The National Development Project, part 2: Re-defining Good Governance

This is a continuation of Part 1: The National Development Project.

Governance is the cornerstone of the Aquino presidency, and this point is brought out by his development plan. Since Public-Private Partnerships which is the Plan’s centerpiece has been around since the mid-80s under the name Build-Operate-Transfer, better governance of them will provide the only new impetus to growth.

The question now becomes what sort of governance model best suits this strategy?

Peter Evans in an essay entitled Transferrable Lessons? Re-examining Institutional Pre-requisites of East Asian Economic Policies states that there are three alternative models of good governance. He describes them as:

  • The ‘market-friendly model’, best exemplified by the World Bank’s [1993] East Asian Miracle report, which focuses on ‘getting the fundamentals right’. In this model, “government must preserve macroeconomic stability and provide ‘rules of the game’ that are transparent and predictable.”
  • The ‘industrial policy’ model, which is best epitomised by Chalmers Johnson’s classic [1982] study of MITI (Ministry of International Trade and Industry), more demands are placed on economic policy makers…Policies nurturing the general macroeconomic environment must be complemented by “industry-specific policies that push setors most worth pursuing and shift capital out of sectors with declining returns and weak growth prospects.”
  • The ‘profit-investment nexus’ model [Akyuz and Gore, 1996] which shares with the ‘industry policy model’ the idea that policy must do more than simply provide a facilitative macroeconomic environement, but is not as demanding of industry-specific policies. Policies must simply increase the overall level of investment and not necessarily foster certain “sunrise” industries.

The relevant part of the Plan that describes the administration’s governance model is Chapter 7: Good Governance and the Rule of Law. From the elements and the tone of the text, it sounds like that the Plan is using the ‘market-friendly’ model with its four-pronged strategy of eliminating red-tape, pursuing anti-corruption, increasing citizen participation and accountability.

Ensuring a minimum level of probity is consistent with all three models of governance. As Evans states “if developing countries…could achieve the levels of bureaucratic capacity entailed in the ‘market friendly’ model, the additional capacity implied by other models would be institutionally within reach.

That should not be taken to mean though that emulating East Asia requires incorruptible super bureaucrats able to “out-manage their private counterparts from a distance.” As Evans explains,

Minimal norms of probity and competence need to be applied on a general basis, but East Asian reformers did not attempt to transform every ministry. Radical changes were reserved for key economic agancies; routinized behavour and surprisingly high levels of clientelism were allowed to persist in those considered less crucial to the national development project.

If there is any positive thing the economic rationalist theory has contributed to our understanding of governance, it has been the couching of rent-seeking in non-pejorative (or moralistic) terms, according to Evans. Rent-seeking which can take the form of lobbying or corruption is merely a form of profit-maximization on the part of rational agents.

When Mrs Arroyo in an interview at the start of her administration said for instance, that as an economist, she understood that markets did not operate in a ‘frictionless’ environment, she was acknowledging the need for transactions costs. Clientelism is sometimes needed by reformists to ‘payoff’ or compensate those hurt by reforms.

The East Asian countries did not try to reform the entire bureaucracy or weed out rent-seeking in one swoop. They took a different approach:

  • In Japan, the Ministry of International Trade and Industry performed the reformist role, while the Ministry of Agriculture continued to operate along clientelistic lines.
  • In Korea, a bifurcated bureaucracy existed, with the Economic Planning Board taking the helm of development while Construction followed along paternalistic lines.
  • In Taiwan the ruling Kuomintang Party ensured meritocratic appointments to key economic agencies while allowing a “back door” entry for retired military and party members to other parts of the civil service.
  • The pervasiveness of the Confucian ‘super bureaucrats’ in East Asia is a myth save for Singapore where civil servants are paid more than their private sector counterparts.

The Plan seeks to renovate the entire bureaucracy all at the same time. A very noble and ambitious goal, but it is difficult to imagine how this will be achieved given its meager resources and the quality of the civil service pool. This strategy is fraught with risk. Perhaps the biggest risk involves spreading the reform effort too thinly.

Avoiding Capture

A coherent economic bureaucracy was deemed necessary for the state to engage with but avoid capture by increasingly more powerful and wealthy private interests.

Initial conditions fostered the formation of this sort of governance model, namely, an egalitarian society, which was the result of land reform sponsored by the Americans after the War and the external policy environment that allowed market distorting industry and currency policy which was made possible by the US Cold War strategy of propping up capitalist states in the region.

The unlikelihood of duplicating such initial conditions is what causes pessimism with regard to the national development project for late bloomers like the Philippines. Yet, Evans encourages us to resist the fatalism of this view by saying

(w)hat puts East Asian practices out of reach is less likely to be external compulsion than antiipatory acquiescence by developing country governments to perceived constraints.

The rapid growth of China most recently proves that despite its signing up to the World Trade Organization, it has managed to resist measures to prevent it from exercising some of the tools under the industry and profit-nexus models. Singapore demonstrates in fact how the tools have evolved to more sophisticated measures that no longer involve the strong arm tactics applied elsewhere.

The more difficult problem has to do with large inequalities. While concentration of wealth should not necessarily hinder but in fact aid the formation of capital in productive areas, large inequalities have a corrosive function in the policy process.

State capture is what prevented the Philippines in the 1950s and 60s from following a similar path as its neighbors in the region although Malaysia and Singapore managed to avoid this despite having similar disparities among social groups. Here again is what Evans has to say

Entrenched inequality undercuts legitimacy of state autonomy…makes it hard for governments to credibly claim that they represent a national development project. Populist clientelism seems to offer at least a temporary relief to the excluded and close government-business ties which look more like a conspiracy for redistribution upwards than a joint project of national development.

It sounds like he is describing what happened to the country when it opted for a populist clientelist president in the person of Joseph Estrada. The perception was that growth under the elites was only favoring the rich.

Charting a new path

This brings us back to the questions of nepotism and cronyism that have started to emerge even in PNoy’s first year. In a country where only a small group of ruling elites hold much sway over the economy, it becomes difficult to prevent such rumors from floating.

If sanitizing all state agencies from clientelist practices can be ruled out (at least on the ground, despite its being paid lip service), the need to ring fence private rent seeking interest groups from crucial economic policies and infrastructure projects needs to be guaranteed.

That means boosting the capacity of the economic bureaucracy. The Plan which is the first one under the post-IMF oversight period, fails to break out of ‘perceived constraints’ by not examining other more effective governance models.

It remains wedded to the old generic formula of macroeconomic stability, open markets and establishing rule of law which has failed to produce results in places where it has been attempted, namely in Latin America and Sub-Saharan Africa. The challenge now is convincing the policy elite to chart a different path.

To be concluded…go to Part 3: Renovating the Bureaucracy

 

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_ag

    Virtue is not enough most especially for those who stand on the shoulders of their ancestors who profited from an unjust, exploitive and oppressive economic and political system.

    They become enablers of the continuing system by not addressing the roots of the problem.

    Endemic and systemic corruption caused by an unjust system has a self perpetuating aspect to it.

    It becomes the social construction…

  • Thai anton

    Looking at those projects slated for PPP, I dont see any of those providing
    a lot of job oppotunities, airports are good but sea ports are better. most of our trade is moved by sea Luzon Visayas Mindanao RORO project cancelled ? They didn’t even bother to re negotiate ,.,how many people
    Make their living out of seaport city like Olongapo,Zamboanga,Cebu ?
    Tell me about priorities !

    • GabbyD

      why is that roro project important thai?

  • Bert

    “It sounds like he is describing what happened to the country when it opted for a populist clientelist president in the person of Joseph Estrada. The perception was that growth under the elites was only favoring the rich.”-Doy

    How apt for Mr. Evans to accurately described what would happen to a country ruled by a populist clientelist president.

    Since growth under the elites only favors the rich as what has been happening here in the Philippine after Marcos, there was no other recourse for the elites and the rich but to depose the populist sitting president Erap, and that’s what happened to the country, afterwhich, the elites and the rich continue their merry ways to the banks while the poor continue to eat their lucky me pancit twice a day if they’re lucky.

    • Yes, and as I have said in the past, just as Mr Marcos demonstrated the worst of the vices the ruling elite are capable of, Mrs Aquino demonstrated its virtues.

      PNoy’s presidency is evolving into a strange mixture of some of Erap’s vices (although in a more benign form) and his mother’s virtues. A German analyst did mention that he had fused the populism of Erap with the ABC classes that traditionally supported the ruling elite.

      But for PNoy’s entry in the race, the nation would have opted again for a populist clientelist in either Estrada-2 or Villar-1. The yellow forces might not be so lucky next time around, unless they are able to develop a new engine for development that produces the goods rather than merely “aspires” for it.

    • UP nn grad

      In my opinion, one of the reasons that growth had not trickled down to the -D-E classes is because of Pilipinas tax rates. Doy had mentioned this in prior blogposts — Pilipinas has no money needed for projects for D&E, or even for projects for B-C-D-E (namely job-generasting projects). Despite this, Noynoy refuses to apply a property-tax (a property-tax will be a heavier hit on Kris Aquino, the GuLO/MIkey Arroyos and the Ayalas and the Gokongweis). Noynoy may still be well-received by “D-E” but this may be because the “D-E” doesn’t quite understand that they had paid the heavier burden when Noynoy turned off the spigot for farm-to-market and other rural projects.

      • Bert

        Whaaaat? Pinas has no money for needed projects for the poor, and because of low tax rate? Wow, UP n, please explain where they got those mola bulging inside their pockets front and rear, and those millions and millions of private bank deposits domestic and foreign, can you tell?

        • UP nn grad

          si bert naman… have your eyes moved to another direction, bert?

          So you say what??? Gobyerno has money??? Then gobyerno (in my opinion) should accelerate towards “development of human capital” by building more schools, hiring more teachers and fast-tracking so current high-school students get extra months of education to prepare them for when they become OFW’s.

          ———————————–
          bert: kaunti namang keeping focus. Did you suddenly shift your eyes to plunder-money? That wasn’t the subject-matter (unless you already heard of plundering by BFF’s of Noynoy administration ) Don’t look at another object “over there” when the subject matter is this one, “over here”. It’s like “…doncha worry much about Thai” when the question from Doy is along the lines of “…is Presi-Noynoy really getting things done so that Pilipinas narrows the gap between Pinas and Thailand” And have you read this??

          http://opinion.inquirer.net/6846/the-boss-speaks

          Wait: I meant this:
          http://newsinfo.inquirer.net/20705/cash-transfer-reason-for-less-hunger-says-albay-governor

          .

          • Bert

            I meant, UP n, that basing from the past administrations, if you can get my drift, that the government has enough money to fund projects for the poor and for the rich with the existing tax system at the time which are still prevailing today and that if those money had not been pocketed by high government people won’t require imposing even by the present government new and increased tax measures outside that of more efficient tax collection system and graft free government transactions. O, ‘di ba?

          • UP nn grad

            Bert… good point!!!!

            And your point leads to an interesting question, which is “.. Has Noynoy, then, stopped the graft/corruption in his administration? His administration… the expenses and projects that Nonoy administration is undertaking???”

            IF Noynoy’s daang-matuwid means “… iba na talaga… wala ng nangungurakot plunder”, then talagang may pera na ang gobyerno. Which means may pera for more schools and more teachers.

            Hindi ba? Ang hula ko (at mukhang nabanggit din ito ni Valte at ni Carandang)… there continues to be plunderers and nangungurakot inside today’s Pilipinas governance. Hindi ba pahuhuli ni Heidi at ng mga auditors sa COA.

            That’s what I had mentioned to Doy. Noynoy administration has to catch thieves and plunderers in the act, while they are still reporting to Noynoy’s cabinet members or to Noynoy.

          • UP nn gradq

            O…. SONA time na.

            Sabi ng Inquirer, walang boladas this time when Presi-Noynoy makes his self-flattering speech. Facts and figures daw on what he will accomplish.

            Asked if the President would announce measurable targets instead of exposés of anomalies under the Arroyo administration, Valte said : “It’s not difficult to make Sona promises because we have to remember that our track …. ”

            http://newsinfo.inquirer.net/28539/only-facts-figures-in-sona

  • UP nn grad

    Ja_G has mentioned what your blogpost seems to be stressing. Catching a big-fish in the act is very important. Presi-Noynoy gets points for chasing after retired bandits ( “retired” to mean a bandit from GuLO’s or Erap’s administrations) but that effort is sloshed about as old-fashioned Noynoy-vindictiveness.

    Even better is catching a big fish in the act, in the act to mean catching one of his own BFF’s and parading ths dude or dudette, tarred and feathered . Presi-Noynoy has had instances that he could have done that, but Presi-Noynoy in those instances chose to “… circle he wagons”.

    • I am not sure I catch your drift UP nn grad. What did I emphasize here that said it was important to catch these people in the act?

      • UP nn grad

        You assumed I was trying to repeat what you had said.

        • UP nn grad

          A simple reason why you want to catch graft/corruption “in the act” or very shortly thereafter is that graft-corruption is corrosive. Also, graft/corruption builds momentum.

          Shine the spotlight early on that cabinet-secretary or PNP- or AFP general who is starting to “make tabi” for his retirement. Catch them early at the first P500,000 and you get less of these — what??? The dude has “made kurakot” P100Million or P300Million??? This means you have to catch people who are still in government service!!!