The Philippine oil industry has been deregulated in the late 90’s during the Ramos administration. Following this liberalization scheme, oil firms were given the leeway to adjust the prices of oil products. At present, we are facing weekly oil price increases. The Aquino government claimed it cannot do anything and “appealed to transport groups to ‘accept’ the deregulated nature of the oil industry”
I would address this by using Adam Smith’s theory of moral sentiments and economic concepts. Firstly, on the basis of the Smith’s discussion on the theory of Moral Sentiments, he states that moral ideas and actions arise from the very nature of people as social beings. Accordingly, morality being naturally endowed to us cannot be calculated. Smith also defined the character of a truly virtuous person. He describes that a virtuous person would embody the quality of prudence, justice, beneficence and self-command. In relation to free markets as proposed by Smith, it is only natural for people to do what is best for them therefore making self-interest natural. This marks the prudence that a virtuous man must embody. Though self-interested, people must also learn to achieve their own interests without putting others at harm. Thus, justice and beneficence is attained. The free market also works in the same way. While free markets look after their own profits, people tend to sway towards the businesses which gain them the highest utility meaning the lowest price. This natural preference of people in self-regulating markets is what makes a well-functioning and harmonious society.
The Oil Deregulation Law (ODL) that has been functioning for more than 15 years is an act promoting free market competition among oil companies in the country as well as liberalization among downstream industries. With the passing of this law, it is beyond the government’s power to intervene with the oil market’s operations. The imposition of this law is under the assumption that the competitive oil market will ensure fair prices. Hence, this should lead to the stimulation of innovation while sufficing the oil needs of the Filipinos at their satisfaction. Although, this free market can break down if there are industries that are big enough to control the prices. The ‘Big Three’ oil companies that exist in the country namely Petron Corporation, Pilipinas Shell Petroleum Corporation, and Chevron Philippines Inc. are the sole distributors and retailers of oil in the country. Consequently, the small business of oil industries emerging wouldn’t have enough significance in the market because they would be too small to affect changes in oil prices. Therefore, these small companies would not last for so long because they would be compromised by the efforts of the big oil companies extorting their power to have control over the distribution and setting of fuel prices. This is one example where the ‘invisible hand’ breaks down in a free market. Furthermore, this is an issue that should be addressed by the Philippine government to stop the protests of transport groups and to also ensure the utility that every people should be receiving in a well-functioning free market.
– Jeremiah N. Banzon