• Almonte’s ‘regulatory capture’: The Smart and Globe case


    Second of two parts

    Every year when Forbes’ magazine’s roster of Philippine billionaires comes out, we pore over the list in curiosity, envy, and we wonder how these immortals spend their billions. They are considered models to emulate, and top capitalist-apologists like Dr. Bernardo Villegas idolize them who were in the past called “captains of industry.” I hardly hear that term anymore, and what’s used is the more neutral “billionaire” or the dramatic-sounding “taipan” – one indication of changing views.

    As our country, though, sinks deeper and deeper into poverty – the latest official poverty incidence is 25.8 percent for 2014, from 24.9 in 2013 – and as scholarly works like Thomas Piketty’s Capital in the 21st Century are published, which rigorously show that capitalism by itself creates vast income inequality if not checked through a herculean effort by government, one gets to wonder: Are these billionaires part of the solution, or have they been always part of the problem?

    It is significant that somebody, former President Fidel Ramos’ closest adviser, Jose Almonte, who has spent much of his working life in the corridors of power, was led to conclude: The elites are the problem. Ours isn’t a democracy, but an oligarchy.

    Following is Almonte’s observations on the root cause of the country’s malaise in his recently released book, “Endless Journey: A Memoir”:

    The core problem, as we saw it, was the irresponsibility of our leaders. We observed that our leaders in media, business, religion, and especially in politics – because they were the most important actors – had a sense of personal entitlement that was superior to or stronger than their sense of civic responsibility. To put it another way, their sense of personal rewards was superior to serving the common good.

    Forbes’ Philippine billionaires: Solution or problem?

    Forbes’ Philippine billionaires: Solution or problem?

    How did this come about? For generations, our political economy allowed the accumulation of wealth by a few, through the simple process of manipulating the political process. In short, there was not much use for industry, intelligence, and talent. The primary anchor for their success was their entrepreneurial skill in controlling our politics. That was why we had a phenomenon where, according to the World Bank, the primary problem of the Philippines was that the national policies did not serve the common good but only special interests. That had been said repeatedly. It was not only in the Philippines where this phenomenon thrived; other countries were similarly situated.

    After every election, Malacanang was practically captured by the oligarchy because those who contributed huge amounts to the campaign of the victor practically ran the government. We had a phenomenon where not only the elite and the oligarchy but also the regulatory agencies captured the political center. Apart from “regulatory capture,” we had a phenomenon of “state capture.” The core challenge was to break this twofold iron grip. [Emphasis added-RDT]

    I once described our country as an archipelago of Mount Everests, of very high mountain peaks where monopolies, cartels, and the elite were ensconced. Only they were enjoying most of our country’s wealth.

    This core problem was the answer to the question, why were our people rebelling? Remember that this was the question we asked when Ramos and I were young officers in the Sierra Madre [fighting the Huk insurgency in the 1950s]. They were rebelling because of poverty, because of the enormous income gap. Why were they in such a state? Because of the irresponsibility of the elite. They inserted themselves into our politics by greasing our wheels of corruption, and through a system of patronage. Using these two techniques, they dominated the political process. This was the systemic culprit that promoted poverty and widened the wealth gap. [Almonte quotes end here.]

    If “regulatory capture” is too abstract, it is really as concrete as the cell phone you’re using now. Following is a case study of “regulatory capture.”

    In 2011, the Supreme Court ruled that the Philippine Long Distance Telephone Co., violated the Constitution’s 40 percent limit on foreign control in public utility firms, since the shares of Indonesian First Pacific, the Japanese NTT and other foreign firms, amounted to 58 percent of the firm’s capital. Smart, since it is PLDT’s 100 percent cell phone subsidiary, therefore, was also violating the Constitution.

    Going by the Court’s ruling, Smart’s competitor, Globe – controlled by Forbes billionaire Jaime Augusto Zobel – also violated the 40 percent foreign limit, since Singapore Telecoms had 47 percent of shares, with the Ayalas holding only 30 percent.

    What do PLDT’s clever foreign owners do? In October 2012, the company issued 150 million shares of the strangest form of stocks ever, called “Voting Preferred Stock.” These were a lot, as there were only 234 million common shares, the usual type of stocks used as evidence of ownership and universally considered as the only kind of stock that gives the owner the right to vote in the company.

    Who bought these Voting Preferred Stocks? PLDT’s Beneficial Trust Fund, or the fund for its employees’ pension, which is really controlled by the PLDT board. After First Pacific bought PLDT, the fund’s chairman was Albert del Rosario, who is now foreign affairs secretary. (Do you get an idea now how elites function?)

    A classic case of regulatory capture.

    A classic case of regulatory capture.

    Then just seven months later, in October 2013, the regulatory body — Securities and Exchange Commission – issued memorandum circular No. 8, which made PLDT’s voting-Preferred-shares gimmick such a bright idea.

    The memorandum allows PLDT to compute foreign control not as a percentage of common stocks as the Supreme Court ruled, but as a percentage of all types of voting stocks – including the 150 million “Voting Preferred Shares” PLDT invented!

    PLDT had to admit the maneuver in its 2013 report to the US Securities and Exchange Commission: “As a result of the issuance of Voting Preferred Stock, PLDT’s foreign ownership decreased from 58.4% of outstanding common stock … to 34.5% outstanding stocks (common stock and Voting Preferred Stocks)…”

    “PLDT, therefore, is in compliance with the requirement of Section 11, Article XII of the 1987 constitution, ” it asserted.

    Cliché it certainly is, but only in the Philippines: Only here is highest court of the land, in effect, overruled by a relatively obscure regulatory body such as the SEC.

    That is what Almonte means by “regulatory capture.” Guess in what law firm the SEC chairman who issued memorandum no. 8 was a partner before getting appointed to the post by President Aquino in 2011?

    But you don’t care, don’t you, dear reader, as long as you get less dropped calls using your phone. You don’t care even if the huge profits of PLDT are being remitted to Hong Kong and to the tax-haven islands that are home to the companies of its ultimate owner, the Indonesian Anthoni Salim. You don’t care even if PLDT profits and financial resources are used to invest a mammoth $445 million (P19.6 billion) not to build up its infrastructure here in our country for more efficient and cheaper services, but to buy a 10 percent stake in an internet firm in Germany.

    But how can we build a nation – by definition an association under the rule of a particular set of laws – when even foreign oligarchs can just ride roughshod over our basic law, the Constitution?

    FB: Bobi Tiglao


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    1. You are actually also describing America, now the land of the not so free and with a high poverty rate. So, this ex-colony of the USA is in fact still a colony, a vassal doing the bidding and teachings of its former and current master. How sad and how true, your words.

    2. You hit the nail right on the head……but there are other big nais to the PH coffin.

      The other is the judiciary,,,,,,it is discrepit from top SC to bottom RTCs, presecutors, judges, justices, quasi legal bodies, (SEC ) even the whole legal profession.

      Suggest we outsource our judicial system to SINGAPORE or HKG

      The other is to open our economy totally…but only to companies and people who come from countries with FOREIGN CORRUPT LAWS,,,,,,so they can be prosecuted in their home countries,


      The SEC officials who violated the S.C. decision and illegally amended the Constitution through a mere SEC issuance must all be handcuffed and put in jail forever! They are evil and they do deserve the death penalty if only we have it. However, since we no longer have the death penalty, those SEC officials must rot in jail forever for violating not only our laws but also no less than our sacred Constitution!

    4. Again I will ask the same question that girl asked Pope Francis, why God allows that? It is ironic that my name is Jesus, but practicing Buddhist & Confucianism, yet in my meditations I can feel that very powerful being but as of late, “it” has done nothing to alleviate the suffering of my beloved poor countrymen.

    5. Hector David on

      Our politicians paid their debts with our futures…. It is still going on … The lies .. The deception and the stealing … This will go on and on till a strong leader who cares for us says enough is enough

      • Any sitting president who goes against the tradition suffers what erap had gone through or be deposed via coup-de-e’tat. This is corporate greed at its best…….

    6. What else can one say except it is a unique catch-22 situation with the patrimony of our country being royally screwed. Not to mention the majority of 100,000,000 Filipinos caught in a vicious poverty cycle where very few escape. Similarities abound with early 20th century capitalism in the United States where the Trusts and Monopolies ruled(Rockefeller, Carnegie, Morgan) until a trustbuster called Teddy Roosevelt broke them. But the similarity ends there. These Monopolies and Trusts opened up the United States.
      The Philippines will continue to be a “slave country” floating on the backs of exported labor until this vicious ” regulatory capture” is reined in. I don’t see it happening in my lifetime though.
      My very wise father in law ( may he rest in peace) said that for this country to achieve equality in the company of “fair” nations, ” everyone” and he meant Everyone above the age of Ten must be “eliminated”, so that the remaining will be able to re achieve innocence and fairness. Shocking but ?
      This article also reminds me of a quote that a high placed Ayala executive said when asked about Ayala’s corporate ” vision”. And he said that ” there really is no vision, because no matter who succeeds who in government, we always get what we want. We do not need government”.

    7. I fully understand that in this country the rich dnt care about the rest of the country. They will manipulate in any way they can politicians so they will stay elite. I think because of these people wanting to stay at the top they also want to keep the masses less educated. Then dont bring so much work to the philippines so everyones standard of living rises, keep it where thos they get a half decent education have to work abroad to help their families. That is also how i see these people staying in their ivory towers. Keep the people down & you stay up.

    8. Regulatory capture happens when the regulating agency is controlled or influenced, hence captured, by the interest groups dominating the industry the agency is suppose to regulate. Policies emanating from the agency tend to favor now these interest groups. The agency is called a “captured agency.”

    9. Jose A. Oliveros on

      Guess in what law firm the SEC chairman who issued memorandum no. 8 was a partner before getting appointed to the post by President Aquino in 2011?
      Answer: The ANGARA ABELLO CONCEPCION & CRUZ LAW OFFICE, better known by its acronym: ACCRALAW. One of its founding partners is current Senate President Franklin Drilon. That law firm, in the words of the late Supreme Court Senior Associate Justice Isagani A. Cruz, “prospered in power and fees by representing various Marcos cronies.” ( “An Embarrassment of Mediocrities”, Philippine Daily Inquirer, Oct. 12, 1997)

    10. It is not that we do not care Mr. Tiglao. Speaking for myself, I do not know what to do in order to battle such control. And even if I did (i.e. file cases which will take forever or educate others) where would i get the funds to sustain such action.

      I think a lot of the middle class are aware of what is happening but at a loss as to how exactly to respond to it.

    11. What kind of animal is “Voting Preferred Shares” ? Only in Philippine manipulative SEC and twisting courts can you designate a “violative activity” legal and constitutional compliant by a hybrid legal corporate term only existing here in Philippines! This is “oligarchy” of the “corporatocrazy”. Only the Philippines…..my friends!

      • Preferred shares are superior to Common shares, which means in a company liquidation, any money received goes first to Preferred shareholders, the balance to common shareholders.
        Voting Preferreds are actually used extensively in the US. It is either by Board Resolution( majority) or through a Stock split.
        There are different variants of this. One is reclassifying “A” and “B” shares, or Cumulative Preferreds, or Convertible Preferreds ( to common stock)
        The goal is always retaining control without violating the law. But this is a perfectly legal maneuver. The crux of the matter however should be
        Limits of foreign ownership of critical government infrastructure like electricity, telecommunications, defense etc.

    12. Only a revolutionary government under a strong and honest leader can change things around, meantime 2016 is just around the corner.