• Policymaking remains captive to interest groups

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    A latter day ‘miracle’? Maybe. But why are we taking so long?

    AFTER four years in office, President Aquino can look back to some solid achievements.

    The economy has been expanding respectably, and market reforms have raised our global competitiveness. The independent economist Cielito Habito reckons growth has averaged 6.4 percent. This rate doubles the economy’s size in a little over 11years.

    Habito credits heightened public-private investments in overhead capital; an uptick in agriculture and manufacturing; more and higher-value exports, as well as the steady inflow of migrant and OFW remittances that now make up fully 8 percent of GDP.

    The peace settlement that government reached with the Bangsamoro rebels also seems to have raised investor confidence in our political stability.

    For good measure, the Administration’s anti-corruption campaign has detained three sitting senators for the high crime of plunder.

    President Aquino has also taken the very first steps to ease national society’s horrendous income inequality. He has added two years to elementary schooling, to catch up with global practice; and is enlarging the coverage of the state health-insurance scheme.

    He has also adopted the CCTs program paying pupils from the poorest families to stay in grade school that is so successful in Latin America.

    We’re no longer a cipher in the world

    All in all, we’re no longer a cipher in the world. We’re a people a hundred million strong—the twelfth largest in population terms. And we’re a power in overseas contract work and global business process outsourcing (BPO)—which is expanding beyond call centers into accounting, animation and software development, as well as legal and medical services.

    In mid-July, World Bank president Jim Yong Kim proclaimed the Philippines the “next Asianmiracle”—neglecting diplomatically to point out that East Asia’s first generation of miracle economies had experienced their own epiphanies of shared growth 50 years ago.

    The larger—and longer-term—picture is far less rosy.

    At home, levels of poverty and incidences of hunger remain flat; and inequality is dividing our people—like Disraeli’s England of the 1840s—into “two nations.” The respected SWS surveys put self-rated poverty at 50%.

    In East Asia, the American peace is giving way to a multilateral balance more precarious for regional stability; and we have just realized we can’t count on Asean solidarity in facing up to an increasingly assertive China.

    Why we’re poor and so highly unequal

    After the Pacific War, we had turned inward, to import substitution, while our neighbors industrialized for export—typically under strong authoritarian regimes.

    For Japanese, South Koreans, Taiwanese, Malaysians, Singaporeans, and Vietnamese, Thais, Indonesians—and Chinese—emerging from protracted conflicts  and facing civil wars, ethnic conflicts, national collapse or even foreign invasion, assuring their peoples a measure of shared growth was a survival strategy.

    Secure in our relative isolation on the margin of the Asian continent and in American protection, we felt no such compulsion.

    Despite successive radical insurgencies, we’ve allowed powerful individuals, families and clans to tilt the rules of competition and acquire privileged access to the rents and commissions generated by public investments.

    Nor did we make any effort at social reform that would threaten in the slightest the wealth of the rich.

    “Philippine policymaking,” the World Bank noted in 1993, “has historically been captive to powerful vested interests that have shaped economic policy, to protect and enhance their privileged position, often to the detriment of national well-being.”

    We’ve left undone a host of obligatory reforms

    Decades of oligarchic control and dysfunctional politics have meant a host of obligatory reforms left undone; and a glacial pace at which other reforms have been legislated.

    Raising “sin taxes” on tobacco and alcohol took 16 years; passage of a reproductive health bill 15 years. Even our justice system lacks a sense of urgency. Ex-President Estrada’s trial for plunder lasted more than sixyears; and those of the lawmakers now at the bar are likely to drag on as long.

    Even agrarian reform—the foundation of East Asia’s modernization—remains uncompleted. As a result, economic growth hasn’t helped the economy’s traditional sector; and our income inequality is the highest in East Asia.

    In 2011, the 40 richest Philippine families accounted for 76 percent of our country’s gross national income. The two richest families alone together held 6 percent of our entire economy (Cielito Habito, February 2013).

    Yet inequality should be acceptable only to the extent it spurs individual initiative and stimulates wealth generation.

    Inequality once entrenched becomes difficult to reverse

    Once inequality becomes entrenched, reversing it becomes incredibly difficult. Extreme inequality of the kind we have threatens not just our economy but our fledgling representative institutions: equal opportunity is one of democracy’s founding myths.

    We need to raise government’s tax take if we are to keep up social spending and essay a measure of redistribution to the very poor; yet our revenue collection is the lowest among comparable neighbor economies.

    Historically, our country has been some 20 years behind Indonesia—and even more years behind Thailand and Malaysia—in infrastructure levels. Government’s goal is to increase public spending on overhead capital to 5 percent of GDP by 2016. For basic education we spend 2 percent of GDP, against Singapore’s 13 percent and Thailand’s 6 percent.

    Oil smuggling alone robs the state of P8 billion yearly. Yet, between 2007 and 2010, a pliant Congress still passed tax exemptions worth P72 billion for special interests and populist constituencies.

    Part two comes out tomorrow.

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    5 Comments

    1. Political and economic stability of a nation will truly thrive for the benefit of its citizenry if leaders reigning the bureaucracy are not corrupt. Most politicians are deep captured and in collusion with carpetbaggers and local tycoons against laborers’ fair share. We don’t have statemen, trapos-mentors to SK- unli.

    2. victor m. hernandez on

      Everything that people needs are already boaught by private sector big capitalist, and in some istances even controlled by foreigners. Inequality, inclousive growth are alla pipe dream for the very many. The present economic ideology exemplified by privatinzation will forever be a heavy yoke to the very many. Although the Constitution directs that taxation should be progressive, Congress, which is controlled by capitalists, landowners, and capitalist-controlled politicians, and dynastic families never reform the tax structure. To them there is no such thing as progressive income taxation where those who earn much much more shall be taxed much much higher, and much bigger proportion that those who earn less and lesser. Patronage politics and the maintenance of staus qou is very much the order of the day. This situation is not sustainable, and will never bring the Philippines to a world class develop economy for humane and civilized persons. Poiticians, with a handful off exception are all blah, and all blah when it comes to equality, and more inclusive growth.

    3. QUOTE
      “Despite successive radical insurgencies, we’ve allowed powerful individuals, families and clans to tilt the rules of competition and acquire privileged access to the rents and commissions generated by public investments.”

      We have gone further. In the process of opening the economy to foreign investment, we have also allowed certain foreign interests to also acquire the same privileged access, mainly through controlling or significant stakes in large publicly-listed companies.

      The high valuation ratios of many listed giants, despite a lack of effective protections for minority investors, suggest that investors expect them to face little serious competition, and to to return handsomely even if run in the interest of the controlling shareholders.

      A survey of the largest capitalized firms, and their line of business, suggests that the majority of profits are derived from serving domestic demand, not export. In short, the profits of the giants are mostly being extracted from the Filipino consumer.

    4. Rogelio C. Lim on

      Ito bang “40 richest Philippine families which accounted for 76 percent of our country’s gross national income” ay nagbabayad ng tamang taxes? Palagay ko ay hindi sapagkat napakaluwag ang BIR sa kanila dahil makapangyarihan sila.

    5. Another writer with half a brain.

      Equality can only be achieved in heaven. We are not robots. Each of us have our own motivations, likes, dislikes, level of education, wisdom, experience, energy etc. Therefore our outputs will always be different.

      The great Milton Friedman once said, “The society that puts equality before freedom will end up with neither. The society that puts freedom before equality will end up with a great measure of both.”

      After 26 years of implementing a comprehensive agrarian reform program havent some of us learned its bitter lessons yet?. Its an anti-poor program nicely wrapped to make it appear its pro-poor.

      The farmers are still poor if not poorer these days with no one to turn to except a deaf and dumb government. The farmers and their children are no longer into farming and are in the urban areas looking for better opportunities raising the national average age to 57 years old. This is a scary fact knowing that there already is scarcity of labor in the countryside. What will become of our food security?

      Half of what we eat today is being imported since the mid 90s. We are the top importing nation in the world for the past 15 years already. Why? We drove out the fourth and most important factor of production(entrepreneurship) when we forced agri-entrepreneurs out of farming. We also stagnated agriculture by making it illegal to own land beyond 5 hectares(retention limit of the original landowner) and 3 hectares for the AR beneficiaries. So who on earth would want to upgrade his equipment if it takes millions of pesos to invest and be stuck with a measly 5 hectares?. Are we waiting for foreign interests to plant here for their own food security concerns? Dont look now but our farmers with an average educational attainment of only grade 4 can never compete with cheap alternatives from abroad.

      Time to wake up before we lose whats left of our agriculture to Free Trade next year.