Federalism’s advantages over unitarism

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PHILIP CAMARA

PHILIP CAMARA

Why is it that a huge majority of Filipinos choose a federally managed country as a target of migration (US, Australia, European)? Freedom loving people seem to intuitively know the advantages and beauty of a federal country over one like the Philippines, stuck in time, with probably the most centralized governance in the world in terms of accounting, budgeting, spending and allocating of the people’s resources.

Critics of federalism like to amplify the lie that only three regions account for the bulk of the Philippines’ economic pie and tax generation (NCR, Calarbazon and Central Luzon). These critics would not divulge that it is the method of accounting and tax assignment that results in such apparent dominance. Much of this is really just a construct of the unitarists.

For example, if someone buys a cellphone load in say, Tawi Tawi, do you think that the tax related to that transaction gets reflected in Tawi-Tawi? That’s what you would think. But while you may be logical in thinking so, what the unitarist doesn’t understand is that the tax generated from that transaction goes to the NCR even if it had nothing to do with the “sale” (the seller and the consumer are in a peripheral location). This is so because all the VAT on the transaction is allocated to the domicile of the corporation in the NCR that owns the cellphone load. So, before unitarists talk and argue, they should first understand the figures they use as arguments against federalism.

But granted that even after such corrections (the above example can easily be fixed by shifting from VAT to a “sales tax” as in the US, which accrues directly to the region where the sales happened and avoids the problem of the appearance of over-concentration of economic and tax performance), and there is still inter-region disparity, then we can easily understand that ALL federal arrangements have “transfers” for the poorer regions. There is nothing strange, unusual about inter-region transfers between federal states as determined by the federal government as the overall governance manager. In the US, the relative share of all taxes between the federal government and the states is about 50-50. From its 50 percent share, the federal government funds transfers to poorer states to keep national standards of public services more or less equal.

Therefore, a clear advantage of federalism is the pride and dignity of Filipinos in the periphery, knowing that they are not slouches and are not parasites on the “productive few regions.”

Related to this is the advantage of federalism in producing far better economic managers out of their elected regional and local officials. This becomes evident when you consider that in the current unitarist state, the present IRA or internal revenue allotment for transfers to “poorer” areas is not based on any economic criteria. IRA is only based on three factors, none of which are economic in nature: equalization, land area, and population. So what if a mayor is great at economic stimulation of his town? The bulk of the taxes the employees and the corporations there pay will go straight to Malacanang c/o the BIR. It will much later return in the form of IRA, but for now it will appear as a kind of a “dole-out” without any connection to a town’s economic performance.

But consider how different the economic actions of local officials will be if, instead of the VAT, is a sales tax that accrued directly to their territory where the transaction was generated. This is simply the connection between incentives and proper action. No wonder most local governments show huge dependency on the IRA, a kind of apathy, as the IRA or national transfers will happen whether or not they are good economic managers. Expecting local execs to shape up but not giving them incentives directly related to their efforts is just downright insane.

Another advantage of federalism over unitarism can be understood if one considers that more diversity will surely come from say, 18 regions/states converted from our current 18 regions (so that there is no long argument as to which province belongs to which region). The diversity (by nature, diversity is always superior to uniformity) is critically important, especially when the country has grown to over 100 million or 20 million Filipino households. Typically, one region now has an average of 5.7 million people. This was the Philippine population around 1870. Anyone in his right mind will think that this managerial span of control is not only inappropriately unwieldy, but downright wrong. Projects all over the 18 regions get the same treatment and there is no such thing as an “average” project. Projects are simply better designed and more efficient when done at the regional level. Management is a science and the proper span of control is a key aspect of that.

Consider that our country cannot do things a country that is considered a country should do: we cannot defend our country, we cannot provide decent employment to most of the breadwinners of the 20 million Filipino households, we force our promising and talented young to do low-value BPO work for foreigners, we force our young mothers to leave their families and work abroad, we leave tens of millions of Filipinos to eke out a living making charcoal out of our last 5 percent natural forests, blasting fish and corals, and other destructive extractive means just to keep flesh to the bone. Get this straight: unitarism has already failed after more than four centuries of trying. What did Einstein say about people who propagate the same system but now expect different results?

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1 Comment

  1. “Critics of federalism like to amplify the lie that only three regions account for the bulk of the Philippines’ economic pie and tax generation (NCR, Calarbazon and Central Luzon). These critics would not divulge that it is the method of accounting and tax assignment that results in such apparent dominance. Much of this is really just a construct of the unitarists.”

    “For example, if someone buys a cellphone load in say, Tawi Tawi, do you think that the tax related to that transaction gets reflected in Tawi-Tawi? That’s what you would think. But while you may be logical in thinking so, what the unitarist doesn’t understand is that the tax generated from that transaction goes to the NCR even if it had nothing to do with the “sale” (the seller and the consumer are in a peripheral location). This is so because all the VAT on the transaction is allocated to the domicile of the corporation in the NCR that owns the cellphone load. So, before unitarists talk and argue, they should first understand the figures they use as arguments against federalism.”

    You are being disingenuous and you know it. I suspect your motivation for arguing this is for political expediency. Of course you can argue that GDP is not an exact measurement. No one who knew a little and had an introductory lessons on Economics would argue with you on that premise. But for you to deny the relative economic dominance of the three regions is dishonest.

    Unless you can come up with a better measurement of economic activities that would offer us a more precise picture to make our decisions, Regional GDP is the only metric to use. Of course, asking all us to throw away GDP as a tool is very convenient if your only motive is to dismiss this compelling evidence of economic dominance of the three regions.

    Of course, you have not offered any evidence to the contrary. Any other acceptable method to be used for accounting economic activities would reveal the same, that the three regions have outsized contributions.
    Vaguely suggesting that sales tax method would make a profound shift is a stuff for your less sophisticated readers but a nice segue nonetheless

    Arguing further that some other regions are bigger is indefensible so you conveniently moved on with a masterstroke to the next point of your argument.

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