Saturday, December 11, 2004

The Political Economy of Pyramiding

The controversy hounding networking and pyramiding persists. The thin line separating the two becomes all the more blurred as people become more cunning in coming up with ways on how to dupe more and more people into investing in ventures like these. In the Philippines, millions of pesos have already been lost to unscrupulous businessmen and company owners of networking and pyramiding scams giving promises to mostly lower middleclass families into making a quick buck and turn in huge quantities of money – in a rags to riches fashion. Then the moment they realize the fraud, it will have been too late as the owner will have left the country, the swindler will have filed for bankruptcy, it will have been too hard to recover the investment or it will have been too long to have a return of investment and steady profit. After which, they seek redress from the government and so far, only a few number of estafa cases involving pyramid schemes have been prosecuted and still await the fruitless return of the money they lost.

The interest of the public in this scam only snowballed when people realized that it did not involve a few faceless lower middleclass citizens but an increasing number of people from all parts of the social stratum, age groups and occupations. As a result of such, millions of pesos of retirement benefits of career government employees have been lost, millions of pesos of pension funds for veterans and old people have been divested and thousands of pesos of baon of some students have been burned in an investment they never profited from and at the same time, it would be very difficult to recover the losses. As you can see, pyramiding works in a very uncanny but cunning manner. It gives you an offer that would be to hard to refuse – a very minimal capital investment compared to the monstrous millions one needs to profit from an ordinary stock-based corporation and a so-called fast return of profit in which the only skill that one supposedly needs is that of persuasion – to be able to convince your friends, acquaintances, officemates and contacts to join the network, to invest in the pyramid from which in every person one gets, he or she is entitled to get a commission from the so-called sale of stock. For example, the fee or the capital one needs to join the pyramid is about PhP8000. The person who was able to convince the investor to would receive PhP1000 as commission. To recover his investment, he would need to find more or less seven more people to join the network. But this is only the first layer of the scam. In order to profit bigger, one would only wait for the eight persons he was able to convince to find more people to participate and in every sale of stock by those under him of her, he gets more or less PhP2000 or more, depending on the arrangement with the owner of company, who sets the pyramiding guidelines. So, if there are 8 members under him or her who gets 8 members each, he would get around PhP96000, more or less. And the scam goes on and on, and the head of the pyramid at the first layer will have been filthy rich as the layers continue multiplying, exploiting the need for people to recover their investments. The people at the head of the pyramid can be described as living off the money they never deserved because as the pyramid continues, the portion the people at the head gets becomes bigger and bigger. The scheme might involve goods for retail, to at least alleviate the need to sell more and more stocks. This is what networking supposedly is. But it is not necessarily so as pyramids often include only money. The profit continues provided that those under the heads of the pyramid have diligent underlings. If not, there would be a lull in the profits.

Ideas and social movements do not operate out of limbo. They do not spring forth because of the intelligence of man alone. It evolves out of precise historic moments, social contexts and objective conditions that make it ripe for theorizing, action and reaction. Pyramid schemes became a fad in the Philippines, not because some brilliant businessman thought it to be so. The scam arose from the Philippine socio-economic condition – crippling budget deficits due to debt servicing and excessive government spending and low GNP outputs due to massive trade liberalization in a macroeconomic scale; in the grassroots, low wages, rising food and oil prices which lead to lower purchasing powers, especially of the lower income groups, from which pyramiding sucks its blood from. The necessary implications of this would be the need to have get money or liquidity fast and assurances of risk-free investments which are the very things promised by the pyramid scheme. Those who crafted this scheme must have mastered the political economy of the times as they know that the lower income groups would never invest in the stock market for added income as their wages are too low and their savings are too little to risk all in enterprising. But they also knew that a small capital, almost like that of a small sari-sari store, would not hurt that much to the lower middle class family. Besides, earmarking perhaps a month salary for this venture, would not hurt that much at first as the returns are supposedly huge, much bigger than their salaries can ever imagine. It would take them a year to earn the PhP96000 promised by the pyramid scheme when they can have it with almost doing nothing but waiting for the money to come in. In a struggling economy such as ours, who then would resist this offer? Not the aged pensioners who still rent their rundown apartment in an eskinita in Sampaloc. Not the rank-and-file families of policemen and enlisted Army personnel who still have yet to pay their mortgage of their low-cost housing units in Bicutan and Bonifacio. Not the PGH doctor who still has yet to leave the country for Singapore, earning only a meager salary during his residency years. Not the Salary Grade 2 government officer who needs to send her kids to an expensive diploma mill university. The pyramid scheme boomed and bombed in the Philippines because play and exploited on a very fundamental need of people – to live decently, to own a house, to send their kids to school with at least something to spare for savings. But in a depressing situation such as ours, the opportunity for this is just too bleak to even imagine that people from the lower strata resort to schemes like this to at least give a semblance of hope that they will someday overcome their sad state. It may be greed for some to make the quick run for the money, but then, with an inefficient government that spends more time deliberating on increasing their pork than delivering improved social services, who are they to blame? As long as the political and economic situation continues, schemes like the pyramid persist and take on even more cunning forms.

wow. so cerebral... -armand
your intentions are noble and you have a vision for the country, something about you that many people admire. whatever ideals you are fighting for, hope you succeed. i don't come by many people like you nowadays, so continue being a leader and an advocate of reform =)
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