The subject of economics is usually premised on the notion of scarcity. Time and resources are limited, so people are compelled to make choices. In choosing one thing, one must forgo another thing. This is what trade-offs basically mean.
Indeed, Covid-19 has sparked much reflection in people, and one point that is, perhaps, worth discussing at length is the concept of trade-offs. Trade-offs can be faced in the present time (the here-and-now, so to speak), or they can be faced between different time periods (intertemporally, meaning today versus tomorrow).
Trade-offs in the
here-and-now are quite easy to illustrate. For example, one has a thousand
pesos worth of extra cash in his wallet. One can use that money to eat in a
restaurant, watch a movie, or go on a joyride with some friends. Whether
immediate needs or wants, there are many competing uses for the limited cash,
which one ultimately allocates according to his tastes and preferences. As
consumer theory goes, the limited budget is allocated in such a way that a
rational economic agent gets to maximize his utility or
satisfaction.
However, the spread of Covid-19 and its resulting community quarantine have been more useful in highlighting the painful reality of scarcity and the deeper, more critical intertemporal trade-offs that human beings need to face. One is the labor-leisure trade-off, where people choose between wage-paying productive work and satisfaction-generating leisure activities. Here in the Philippines, many could not even afford leisure. The idiomatic expression isang kahig, isang tuka (one scratch, one peck, as with chickens trying to feed themselves) describes the dire situation faced by the poor, whose means of livelihood do not typically involve any kind of contract at all. They have no social benefits, such as SSS, PhilHealth and Pag-IBIG. They have no paid vacation leaves, sick leaves, and maternity/paternity leaves. It is simply “no work, no pay” for them.
Another set of intertemporal
trade-offs involves current consumption and future consumption (i.e., saving).
From the income that they earn, how much do people set aside for rainy days?
With Covid-19, ironically, the proverbial rainy days have arrived during
summertime, and both business owners and workers are feeling the financial
strain caused by the abrupt interruption of economic activities. Perhaps, there
are some who have managed to set aside money for emergencies, so staying at
home is bearable. In reference to this Lenten Season, they are like the ancient
Egyptians who managed to store grain during seven years of plenty, in
preparation for seven years of famine foreshadowed in the
Pharaoh’s dream, which a young
Joseph interpreted correctly.
Nevertheless, many Filipinos might not be as financially buffered, and World Bank data are worth citing. According to the Global Financial Inclusion Data Bank, in 2017, among nine Asean members (no data for Brunei Darussalam), the Philippines placed at the middle, with about 34 percent of its population aged 15 years and above having savings accounts (just a slight improvement from the 31 percent recorded in 2014). At the bottom were Cambodia (22 percent), Myanmar (26 percent), Lao PDR (29 percent), and Vietnam (31 percent). At the top were Indonesia (49 percent), Thailand (82 percent), Malaysia (85 percent), and Singapore (98 percent).
According to the World Development Indicators Database, in 2018, in terms of gross domestic savings rate, among eight Asean countries (no data for Laos PDR and Myanmar), the Philippines placed last with a GDSR of about 14 percent (a deterioration from the 15 percent recorded in 2017). Performing better in the latest observation were Cambodia (24 percent), Vietnam (26 percent), Malaysia (31 percent), Indonesia (34 percent), Thailand (35 percent), Singapore (55 percent), and Brunei (56 percent).
There have been suggestions to mitigate the adverse financial impact on businesses. One is that the government should provide tax relief to businesses so that they, in turn, can afford to give their workers paid leaves. Another suggestion is to have banks postpone collections on business loans. Yet, another suggestion is to have utility companies postpone collections on bills due.
While these are good suggestions, they are really just palliative measures. As Dr. Alvin Ang pointed out in a previous article, it is, perhaps, more important to raise savings and insurance consciousness among Filipinos. It cannot always be the government facing the risks for everybody. Another important lesson is to invest more heavily in disaster preparedness. Reports of shortages in medical equipment are disturbing, since infection among medical frontliners, combined with local transmissions, could overwhelm the public health system.
Hopefully, this entire experience of Covid-19 will teach Filipinos to evaluate trade-offs more carefully, so that they can make wiser decisions in the future—whether in economics, politics, or other areas of social life.
Dr. Ser Percival K. Peña-Reyes teaches economics at the Ateneo de Manila University.