Soliman-Abad team achieved was to get the newly organized international body, “Open Government Partnership,” to confer the third highest [...]

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Largest pork barrel ever: P21B in 2015

November 2, 2014

I find two things in our country getting more and more amazing: (1) the skill of this Administration in hiding its nefarious schemes; and (2) the gullibility of the media, and therefore the public, in believing such government lies. Consider the pork-barrel issue that has engulfed our nation starting mid-2013. It resulted in a Supreme [...]

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‘Binay: Kulay-mahirap, asal-mahirap’—Trillanes

October 28, 2014

There’s nothing like a man’s huge ego pricked for him to reveal his true colors. Trillanes was so livid he blurted out his repressed world-view. He was mad waiting outside the gates of an agro-tourism park he was insisting was Vice President Jejomar Binay’s, and barked: “Kulay-mahirap si Binay, asal-mahirap.” Those terms are really a [...]

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Abolish the Yellow (aka Blue) Ribbon Committee

October 26, 2014

As I argued in my column Friday, the so-called Blue Ribbon Committee, whose official name is the Senate Committee on Accountability of Public Officers and Investigations, is a total misnomer. Especially under this Administration, its members haven’t been nonpartisan nor experts in what they are investigating, which the term “Blue Ribbon” means. Rather, it has [...]

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