Recession and its effects on Filipinos

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A recession is a temporary condition when the economy’s performance slows down. What is the indicator for this? When the average costs of products and services produced in one country, namely the Gross Domestic Product or GDP, goes pitifully south successively for a quarter. What causes this downturn?

In normal times, a country’s economy usually grows. Businesses earn profits, which are used to hire extra help or fund employees’ salaries. Profits may mean funding expansion if the business does really well. This is good because when businesses expand, or these firms are always reporting profits, they generate government income through taxes. The government then uses taxes to provide citizens with services. More taxes mean more funds for the government to spend and it spends these on projects that the private sector or contractors usually undertake. So profits flow back to the economic system, and this circle repeats itself often.

The more this cycle repeats, the better for all citizens because the economy is performing as expected. More monies in the system mean more opportunities for businesses and individuals to borrow. More borrowing also means higher profits for banks. And more borrowings translate into an expansion of asset bases or portfolios. In the best circumstances, more people are creating and generating wealth.

So now, the reverse of this situation is a recession. When businesses slow down, that, in turn, creates fewer taxes for the government and, therefore, creates less ability for government to dispense public services to its constituents. With lesser profits, businesses are unable to expand and hire more people. Worse, businesses even suspend operations, causing unemployment. More unemployed people mean more people unable to pay rent, mortgages, and basic utilities. Translate this into the millions, and more businesses are being affected since businesses are somewhat interconnected. As lesser or fewer people make consumptions, this, in turn, affects the GDP.

Now, why do prices rise as the economy slows? Well, as we said, the lesser businesses in existence, the more difficult it is for basic commodities to reach people. As businesses struggle to survive this economic slowdown, the obvious remedy for them is to raise their prices to maintain stability and economic viability. Business people may opt not to raise prices despite the rising costs they incur while doing business. Had business people not been solely motivated by profit, prices could have been managed to a minimum. This is ideal. The reality is that almost every single entrepreneur’s goal is to make a profit, and they often sacrifice or downsize their operations to maintain their monthly profit projections. Translate these into thousands, and you have a pattern or market trend that now dictates what prices consumers have to contend with, more often than not.

Why do some states seem unaffected by these phenomena, and others seem too affected? Well, blame privatization. Yes, privatization. A century ago, basic services such as electricity, transportation, and water were government owned. Being government-owned, the costs, for example, of having electricity, transportation, and water, may be dictated by the government. And you know what this means: under extreme circumstances, the government may opt to decrease or eliminate profit-taking just so that people can be able to avail of these basic services consistently. By managing utility rates, the government gives more people a chance to survive under the system. Without worrying about the costs of utilities, more people may be able to weather a turbulent economic storm.

This explains why the previous doctrine advocated by liberal democrats is now being assailed even by most Americans because basic services are now in the hands of private firms whose main goal is to profit. The dictum of lesser government presence means more democracy and harm and hardships for people.

Imagine a state where most people have their own homes. This means less rent-seeking, yet more monies in the hands of people. Imagine where people do have homes and pay a pitiful sum for transportation. That’s more money for every family. Imagine also when electricity and water bills are but a fraction of what people are getting today, and more people have the money to pay for more food on the table.

Of course, this is not the case now. We Filipinos pay the most expensive electricity and water rates in Southeast Asia. Paying more means having less money for other expenses, such as food and rent. Less money means fewer opportunities to produce a good or dispense a service. Without the capability to produce, how can one accumulate income to support himself and his family under this system? Cutting the average production rate in half means slowing down the economy by half.

 

 

 

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