Doing business under federalism



THERE is resistance to federalism from the business community because of the fear that doing business would generally be harder under a federal government structure considering that there would now be two levels of sovereignty, the state/region and the federal government, each adopting rules and regulations that in their totality, may make it even more difficult doing business than it is right now under a unitary system.

However, when we look at the current ranking of the Philippines in global competitiveness rankings, on specifically the “ease of doing business,” which is at 137th place, according to the Global Competitiveness Report 2016-2017, and compare it to even low-income federal countries like Ethiopia (122), India (132), Nepal (76), Nigeria (107) and Pakistan (116), it becomes clearer that federalism is not necessarily unfriendly to business. These rankings are related to the number of procedures needed to be undertaken to start a business.

When the rankings are based on the number of days to start a business, again, the Philippines fares badly when compared with those same low-income federal countries. The country only fares better than Nigeria based on that same global report of 2016-2017.

In the table below, we find that the country fares quite poorly when compared with, in turn, “high-income federal countries”:

In the rich federal countries, Canada has the best ranking as there are only two procedures to start a business and it only takes a day and a half to get it done. What an amazing incentive to formalize what might start as a business in the garage or kitchen since it appears to be quite short and easy.

Interestingly, in the case of Federal Germany, even if it has the most number of procedures to start a business it only takes about 10 days to get it all done while we take almost three times that. Therefore, the fear that business becomes shackled even more under a federal system with more rules and regulations, whether poor or rich, is unfounded.

Dr. Peter Koeppinger, former Philippine country head for the Konrad Adenauer Stiftung (KAS) pointed out in the conference arranged by the Center for Philippine Futuristics Studies and Management, Inc. two weeks ago the similarities shared by Germany and the Philippines in terms of total land area (both about 300,000 plus square kilometers), population size (83 million vs 103 million), and more relevantly, the number of regions/states: we have 17 and Germany has 16.

Dr. Koeppinger further points out that in both Germany and the Philippines, the ethnic and tribal groupings are historically much older than the national state. We share the same status as having high cultural diversity, including varied languages/dialects. Germany only became a national state in 1871, preceding the Philippines by only about three decades.

Because of the effects of World War 1, Germany centralized power in the national government under Hitler and the National Socialists which led to World War 2 and its near total destruction and from which it transformed into a Federal Republic only in 1949, sharing governmental powers between their 16 regions and the central government.

In Germany, and what will most likely be the arrangement under a Federal Philippines, economic planning, development and promotion are vigorously undertaken at the Regional level and this is done in close cooperation with the development planning of the local authorities. And because the regions have constitutional powers over their finances it isn’t hard to imagine how effective this economic planning and coordination with the local government units can be.

In the Philippines, under our unitary system where public funds and authorities are vested solely on the national government, we have what I consider a farce in regional-local development planning and implementation. We have Regional Development Councils that are controlled by the national line agency inputs and on the flip side, many LGUs don’t even bother to activate the local development councils that under the Local Government Code of 1991 starts from the barangay all the way to the provincial levels. (Why? Because 83 percent of all public funds are collected and disbursed by the central government. So why bother to plan.)

And what has been Germany’s record from being a federal country only since 1949 in terms of national development? Dr. Koeppinger cites the following achievements that I believe Filipino federalists would love to see here as well: balanced economic development between the regions with each sharing similar purchasing power; customized economic planning matched with financial resources and the cooperation of the LGUs therein; there are no mega, ultra rich areas and dirt-poor areas existing side by side; and regions share the ability to set up and sustain first-class infrastructure, universities and hospitals.

We must realize that the over-concentration of public funds and authorities under our unitary system is what breeds all of the bad elements that hinder real business because of the corruption, patronage, political dynastic-building, oligopoly-favoring realities that come with it.

Federal Germany has a booming small- and medium-scale enterprise sector integrated in many ways with the bigger boys, which is the main engine of growth of their very progressive and balanced economy.

Thus, federalism, by unleashing the economic potential and talents of all Filipinos in all regions, and armed with real budgets and coupled with easier procedures of setting up and doing business can be the answer for the gripping poverty in most regions and more importantly, provide hope to a generation of new labor force entrants that are currently experiencing unemployment rates of about 50 percent.


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