That Vision thing

What the president needs is a roadmap that focuses on the big picture and provides substance beyond the spin, something which is sorely lacking at the moment.

For a president whose meteoric rise on the back of wall-to-wall coverage and fawning over by the media delivered him instant rock star political status during the campaign, the complaint that the media has now turned from doting parent to vengeful god, is rather questionable.

For the first time in our political history, a triumvirate (someone called it a three-headed beast) weaves and spins the yarn concerning the goings on in the palace. If three heads are better than one, then why should the Benign One not be receiving more favorable coverage from the echo chamber? The problem has got nothing to do with the messaging and all to do with the message itself.

Without vision, people perish,” so the biblical proverb goes. Every occupant of the Palace knows that after a while, the daily grind of official duties prevents him or her from thinking about the broad frame. It is easy to get lost in the day-to-day political tussle to get on top of the 24 hour news cycle. The most precious commodity for any leader is time to think and reflect. They say, the minute that goes, you’re basically a goner.

So it seems now with the Benevolent One, in his first year, his communications group has successfully come up with a plethora of platitudes that are an instant hit with the public. Kung walang kurap…, Daang matuwid, Bawal ang wang-wang: these make for good slogans and rallying cries. The problem is that the administration lacks a coherent roadmap that would convert these into the kinds of meaningful results that people have been craving.

Approaching the first full year in office, three alarm signals are flashing. They point to a lack of crispness in the strategic frame hampering this presidency. These signals involve a mix-mash of mental models to guide the broad philosophy of governance that defines the role of the state; personality-driven factionalism that breeds organizational dysfunction, and an absence of credible commitment to deliver on its promises. Together, these signals flag the need for Palace insiders to re-group and re-think their strategic priorities.

Outmoded mental models

When the president made his “no new taxes” pledge before the Makati Business Club forum during the 2010 election campaign, he was evoking a theme often presented during the 1980s and 90s by the Washington elite that espoused a limited role for government or the “magic of the Market” as a formula for development. This meant that the best state was a reduced one. Economic development could proceed if countries followed the mantra to “stabilize, liberalize, privatize.”

This dovetailed neatly with the post-EDSA-I contempt for anything to do with the state apparatus and crony capitalism fostered under the deposed dictator. The Aquino-I regime promised to honor all loan contracts entered into by the Philippine government regardless of whether they were tainted with corruption as a way to maintain its creditworthiness. To make room for debt repayments, it practiced fiscal austerity and reduced the state’s role in performing many of its social obligations.

In the breach, the (big M) Market would step in to provide public infrastructure and jobs that would reduce social dislocation. This was the underlying philosophy that prevailed at that time. To complement this strategy and to make good on its promises to meet its financial obligations, a comprehensive adjustment to the tax system was implemented in 1986.

This re-structure according to one of its chief architects allowed the tax-to-GDP ratio to steadily climb, so that by the early 90s, when Aquino-I stepped down, the fiscal situation was on a sound fiscal footing. The administration that succeeded it sought to bring about the full blooming of the Washington world view on local soil by accelerating trade liberalization and expanding fiscal incentives to foreign investors.

The early success in the 1990s of this formula eventually bred euphoric overconfidence. After reaching a high-water mark in the mid-90s of 19% (high for a developing economy with a limited tax base), the tax-to-GDP ratio began a steady decline as a result of the comprehensive tax reform package of 1997. Meanwhile the Asian Financial Crisis intervened and began challenging the mental frame of the policy elite.

From 1998 onwards, a new post-consensus consensus was being formed. Market liberalization was necessary but insufficient, it declared. State capacity had to be built up to ensure that the right institutions would govern market transactions to prevent “exuberance” of the kind that led to market crashes. It also had to provide social safety nets to protect those adversely affected by market reforms and business cycles.

This became evident to the Philippine elite, whose business interests escaped relatively unscathed from the Asian flu, but saw them subsequently threatened by a number of anomalies involving the Securities and Exchange Commission and the Office of the President which nearly short circuited the banking system and local bourse. Meanwhile the costs of a war in the south began to hurt the bottom-line and a fiscal crisis loomed.

Corrective measures had to be put in place to raise personal and corporate income tax rates (temporarily) at a time when other nations in the region were cutting theirs. Meanwhile, the government was treating its sin taxes (which had switched from being a fixed percentage to a fixed level not indexed to inflation in 1997) as a sacred cow and began enacting numerous and redundant fiscal incentives and tax rebates that caused revenues that resulted from an increase to the consumption tax rate to erode.

The conservative Heritage Foundation which ranks countries based on their ability to provide economic freedom often gives a more favorable score to less developed nations in the area of fiscal freedom given their low level of tax collection as a share of the economy. The Philippines over the past decade having a low tax-to-GDP ratio would have fared better under  the Foundation’s scoring method but for its “relatively high” income tax rates.

The simultaneous presence of high income tax rates and low tax collections could only mean that either the tax base is too narrow, in which case the solution would be to flatten the rates and widen the base, or that many tax leaks exist and dishonesty in declaring income abound, in which case a closing of those loopholes and going after tax cheats is needed.

Enter the Aquino-II regime which re-branded the privatization model adopted under Aquino-I while expanding the state’s role to deal with a growing social agenda. Unfortunately, it failed to see that this expanded role required a shift in the tax structure. The “no new taxes” pledge was based on the idea that renewing the public’s trust in government would lead to better tax compliance–a view that is increasingly seen as untenable.

Even with a highly competent, honest and dedicated finance team going after tax cheats, the tax take as a share of GDP has fallen. Perhaps the notion that public trust in government engendering proper tax declarations is going to suffer the same fate as the idea that economic growth naturally lowering the incidence of poverty. The Philippines seems to be the graveyard of many grand theories on development.

Missed opportunity

Having declared during the campaign that there would be no new taxes has meant that any reasonable time table for tax reform would be at least until after the 2013 mid-term elections. That in turn would mean that any structural adjustment involving taxes (raising it from the current 13% back to about 19%) would only bear fruit during the latter two years of this presidency and that many of the Millenium Development Goals will be missed.

Having staked all his eggs in the Daang Matuwid basket, the president now is facing the distinct possibility of failing to deliver on much of his social compact: the result of relying too blindly on an unproven theory that makes for a good sound byte, but lacks a grand vision.

Even with the capitulation of the ombudsman opening up the prospect of jail time for the Inglorious One and her henchmen, the sad fact of the matter is that even if that were to occur, it would not help improve the finances of the government substantially nor bridge the yawning social divide that exists.

Before the president gets locked-in to a kind of group-think paralysis that eventually occurs when one hops on the treadmill of public office, he needs to find a way to re-assess the situation and come up with a strategy that will act as a game changer before it is too late. Key to this would be discarding some of the mental models that act as blinkers and prevent him from seizing opportunities for change.

>>> to be continued…(see part 2: Curing dysfunctionalism)

Doy Santos aka The Cusp

Doy Santos is an international development consultant who shuttles between Australia and the Philippines. He maintains a blog called The Cusp: A discussion of new thinking, new schools of thought and fresh ideas on public policy (www.thecusponline.org) and tweets as @thecusponline. He holds a Master in Development Economics from the University of the Philippines and an MS in Public Policy from Carnegie Mellon University.

  • J_ag8

    “Just this week at the ADB Annual Meeting being held in Hanoi, there were discussions on precisely this sort of thing.”

    “I understand that a report told the ADB conference seven countries are seen as accounting for 85 percent of Asia’s growth: China, India, Indonesia, Japan, South Korea, Malaysia and Thailand. These are referred to as the Asian Seven. A report presented says Asia could see its share of the world economy rise from 27 percent now to 51 percent by 2050, with the region reaching $148 trillion.”

    “Note that we are not part of that Asian Seven even as three of our neighbors are. What must we do to regain our relevance in the region? In the discussion at the ADB meeting, I understand the issues that came to the fore were: the need to improve governance by addressing corruption and improve institutions; the need for inclusive growth. I know P-Noy has prioritized those too and that is the good news. We must now start getting results.” Boo Chanco, Philippine Star

    It takes generations to build up effective institutions. The next election is two years away.

    Let’s see almost half of the GDP are broad estimates of the informal sector.

    The BSP refuses to allow a stronger peso to battle inflation. A 20% revaluation would bring prices down. It would however destroy tax revenues coming from imports and VAT on some products.

    The State’s reason for existence is life, liberty and the pursuit of happiness. The Preamble of the Constitutions says in in so much more words. Why do governments have to relearn their purpose every six years?

  • GabbyD

    what i’m interested in is the flipside: spending.

    other than K+12, what are the other major increases in spending (beyond the usual stuff that it does) does the govt forsee?

    i’d love to see a spending breakdown from somewhere. sana may CBO sa pinas, whose sole job is to cost laws…

  • GabbyD
  • Joel

    Do you ever read the New York Times? I hate the way you write. It’s not clear, it’s not simple. I can understand it but it’s really really boring!

    • Paul Krugman who blogs at the NYT parenthetically identifies some posts as “wonkish” when they involve some technical stuff. Perhaps it’s what I should have done here.

  • Bert

    Doy is continuously harping, and quite persistently and repeatedly so, on Noynoy’s promises of ‘no new taxes’ and on ‘no corruption’ as if it’s mortal sins for an administration to fulfill promises made. As if imposing more taxes on the citizens and more corruptions in government are the panacea for all that ails the nation.

    Which could be translated to mean that Doy wants the Noynoy’s administration to saddle the Filipino people with more taxes and more corruptions which could mean also that Doy might not have the heart for either this administration, or the Filipino people.

    I’m sorry, Doy, if my translation of your intention is wrong. No offense meant.

    Cheers.

    • Bert, I am all for good government. But good government comes at a price. What about effective government? That too comes at a price. Can we expect that to happen while the government remains at 13-15% of GDP?

      If the economy grows, that puts pressure on infrastructure, the environment, education and health. So we need to resource these things adequately.

      It’s alright if you stick to being honest. But if you are going to promise a social compact on top of that, you have to be prepared for it. “No free lunch” in essence is what we’re saying. You can’t have all of these things if you aren’t willing to pay for it.

      No offense taken, btw.

  • UP nn grad

    Noyi-noy, during the campaign, often said “..Pilipinas already has the laws it needs”, all needed is enforcement. Another thought — “…clean leadership at the top, and all will be well”.

    Apparently, this truly is the Noynoy who is presidente. Wake up in the morning, have kape and tapsilog, go to the office… honest living by the Persss-idente, and all will be well.

    Kung umulan, magpayong. Kung bumaha? Eh di tawagan kung sino ang makakatulong! Kung tumaas ang presyo ng flour, makiusap sa mga retailers.

    Vision and goal-setting?? Hindi iyan para sa Perssss-idente…. Bahala na lang ang mga cabinet members at si Ochooa-Lacierda-Carandang-Mislang-MLQ3 at iba pa… basta kung honest living by the Perssss-idente, all will be well. All-hands-on-deck meeting with cabinet heads? Fuhhh-gedd-about-it. Honest living and ayos na ang buhay.

    S-M-A-R-T!!!!

    • GabbyD

      up, thats a gross mischaracterization of pnoy’s campaign and cabinet.

      why do that? i’m so curious: why purposefully/deliberately mis-state the situation?

      • UP nn grad

        well, of course, Noynoy had a big platform. Walang-korap, walang mahirap…. codewords for GMA-to-jail because Truth Commission-1.

        And his campaign stance for job-creation was _______.
        And the important laws that he was going to push for were ____________. And his proposal for Mindanao were clearly stated as ______________.

        And his first all-hands-on-deck cabinet meeting was after ________ months of being in office.

    • Bert

      Ah, UP n, you can’t see, and you don’t know Noynoy’s vision and goal-setting. Just like Doy you can’t and you don’t know. Only difference is that Doy also wants Noynoy to impose more taxes. Therefore you can’t see that the government of Noynoy is working feverishly to run this government in as clean and efficient manner as possible to fulfill a promise to the people that he will end his term in office with the people not dissappointed with what he has done and accomplished as president.

      So you want to see and know what’s the president’s vision and goal? Ask him.

      Or better yet, open your eyes, and remove the political blinders, :).

      • UP nn grad

        hah hah hah, of course, Bert, you are right.

        BUT… but you can’t let all the Pinoys all applaud and say that Noynoy is God’s gift to Pilipinas. Baka lumaki ang ulo, at akalain ni Noynoy na lahat ay masayang masaya sa kaniyang pag papatakbo sa Pilipinas. Kailangang gatungan — kung kailangang kilitiin ang talampakan ni Noynoy, kilitiin. Kung kailangang medyo mas medyo mas matunog — okay lang iyon. Para lang nang batok ka sa iyong paboritong pamangkin habang sinasabi mo, “Alak ko, mabait ka, pero kayod pa ng kaunti, Noy!”

        Parang iyong “GMA-talsik-diyan!” hindi dapat a-atras si Noynoy dahil mayroon na siynang idi-nemandang “Lamborghini dude” o kinasuhan niya si Mikey.

        Kailangan, tuloy-tuloy ang labanan all the way to convicting Mikey (kung may ebidensiyang mailabas ang BIR)…. parang sisantehen si Ochoa (kungmay ebidensiyang lumabas tungkol sa glass-and-concrete mansion).

        • UP nn grad

          Different folks, different strokes.

          At talaga namang iba iba ang paniwala ng mga Pilipino sa Pilipinas. Mayroong tulad ni ManuelB, tango ng tango kina Ochoa at lalo na kay Noynoy, nasabi tuloy ni benign0 na si ManuB ay apologist. Siguro, talagang ang tingin ni ManuelB sa “drug trade is only business” o “drugs? Personal choice!!!” kaya bilib si Manuel B nuong nag-pakumbaba si Noynoy sa China para sa mga drug mules. Kung palakpak ng palakpak si ManuB nuong nagpakumbaba at binastos ng Pilipinas iyong Nobel Peace prize ceremony sa Oslo, mayroon ding mga Pilipino, iba ang sentimiyento. At walang relasyon iyong kanilang anti-Noynoy about Oslo sa “GMA-talsik diyan!”, walang relasyon.

          Different folks, different strokes. Kaya huwag magugulat kung nakakakita ka ng mga gustong gustong gatungan pa si Noynoy Parang batok sa pamangkin — “Oy, hindi puwede papetek-petek. Mabait, mabait, okay iyon. Pogi-points media-media, okay din dahil nadi-diyaryo. Pero ang tunay, medyo kailangan…. kayod pa!”

          Repro-Health, may pabor at may ayaw…. pero Talaga namang kailangang maging batas ang Freedom-Information, di ba? At kailangang marami-rami pa dapat ang CONVICTIONS anti-corruption ( at crime law and order kidnapping carnapping), di ba?

          At trabaho para makauwi na iyong ibang mga OFW’s at para sa mga bagong graduate o iyong hindi makatapos ng kolehiyo at highschool…. kailanganang kayod pa si Noynoy para mas marami ang tarrrrr-baho sa Pilipinas, hindi ba?

          Dapat, mas magaling si noynoy kaysa kay GulllOORRR-ya sa patakbo ng economy (jobs!) at law-and-order (convictions), hindi ibinoto si Noynoy dahil anak siya ni Cory, hindi naman tutoo iyon, hindi ba?

          • manuelbuencamino

            Upn

            I don’t care if you look at the world from out of your ass, that’s your business.

            However I mind when you accuse me of things that are not true.

            1. “tango ng tango kina Ochoa”

            Ipakita mo kung kelan ko ginawa yan.

            2. Ang sinabi ko noon ay dapat sana ang drug use ituring na personal choice.

            So papaano mo nakuhang sabihin na “Siguro, talagang ang tingin ni ManuelB sa “drug trade is only business”’

            Kaya ano ang basehan mo para sabihin, “kaya bilib si Manuel B nuong nag-pakumbaba si Noynoy sa China para sa mga drug mules.”

            Kelan ko Inindorso ang ginawa noong mga drug mules? Kelan ko sinabing okay magpakumbaba si Pnoy para sa mga drug mules?

            xxxxxxxx

            As to different folks, different strokes. Totoo yan.

            1. “Kung palakpak ng palakpak si ManuB nuong nagpakumbaba at binastos ng Pilipinas iyong Nobel Peace prize ceremony sa Oslo, mayroon ding mga Pilipino, iba ang sentimiyento.”

            You think my lack of enthusiasm for an award that has been given to a war criminal like Henry Kissinger is wrong. I don’t. That’s why I don’t think binastos ni PNoy ang Nobel committee by not sending a representative.

            By the way, Elihu Root who was secretary of War when America invaded the Philippines is also a Nobel Laureate. So is theodore roosevelt who was president at the dawn of US colonization of the Philippines.

            So I’m sorry I can’t get as stiiff as you can over the Nobel Peace Prize.

            2. Mahalaga sa iyo ang mga patutsada ni Benigno. Ako iba ang paninging ko sa kanya. I think he should take his medication regularly.

  • GabbyD

    “Having declared during the campaign that there would be no new taxes has meant that any reasonable time table for tax reform would be at least until after the 2013 mid-term elections”

    how do you know thats the timetable he meant?

    • I wasn’t trying to ascertain what his intentions are, what I was alluding to were the practicalities of initiating tax increases during a period of rising inflation in the cost of living and the political expediencies of an election fast approaching.