Our political dysfunction has economic consequences


    The social critic Solita Collas-Monsod has done us all a service. She has summed up in her Inquirer column how generations of our political leadership have devastated our country by leading it through a succession of policy mishaps, mistakes and failures during these last 50 years—the half-century from 1960 until 2009.

    Ms Monsod doesn’t even argue. All she does—because it’s all she needed to do—is to compare our economy’s rate of growth in individual incomes with those of the group of East Asian states the World Bank dubbed the “miracle” countries when their economies began to grow at a rate the world hadn’t seen before.

    Starting out ahead
    Ironically, the record shows our country starting out ahead of the pack. In 1960, every one, except South Korea, apparently had individual incomes (accounting for population growth) lower than ours. China’s $403 was less than a third of our initial $1,313. So, what went wrong for our country?

    If our individual incomes had grown at Thailand’s moderate pace (4.4 percent), Ms. Monsod says, we would have ended the 50-year cycle with $10,635 in 2009.

    Even if we had done no more than match India’s even more modest 3.14percent, our individual incomes would still have reached $5,477.

    Falling behind
    But throughout those 50 years, our economy had lurched forward at an average 1.58 percent—giving us a 2009 total of only $2,838.The half-century had begun with the Thais poorer than we were. It ended with them being at least three times richer.

    At the height of the “miracle” decades, Filipino incomes were falling by 5.3 percent year after year behind those of the East Asian “tigers”—South Korea, Taiwan, Hong Kong and Singapore. Compared to the tigers’ slower fellows—Indonesia, Thailand, Malaysia; and late-comer China—our incomes were falling behind by 3.3 percent.

    Integration failing
    Why does our country’s poverty persist?

    The short answer—in this layman’s view—is that public policy is failing to combine the rural and urban sectors of our economy into one modern whole.

    Like other late modernizers, we began independent life with a “dual economy”—one separated into a subsistence sector and a colonial-era export sector.

    Not only are we failing to integrate these two sectors; we can’t even seem to prevent them from separating, like nineteenth-century England, into “Two Nations.”

    Yet bringing them together is the end-object of late industrialization. And getting there hasn’t been easy, even for Japan. Until now, Tokyo’s world-beating exporters coexist with non-competitive industries and services catering to a home market protected lavishly by both social policy and oligarchic lobbies.

    Protected sari-sari stores
    Japanese agriculture is protected by both tariffs and subsidies. Japan’s rural vote is weighted in the allocation of parliament seats. Even Japan’s “sari-sari” stores are shielded from competition by Walmart’s.

    The danger in a weak state’s depending overly on protectionist policies lies in special interests coalescing around these policies—and so preventing the obligatory deregulation that would re-start the economy as it matures. This is what happened to our country during its first decades of self-rule; and what seems to be happening in Japan now.

    Import and exchange controls, as well as incentives for import-substituting industries, favored the politically well-connected and generated crony capitalism—even as our neighbor-economies were exporting their way to “NIC” (new-industrial-country) rank. Because of their power to monopolize markets, our elites have little incentive to compete and innovate.

    Special interests rule
    Until now, our efforts at development are handicapped by the weakness of our representative institutions. Special interests impervious to regime changes have had their way with us for so long we’ve become accustomed to the burden. “Economic results are heavily conditioned by narrower interests, to the detriment of national welfare,” says the UP economist, Emmanuel S. de Dios.

    In the current Congress, Speaker Belmonte and Senate President Drilon count 186 laws that offer “redundant and overlapping” incentives to favored industries.

    Again and again our country has experienced episodes of what the scholar Norman G. Owen calls “prosperity without progress,” as regional industries founded on natural resources, cheap labor and fleeting foreign demand—for abaca in Bicol, sugar in Pampanga and Negros—flourished and faded without lasting benefits to the economy.

    Imperial Manila
    Nearly 70 percent of all our poor live in rural areas. In 2004, the average farm household had only 1.8 hectares. It yielded an average P16,650 in yearly income—only a fifth of what the poorest family needs to keep its head above water.

    The agricultural-policy militant, Ernesto M. Ordonez, notes that Philippine rural poverty as 2.4 times that of Vietnam’s; 2.9 times that of both Thailand‘s and Indonesia’s; and five times Malaysia’s.

    Metro Manila and its satellite regions generate two-thirds of all we produce. But the lack of transport and health and education networks still restricts their benefits from trickling down through the archipelago.

    To the contrary, Metro Manila’s growth disadvantages peripheral regions—by sucking away their stores of capital and most venturesome people.

    No trickle-down
    What measures should we take to integrate our dual economy?

    Public policy seems to depend only on “trickle-down” to generate “inclusive growth” and reduce horrific social and income inequality. But, of course, growth trickles down only where there already is a measure of equality—where (as the Nobelist Joseph Stiglitz says) “every individual, every family, has the basic education and the good health enough to take advantage of the opportunities the expanding economy offers.”

    The emphasis of public policy we must shift from the modern to the traditional sector. I don’t think we can escape adopting a time-bound “affirmative action” program for our poorest provinces. Nor can we continue to postpone a reformation of the civil service—perhaps on the Latin-American “pockets of efficiency” model.

    Stepchild of development
    Certainly we can’t continue treating agriculture as the stepchild of development. Attempts at land reform, starting with American efforts to redistribute the friar lands (1903), have all fizzled out from landlord opposition and lack of legislative support.

    Scattered peasants may have few outlets for venting their dissatisfaction with things as they are—but these outlets, once resorted to, can be costly for society.

    Even agricultural services such as irrigation are extremely biased toward Central and Northern Luzon, leaving Central and Eastern Visayas as well as Bicol and the ARMM deprived. As one result, agriculture isn’t pulling its weight. Though it employs some 30 percent of all our workpeople, it produces only 10 percent of our national product.

    What are we to do?
    The experts see agriculture and agri-business as our best hope for inclusive growth. But for as long as agriculture—where most of our poor work— doesn’t produce to its potential, millions of our young people will lack liveable futures—no matter how well manufacturing, industry and services work.

    The agricultural economist Cielito Habito agrees with Ordoñez that the agriculture department’s bureaucracy needs radical reform and leadership willing to undertake drastic measures. The two also agree on the need to loosen up the regulatory environment. Toward this end, our country’s membership in free-trade agreements will help.


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    1. George F Guillermo on

      Philippines is actually a mountainous or upland topography wherein almost 70% of the 30 million hectares (or approximately 21 million hectares are mountainous) and only 30% or 9 million hectares are level land which also happens to be the “floodPlain” areas where floodwaters (during typhoons or long rainy days) find their way before finally draining to the sea. Now the problem is- there is no sustainable land use system/program or policy that conserve and sustain the land productivity of the mountainous areas which accounts 70% of the total country’s land area that led, unfortunately to its continued destruction/degradation which becomes marginal or generally unproductive (as it looses its land fertility/productivity due to inappropriate land use/farming systems due to inappropriate programs/ policies). This present condition of the uplands/mountainous/watersheds also adversely affect the level land (30% or approx. 9 million hectares), being the “floodplains” which experience flashfloods and flooding during rainy season and less or almost no water available during summer especially during El Nino phenomenon, not only adversely affecting greatly the production and productivity of these lands but also destroying whatever properties and/or wealth (multi billions worth) that have been created/developed thru the long years of work and development. This results to a more widespread poverty and destruction in the countryside in the long run if no appropriate/right action being done. This is notwithstanding the major ecological/environmental roles/benefits of these lands resources/ecosystems provide to humanity as vital watersheds (source of water and flood control, etc) and as “life-supports systems” which are now at risk or threatened.

      This explains (partly or major cause) why the agricultural sector only contributes about Ten (10) percent of the GDP inspite of some 30 % of our workforce being employed in the Sector and also in view of the several millions of hectares of land involved. aside from the major ecological/environmental roles/benefits of these lands resources/ecosystems provide to humanity.

      The solution..? A “Sustainable Land Use System or Policy” that really works with the rural sector especially the poor people/farmers, a truly inclusive growth strategy. They shall be the ultimate beneficiary being the actual land tillers and/or land managers.

      (note: due to space & time limitations, I cannot discuss the conceptual framework.
      The concept includes access, empowerment, appropriate farming systems, business or industry integration, research & development, carrying or productive capacity, natural forest farming, agroforestry, agribusiness, water impounding areas, tree plantation, sustainable tree/wood harvesting, small watershed/water catchment management, etc

    2. The issues and observations raised are well presented and I agree that these are the very cause of the suffering of the poor, crowding metro manila which has now a density of more than 7000 per square kilometer, likewise the poor in the provinces. Foremost, I cannot be convinced of the principle of “trickle-down effect” simply because of the element of greed. I can only think of an immediate conclusion that the Philippine problems is systemic rather than personality of the President as the center of blame for the mess. True devolution of the key government functions is necessary. While that may have been the intention of the introduction of the Local Government Code, hardly it was effective. The mandatory budgets that were in the Internal Revenue Allotment (IRA) were just for the salaries of devolved personnel and the program budgets were left with the agencies of the national government the reason why you see those employees devolved doing nothing, This system of government with “padrino’ as a norm of every transaction with government, has proven to be ineffective and will not raise the productivity and livelihood of the poor . Local governments in the countryside must have an equitable budget. Perhaps Federalism could be the solution.

    3. Harush Nandwani on

      simple way to uplift the masses and help the middle class ilare: are to eliminterview minimum wage and allow businesses to fire employees provided they are given separation pay. A lot of businesses have suffered oppression from got rules and implementation of such leading to 6 months employment which only work against labor. No businessman in his right mind would fire an efficient and productive employee and no law on earth can protect the employees ineptness and incompetence or dishonesty. SMEs are suffering and they employ 80 to 90 % of the labor force….another is to raise income tax deduction or allowance to 1.5 million a year… just reduce the BOI special privileges on tax free exception for the wealthy. .. allow employers who spend for education of their employees and their families to deduct the same from taxes….allow foreign electricity water and telecom providers..insist that the local providers charge the lowest rates of our asian neighbors or buy them out snd sell the assets to the foreign companies provided they offer long term cotracts base on asias lowest prices.make a lot of islands productive by zoning and allowing foreign investors provided they do not use our natural resources like timber and mining

    4. Amnata Pundit on

      Therefore the solution is to kill off the entire political class and the western-oriented technocrats who guide them and replace them with the political class from the grassroots level, namely the barangays, and engage exclusively Vietnamese, Thailand and Chinese technocrats only, right?

    5. No advanced economy has an agricultural sector which employs a large part of the workforce. Land reform as in CARP cannot help modernise the economy, as it ensures land holdings are small and uneconomic. It leads to subsistence farming.
      Mechanisation of farming is essential, together with the movement of people from the land to the cities. However, this needs to be planned to avoid the continued expansion of a small number of congested Cities. Regional capitals are well suited to a country of islands.

    6. While what Mrs. Solita Monsod’s article is correct, it also exposes her partisanship by limiting her cherry-picking the years 1960 up to 2009 and failed to touch and talk about and include the PNoy years when the Filipino people have suffered more than ever. This is why the credibility of Mrs. Solita Monsod is in question. She is just a rabid yellow and will never say anything negative about any Cojuangco-Aquino making her articles not completely credible.

    7. Jose T. Gabionza on

      This article hit the mark about the dysfunctional policies dragging our country down. My question though is who makes these policies? Is it not that our collective leadership i.e. not only the President, has all the powers to change these policies toward a more progressive Philippines. How come over the last 50 years they did not? For a shorter period of time comparison, just look at us in 1986 as a new beginning and compare that with economically impoverished China in 1989 with the Tiananmen Square crisis. Where is China now and where are we? Where is Vietnam now compared to us? Where is Indonesia now compared to us? Its our collective leadership that is all failing us? The Presidents, the Congress, the Supreme Court. What I just don’t understand is this. These people are probably the best and brightest the country can ever have. They are very well educated, maybe graduated Summa Cum Laudes, Magna Cum Laudes and topnotchers in the licensure exams but where is their heart? I think its not the mind power that we are deficient, its the heart power I think.