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Tuesday, January 04, 2011

How Protectionism Kills Filipino Small Business

One of my friends in a Facebook conversation explained how protectionism weakens or even kills small/medium sized local companies in the Philippines:

Filipinos who want to expand their businesses but cannot easily get access to huge capital cannot go to foreigners as partners to fork out investment money because of the 60-40 arrangements (At least 60% Filipino ownership limit only 40% maximum for foreign owners)...

Small-time businessmen with good ideas who need to expand therefore NEED TO APPROACH THE OLIGARCHS (rich families who own big companies and participate in politics, even just by funding candidates of their choice)! And then the fricking oligarchs will SCREW the small-time/medium-sized Pinoy business-owner so that eventually, the Oligarch takes over the business and kicks out the original owner.

What's really bad is that the Oligarchs won't even use their own money either... They'll just take out LOANS from the Government (for example, the recent Meralco and PNB loan) using "friendly connections" with politicians, esp. the incumbent president at the time who is oftentimes indebted to them for their financial and manpower assistance during the presidential campaign.

And even if there are willing investors, the same snag is met, as another friend describes:

I bought the protectionism argument before. Then I got to run the family business and was looking for venture capital. We found an angel investor - the terms were split half - and he'll plow the money in - only to hit a wall with the 60/40 provisions.

And thus, small and medium businesses are choked out of the playing field. It leaves the larger, already established businesses (the oligarchs) to rule the industries they're in – making them a monopoly or at least monopolistic competition. This is why not only is it very hard but near impossible to keep aloft a small/medium enterprise in the Philippines. And without more enterprises growing in the country, there are few jobs. People are forced to go abroad and increase the risk of broken families. Not only employees, but small businessmen will just quite and go abroad instead. This is true not only for families with many members; even families with one or two children find it hard to support them with local jobs. Just think of the cost of a good education here. So salaries abroad are better suited for this.

And that is why our country is screwed up, with a lot of poverty, a growing population, broken families and lots of corruption and crime.

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