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More on Brain Drain Economics

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I got an email from a reader asking if the health service provider's inherrent quality to create demand is still true:



"What I learned in Health Systems Admin. At JHU back in 1976 was that the health industry is unique in the sense that it doesn’t follow the law of supply and demand strictly since health service providers (doctors, hospitals, allied health providers) can create their own demand for their services. Is this still true?"

While I believe that to a certain point demand-creation is possible, I advised that this is no longer true at large nowadays. In fact, even suppliers can create artificial demand, and artificial supply in b2b and online transactions. This is possible in cases of ghost stock or faked inventory - and therefore artificial supply, and say, spam bots creating requests for similar products on the hundreds - where in fact there was only one originating demand trying to fish for the lowest price in the market. Both situations are examples of manipulation that can happen in the online marketplace since online markets are not controlled and restricted.

Demand Creation over New Technologies

I urged that purchasing power remains the restriction to any inherrent demand creation quality of health service providers. While the effect maybe negligible in countries where purchasing power is high and thus almost irrelevant, in a country such as the Philippines where inflation is high and purchasing power is low, any creation of demand to dictate higher prices will be met with negative market reaction. Perhaps demand creation can only happen in cases of new medical technologies, new surgical procedures, and pioneering methodologies of treatment --- in as much as any new product with unique features and a captive niche has. But using this demand to command price is only unique to this segment of the market. In fact, even in this segment, if demand is used to increase price purchasing power will still step in to curb the aggregate income of the doctor. Consider why not all AIDS and HIV patients go to the more expensive cures, or why generic brands are used as substitutes.

More concretely, I gave the following example:

If say a doctor will be situated in an impoverished town, and will be the only doctor, he can command a high price for the services up to a certain point only. Demand comes naturally by virtue of the need for his services. This is to be differentiated from demand creation from an innovation.

Slowly increasing his prices geometrically say monthly by P100 ,will mean a less and less total earnings for him after a certain point. If this is graphed, say at first he has 10 clients each charged at P100 , his total would be P1000 per month.

Raising it to P200 per session per client would mean his total would be projected at P2000 a month... However, it will mean losing 2 customers beyond that purchasing power. His net increase in aggregate revenue will then be only P800 instead of 100% additional. (P1800 total) raising it further it will be P300 per client but for only 5 clients.Therefore his net is now down to only P500 increase.

If there is no competition in that barrio, he can effective raise it to 1000 per client. But by that time his aggregate income would be only P1000 only --- conservatively from only the richest person in the barrio only --- his last remaining client.

Any raise would be detrimental to his income, and would result to less and less income or possibly even no more customers for him. Notice that I have not advised about the quality of service that isprovided. If there will be less and less doctors in the Philippines, the doctor-client ratio will be higher and we can assume a decline in service quality and the increase in the use of alternative medicines and self-made home remedies, not including those who will opt not to see the doctors. Both factors effectively lessens the income of the doctors who will stay in this situation.

On Skilled Workers

I have used this same model to prove the failed logic of the P. Sto. Tomas' statement in the case of other service providers such as engineers and skilled workers. Allow me to quote from my comments:


Following her logic does Sto.Tomas mean to say engineers will have an eventual increase similar to the doctors --- because of limited supply of their services? In fact we can expect an encouragement of the brain drain trend because local companies will offer lower and lower bargained wages to the limited number of people who will be left in the Philippines. Thinking that a low-paying job is better than no job at all - they will humbly accept. Until eventually the ceiling of their acceptable wages goes on a downtrend!

I don’t think an economic model is needed for this one this is already happening accross many sectors when there is a huge unemployment rate and a big gap in frictionally unemployed (due to high resignation in out sourced biz process industries, call centers etc...) and the prevailing structural unemployment. In other words she’s dead wrong. If I was an eco 101 prof and she’s my student, she gets an F.

I think the academe needs to be more involved in the government. This is eco 101 and yet our officials are failing miserably! I wonder how much better this country will be run if we are to follow the many disertations and research our universities have been making... I would bet an extremely conservative 1% of those research is worth implementing!

Brain Drain Positives

Will brain drain ever be a positive thing for the country? I can think of only one way. Canada for instance opened its immigration to skilled workers and is refuted in the last five years as an easier entry point to the USA, rather than direct applications from Manila. Little did many people know that the underlying reason why most Filipinos are welcome is because of the fact that they are skilled --- and Canada suffers from BRAIN DRAIN from the United States in the same way as the Philippines has. Skilled Canadian workers migrate south to USA after several years and this create a certain vacuum of skilled service providers in several key sectors.

In effect, Canada's opening up for immigration defers any negative effects of Brain Drain on their labor force, and at the same time receives cheaper labor for their economy.

Brain Drain is not a Filipino Problem

Brain Drain is not a uniquely Filipino problem. It is also a problem between two cities, say Shanghai and Hong Kong, Hongkong and Shenzhen versus New York and Boston, and between one top university and another. It is an economic reality that happens more and more as institutions move from localization to globalized processes.

Brain Drain should be taken not negatively perhaps, but a matter of fact. Population and labor movement in the past decades without citing any statistics can be conceivebably accepted as ever-increasing with the increase of Multinational companies and Outsourced and globalized operations of many companies. The Labor force is now more dynamic as people migrate in and out of countries offering more pay for their services. Take the European Scientists that cloned Dolly for instance, are now working for the Singaporean Government on a grant.

Once job creation is longer be a problem in the Philippines, this same model can be employed to lure the second best workers in Asia to take our lower wages, say the some Chinese, while Filipinos take the higher income wages before they move on elsewhere. Meantime however, while job creation is a probelm, brain drain's effects will remain and should be resolved as a fact, more than a cultural defect.

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posted by Jdavies @ 10/28/2004,

1 Comments:

At 10/22/2005 02:01:00 PM, Blogger Cheap Gas said...

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The Author

J.Davies

Jdavies lives in Quezon City, Philippines and has been blogging since 2002. A brand manager in a leading technology company and a freelance new media/web strategy consultant, he has refocused his blogging from personal, political & sociological observations, to marketing-related efforts and Internet trends that are relevant to his career and branding advocacies.


About This Blog

This blog is a depot of thoughts and observations on marketing trends which remain personally relevant to the Author as far as his marketing career is concerned. Having evolved from the personal blog of Jdavies, much of the earlier work contained herein are laced with personal speculation, political views, and similar advocacies. These posts are being kept for posterity's sake and for no other reason. No effort is being made to claim that the author will not contradict himself from his previous positions or that such advocacies are absolute.

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