‘Tuwid na daan’ towards crony capitalism

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The Economist magazine’s article ranking the Philippines sixth in the crony index (up three notches from ninth place) confirms what many thinking Filipinos knew all along: that only a handful of politically connected businessmen are prospering from the so-called “economic gains” achieved by the Aquino administration.

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This explains why the country’s still has one of the highest poverty rates among Asia’s emerging economies. Despite the alleged robust growth of the Philippine economy over the last few years, poverty incidence stood at 27.9 percent as of 2012, almost unchanged from 28.9 percent in 2009.

The growth of crony capitalism is also reflected in government data, which showed that the gap between the country’s rich and poor widening during PNoy’s watch, with the rich growing richer—at a faster and bigger rate.

For instance, people from the high-income class enjoyed a 10.4-percent annual growth in income as compared to those in the middle and low income groups whose incomes grew by only 4.3 percent and 8.2 percent, respectively.

Because of this growing income inequality, high-income households (or some 16 percent of the country’s population) now account for more than half (or 60 percent) of the country’s wealth while the great majority (or around 84 percent of the country’s population) is left to fight over the remaining 40 percent.

The disproportionate prosperity currently enjoyed by the country’s new corporate oligarchs is not surprising especially considering that most of their major—and most profitable—projects are concentrated in “crony sectors,” or industries where the government has a monopoly (such as casinos and gaming) or which involve licensing or heavy government involvement (banking; infrastructure and pipelines; oil, gas and other energy; ports and airports; real estate and construction; utilities and telecoms services).

What further incites public perception about the growing oligarchy in these “crony sectors” is the relentless privatization by post-EDSA administrations (including PNoy’s) of government assets and services in the guise of joint ventures—now euphemistically called “public-private partnerships” (PPP).

A few deals immediately come to mind: the privatization of the National Power Corporation (Napocor) and the Metropolitan Water and Sewerage System (MWSS); the looming privatization of the Philippine Orthopedic Hospital and other government hospitals; the disposition of large tracts of prime government land like the 22-hectare North Triangle in Quezon City and the 240-hectare Fort Bonifacio in Taguig; and the privatization of the SLEX and NLEX.

These so-called PPPs, however, are the very things that fuel cronyism and corrode true free-market competition.

We all know that crony capitalists do not build or operate electric and water utilities, roads, hospitals, etc. for charity. Their primary goal is to generate profit for the company and its owners – even at the expense of ordinary Filipinos. Or in the words of the Economist, “making fortunes by ‘rent-seeking’: grabbing a bigger slice of the pie rather than making the pie bigger.”

The grip of the new corporate oligarchs over the country’s vital industries has led, for instance, to the biggest electricity rate hike in the country’s history. Only the huge public outcry—and the political fallout—from an enraged citizenry prevented what would have been the biggest fraud perpetrated on consumers.

Water rates in Metro Manila have soared by 449 to 845 percent, with government-sanctioned increases guaranteed for the next decade or so. Fuel prices have fluctuated to record highs.

All the while, government has been largely impotent in checking the abuses of these newly-minted corporate behemoths. Why? Because the regulatory agencies created to act in the public’s interest eventually came to be dominated or controlled by the very industries they were charged with regulating – a phenomenon known as “regulatory capture.”

For many economists, this happens when corruption has reached the point in which government agencies have lost autonomy or independence and serves the special interest of a privileged few.

Of course, the Economist’s indictment of the country’s pervasive crony capitalism didn’t sit well with Presidential Spokesman Edwin Lacierda. He says the article was only meant to “stimulate discussion.” Lacierda also tries to portray the index as flawed and erroneous, given the magazine’s admission about its “three big shortcomings.”

That, however, is a gross distortion of the Economist’s findings.

If there is any deficiency in its crony index, it’s that the magazine admits it was quite conservative in calculating the true extent of crony capitalism in the country for three reasons.

First, it may have excluded some politically–connected businessmen since not all cronies make their wealth public. Second, there may be more crony sectors than those included in the index. And third, the index excluded non-billionaires who may nonetheless be crony capitalists in non-crony industries.

Instead of denying the obvious, Malacañang would do well to squarely address the creeping plague of crony capitalism. How? By passing an honest-to-goodness competition and anti-trust law before the end of the year.

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3 Comments

  1. victor m. hernandez on

    The way I look at it, big ticket projects, need big money. Only the very rich has the big money, or the corporate that can access big money, eithr loans or investor-partners. Until now no bright guys, from the national unversity or from NEDA, have offered a formula and a financial instrument that will include the any middle and For as long as the economy is fundamentally capitalisticpoor working class to participate in a big ticket project. We are told that aboutr USD $20 Billion is remitted by OFWs on a yearly basis, and yet these funds ae not funneled to finance big ticket project. Is it because of crony capitalism, or oligarchy? Or is it because the hordes of OFWs, middle and poor working class are not offered, or not one of them offers a financial & management instrument to participate and implement a big ticket project, thus collectively harnessing the billions of dollars that OFWs remit annually? Why doesn’t any of the congressmen and senators think of doing a favor to the middle and poor working class? Can competition be legilslated? It’s just like asking, can a revolution be legislated? Tough task, and more hard thinking and work to do this.

  2. victor m. hernandez on

    Mr. Roberto de Ocampo, former Secretary of Finance, stated in his speech before the Foreign Chamber of Commerce, on “Arangkada”, among others development policies and agenda that the government and the private sector businesses must support and institutionalize, is a Competition Law, lest we are continually be governmed by a few, and Oligolipolists continue to hold the reins of business and economics in the country. Such a situation will block the march towards inclusive growth, and encourage much leeway for the rich few to grow much richer, and the majority becoming much poorer. I strongly agree with Mr. de Ocampo’s proposal.