‘Ghosts’ are everywhere

Although we are a few months away from Halloween, an article on CNN this week made me realize that “ghosts” are everywhere. Citing a report from the Chinese state news agency, Xinhua, the CNN article told of “ghost” vendors in China that sell cake.

Investigators unearthed a bogus cakery chain that covered 400 locations in China involving 67,000 ghost vendors operating with forged business licenses and no physical stores.

Customers placed orders for cakes via an online platform. Merchants on this platform would then bid out this order on another middleman platform for actual cake producers to bid on with the lowest bid being the winner. Because of the deflationary environment in China, this increases competition among producers and drives margins lower and lower.

Well, does this not drive efficiency and better economics? It should be fair, right? Well, it should, at least, until the customer gets one lousy cake. The danger of this system is that safety and quality suffer and only the merchants on the platform end up with the profits.

The case just goes to show that rent-seeking behavior is universal. We all know too well about our own “ghosts.” The detainment of former Congressman Zaldy Co in the Czech Republic brings back the ghost flood control projects scandal into focus. Bringing him home to face justice is one step to addressing the corruption scandal and restoring trust in government.

Rent-seeking basically means profiting without contributing value. This can be illustrated in the Filipino saying, “laway lang ang puhunan (saliva was the only investment).” This is a characteristic of a commission-based business model where referrals generate profit, and the “service” is social network access.

The dreaded question whenever you propose an improvement or opportunity for funding to a person in authority is, “Magkano ba akin diyan (how much is mine)?”

In such a business or economic model, and as both the ghost vendor and ghost flood control projects demonstrate, rent-seeking adds to the overall economic cost of the product or service. Because it is systemic, rent-seeking is inflationary and disrupts the efficient allocation of scarce resources.

The other universal element for “ghosts” is the platform, or more precisely layers of platforms.

After all, ghosts need haunted houses, right? Platforms are critical to ensure visibility of transactions. In the case of the ghost vendors, they used legitimate online platforms such as Taobao and Meituan but also a hidden order-switching platform that engaged the actual producers, which was against regulations.

As the Senate investigation last year revealed, while the budget process is the main platform where the executive branch bargains with Congress for budget allocations for their projects, there also exists an unseen platform involving several lawmakers, Department of Public Works and Highways officials, and private contractors. This platform has its own secret codes such as “download” and “in-house.”

Going back to the ghost cake vendors, for the investigation to unravel this hidden crime network to begin, all it took was one dissatisfied customer who got a lousy cake. To be more precise, the complainant reported to authorities that fresh flowers were inserted into the birthday cake he ordered, which raised concerns about food safety.

This complaint led to the investigation, which reportedly penalized the online platforms with a total of US$528 million (around P31.7 billion) in fines for their negligence.

We need to assume that any platform can be gamified and that we need to ask if or assume that other linked platforms exist. But more importantly, we need to ensure, recognize, and protect the legitimacy of complaints.

If there are ghost projects, then there should be “ghost” (whatever it may be, project or cake) busters as well. And as Ray Parker tells us, when you see something strange in your neighborhood or something is weird and it does not look good, call your nearest “ghost” buster.

In other words, complain and speak up. Hopefully, there are some real ghostbusters out there looking out for us that we can trust.