GDP growth driven by corruption?

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Mike Wootton

Mike Wootton

Back in 1996 I started a 6-year period working in China for a major oil and gas multinational. My task was basically to secure rights and concessions for oil and gas exploration and production on economically viable terms throughout China wherever the technical guys thought there was some prospectivity. From a work and personal challenge point of view it was a fascinating time and we secured lots of rights and concessions on acceptable terms. Dealing with the giant Chinese government-owned enterprises was not easy particularly given the cultural differences and language problems but nevertheless there was solid success probably beyond the expectations of headquarters.

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Fast forward to the Philippines where I was assigned both before and after China by the same multinational. At first glance it doesn’t seem much different to other Asian nations and it has the advantage of English being widely spoken and a fairly thick patina of Western [US] culture. Should be easier than doing business in China shouldn’t it? Just how wrong can you be.

Each step forward in the China business environment was a hard fought thing but once you got there, to the next step, you did not go back because to go back would put the Chinese in the position of loss of face, they would be seen to be not as good as their word and they would not like that. Also being state-owned enterprises they would tend to follow the rules, such as they were at the time, and of course the government was eager to encourage foreign investment. And in my dealings there was absolutely no corruption.

The part of China business in which I was dealing was fairly stable and to a point predictable and for the oil and gas area there was a simple and straightforward regulatory environment contained in the “Onshore Petroleum Regulations” and the “Offshore Petroleum Regulations.” As a result of the capture of many sets of rights and concessions there was a lot of foreign direct investment—foreign capital being used to take exploration and development risks which would eventually accrue to the benefit of China.

The Philippines is a very different case indeed. There is no loss of face involved in failing to honor an agreement or a promise; in fact it can be seen as being rather “clever.” There is either simply no desire for or no appreciation of how foreign direct investment can be used to the benefit of the Philippines. The development of regulations is a whole industry sector by itself and even when several administrations later the rules, the lack of which has stalled any development during their gestation, are actually issued no local business pays much attention to them. As for the corruption element, what can I say other than that it is a national disgrace.

I have to wonder why the front pages of most of the newspapers claim that the economy is accelerating to grow at an even faster rate than that of China—to be the lead growth economy of the region when on the other side of the front page is the latest news on corruption and greed siphoning anything up to 20 percent of the annual GDP. I mean . . . “Hello!?” Is economic growth somehow tied to the level of corruption in an economy? The misfeances of Bo Xi Li a Chinese Politburo member which are valued at about US$ 4 to 5 million including a villa in France and an associated murder look like child’s play alongside the recent exposures here, and if he is found guilty he will no doubt be served a death sentence. I have to say that it would be no surprise to me and many others if nothing much happened to the culprits here even after what is bound to be years and years of legal wranglings in which in the Philippines the letter of the law so consistently overrides its spirit and intention—when it suits! As for the “truth” . . . that is a highly flexible concept. Operating the law in a “Philippines way.”

The reason elections here are so expensive ["election spending always has a big impact on GDP”] is because many candidates buy votes in order to achieve a pork barrel “jackpot,” otherwise why would they be so expensive as to impact GDP? I wonder if the candidates do an economic evaluation of the likelihood and size of the return on the investment in vote buying against the reward of the pork barrel allocation and the other benefits that they get? It can be no wonder that people get shot, and why in a well ordered state would Ms. Naploes be in fear of her life for exposing corruption or 90 percent of the murders of the many Filipino journalists exposing corruption have complete impunity?

The Philippines is over-politicized to a paralyzing extent and political power and the money that goes with it is a much sought after prize, once obtained don’t let it go, hence the dynasties. Political motivation is all about grabbing money and power whatever it takes and not as it should be to selflessly serve the people. To do any form of economic development here requires political patronage and there are usually other politicians and oligarchs pulling in opposite directions because they want it for themselves, thus paralysis. Of course you might say the same about China and other places but the difference here is that there an oversupply of selfishness, there is no sanction on the abuse of power and worse there is not even an appreciation of the need for [o[or is it the capability to actually implement?]nctions on such abuse.
The dependence of the Philippine economy on its domestic capital market and “hot money” [w[which adds nothing to development] fast becoming absolute and that is a very bad thing indeed. Is it really the nature of Philippines political class to be the “most selfish and culpable in Asia” as I read recently in a new book on economics in the region? I think that would be a tag that the Philippines really would like to dispense with and to do that requires a drastic wholehearted overhaul of the political and economic system. Discretionary funds obviously have to go and a full range of politicians need to be appointed by votes that are not bought and who actually want to serve the people and not themselves. Only then will the Philippines be “open for business.” Oh, and we need a bit of effective anti-trust legislation that is made to work, an executive branch of government that is properly paid and works to implement the law even-handedly rather than spending its time discussing regulatory dots and commas, a proper social security system, an effective rule of law and lots more real decent jobs, and a few more bits and pieces. And this list is not to achieve perfection or some form of ideal society it is just in order to make the Philippines a place that once again appears on investors radar screens as a place where you really can “do business.” Perhaps it’s just too much to ask?

Mike can be contacted at mawootton@gmail.com

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1 Comment

  1. GDP only felt if poorest of the poor alleviated and public funds are not racketeed or diverted. No amount of success without proper implementation, good devise plan how to safeguards public funds, by introducing new and simple rules to have a stricter rule. That lawmaker can identified projects but cannot discret or allocate funds. Direct agencies and implementing offices should be hold accountable once projects didnot reach or exist. Auditors must be hold copy of official list of public bidders, like POEA to identify illegal Agencies.