April 2012

Untrustworthy

That seems to be the label which the instigators of ‘memogate’ want to attach to the Vice President Jejomar Binay.

As the 2013 race for the senate heats up, members of the rival faction within the Palace opposing Jojo Binay have leaked a confidential memo he wrote to the president concerning a case involving corruption in the military. The advice contained in the memo was for the government to enter into a plea bargain deal with the former AFP comptroller General Carlos Garcia.

This mirrored the views of the office of the Ombudsman which at the time was held by Merceditas Gutierrez, Mrs Arroyo’s former justice secretary, who subsequently resigned as an impeachment case loomed against her in the Senate which was filed by palace supporters in the House incensed over her acceptance of the deal.

The tactic of the leakers is quite clear: make the public doubt Binay’s anti-Arroyo credentials, and by doing so, shed light on the fact that he too may have skeletons hidden in his closet. This follows news that the coalition headed by Binay and former president Joseph Estrada announced that it might field Arroyo allies not implicated in cases filed against her in their senatorial ticket come 2013.

Concerns over the integrity of the former mayor were conveniently swept under the rug during the heady days of the anti-Arroyo protest movement. Makati became a bastion of opposition in those days when most local government officials were allied with the administration of Mrs Arroyo. When the remains of former president Corazon Aquino were moved from La Salle Greenhills to Manila Cathedral, the cortege snaked through the streets of the central business district in recognition of the critical role it played as a staging ground for massive rallies.

What memogate reveals is the intention of loyalists associated with his political rival within the administration Secretary Mar Roxas to counter the vice president’s popularity by painting him with the same brush that tarnished Mrs Arroyo’s reputation by exposing his willingness to compromise with her on matters of principle that they deem sacrosanct. These insiders may have wanted the case against Garcia to proceed despite the weak and inadmissible evidence because of Mrs Arroyo’s alleged involvement in the “golden parachute” scheme involving large sums of money in exchange for military support for her government that the case had the potential to expose.

Reacting to an article about the incident reported on Rappler, which speculated on his potential motives for supporting the Ombudsman’s position (according to the report his wife had a pending case before her at the time), Binay called the media organization “reckless, irresponsible and malicious”.

Rappler for its part conceded that Binay got it right. The plea bargain was approved by the Sandiganbayan for lack of strong solid evidence. Although, the president and his allies in the house went to great lengths to reverse both the Ombudsman’s and the Sandiganbayan’s decisions, the general was only pinned down by the AFP for holding a green card to the US while in active service. He is currently serving a two year jail sentence for this infraction.

For his part, the vice president alleges that by making such sensitive deliberations ‘fair game’, the palace insiders have caused harm to the government. This is the fallout of such a propaganda war. By elevating narrow partisan interests above the national interest, these insiders have forgotten their role as custodians of the affairs of state.

On the other hand, such cannot be said of his ally Ernesto Maceda, a prospective senatorial candidate, who in a televised interview connected the case to remove Chief Justice Renato Corona from office with the electoral protest filed by Sec Roxas questioning the vice presidential election results of 2010. “With friends like these, who needs enemies,” the vice president must be saying to himself.

It appears this early that battle lines are already being drawn. The “knights of the round table” in Camelot are laying claim to the mantle of good governance and are intending to lump Binay along with the opposition that was comprised up to this point of Arroyo supporters. Binay on the other hand portrays them as saboteurs out to wreck the president’s effective governance of the nation.

The president for his part is not willing to make a split with his vice president an ‘inevitable’ proposition. He will after all need the support of his deputy in corralling votes in the senate for his proposals if indeed the vice president’s allies control a majority of the upper chamber as polling indicates they will.

The question now is whether the president can and would be able to control the machinations of those that serve in his team to prevent a dysfunction from setting in, if it hasn’t already.

ADB tells Aquino to start “picking winners”

According to the Asian Development Bank, the Philippines needs to beef up its industrial policy if it is to achieve rapid and inclusive growth.

Taking the right road to inclusive growth, the report that Norio Usui penned is chock full of evidence in support of this position. The ADB has added its voice to UNIDO in arguing the case for industrial policy to be adopted by developing countries. This is against the grain of thought held by the World Bank, the IMF and the WTO which continue to hold on to the “Washington Consensus” that free markets and good governance are all that is needed for countries to prosper.

Unlike other reports that are full of analysis that mostly describe the problem but offer very little advice (mostly motherhood statements) this one drills down to specific prescriptions and targeted sites for intervention. Usui uses the analytical and methodological tools developed by Dani Rodrik of Columbia University and Ricardo Hausmann of Harvard (both of whom I have featured here and here) to plot out the “product space” into which the Philippines could best diversify its manufacturing and export base.

On a personal note, I was quite excited to see the “Top 20” charts he assembled of products which were closest to our current revealed comparative advantage, which had the greatest potential for spillover, and which had the greatest impact in terms of labour employment. Having done a similar exercise for a development agency in Australia which identified the technology intensity and revealed comparative advantage of the jurisdiction, I was never able to identify the areas in which to diversify. What Usui has done represents the cutting edge of developmental diagnostics at an industry level.

The irony is that the Philippines has demonstrated the capacity for producing highly sophisticated products which is normally associated with richer countries (a point that Hausmann made in The Economist). The problem is that without sufficient public intervention to deal with coordination and information problems and other market failures, such diversification will not occur.

Usui makes the point that while the decline of manufacturing has in part been offset by the growth of services (business process outsourcing being the most recent trend that supported growth throughout the 2000s), growth in employment, productivity and incomes have not kept pace with our ASEAN counterparts. To catch-up, growth would be required in manufacturing to supply “a second leg” with which the economy could pick up the pace.

Despite the presence of broad based programs to attract investments, reduce regulatory red-tape and corruption through the BOI and the PEZA, incentives have been largely redundant and used inefficiently. Although poor infrastructure and costly energy costs the oft cited reasons why investor shy away have some basis, Usui shows how that it may not necessarily be the overriding barrier or cost driver across the board.

In short, specific, targeted, industry-supported interventions and incentives are what would be needed for our manufacturing sector to grow and diversify. These interventions could range from supplying concessional loans or co-investment (something I discuss here), supporting the entrepreneurial process of self-discovery over how to adapt foreign technology to local capacity through research and development (something borrowed from Rodrik), coordinated infrastructure investments to providing subsidies for training (something I discuss here).

To counter the argument that such measures are difficult for weak governments to implement and merely give rise to cronyism and rent-seeking, Usui supplies the remedies acquired through practice by the East Asian economies in their path to development: sunset clauses and exit strategies, clear targets, monitoring and evaluation and contingent cost-recovery mechanisms.

In a previous post I have estimated the quantum of investment required to bring unemployment down to manageable levels along with the policy instruments required for encouraging such investments. What Usui has done is basically identify the sectors to target and engage.

If the government were to spend 200 billion pesos over the course of the next four years to co-invest in private-led initiatives that would generate five times that amount in counterpart funds (we currently have over one trillion pesos locked away in special drawing assets in the banking system) that would raise GDP by about 3% points a year. Add that to the 4-5% growth trend at present, and the government would just about hit its growth target of 7% over six years.

Unlike the scattergun approach being used to implement good governance which like the fiscal incentives program could prove highly inefficient and ineffective, I have recommended a targeted approach appropriate for our level of economic development by focusing on revamping the economic bureaucracy (covering both industry policy and revenue collection and enforcement). Usui supports this view by endorsing industry councils based on the East Asian model.

As I have mentioned before, it is not necessarily a lack of resources that is the problem (we can tap our foreign reserves if we have to, which incidentally will dampen our currency which at the moment is overvalued and hurting manufacturing). Rather it is the poverty of ideas and the ideological and dogmatic blinkers that have prevented successive governments from putting into practice pragmatic solutions to mend the country’s ills.

As the ADB points out, the country is well poised for economic growth given its openness to trade, sound banking system, and benign macroeconomic environment. External events like currency adjustments and wage inflation in China could also provide a precious window of opportunity for us. But there is no time to waste as other countries in the region are rapidly acquiring the capacity to produce highly sophisticated products as we have. The report concludes by saying

Structural transformation, by its nature, is a long process. Challenges may look overwhelming. It cannot happen tomorrow, but in a future within our reach. The Philippines has a huge potential to become a key production base within the regional production network … The government needs to be pragmatic enough to exploit the precious opportunities. Strategic public sector support that embodies a long-term vision of the economy makes it possible to change the economic structure that drives inclusive growth in the Philippines. Success is not always as distant as it seems.

I couldn’t agree more. Let’s hope someone in the Palace is listening.

The truth behind China’s nine-dash map

Even Jose Maria Sison, founder of the Maoist Communist Party of the Philippines, calls Communist China’s claim to Panatag Shoal a historical absurdity:

    “Chinese historical claims since ancient times amount to an absurdity as this would be like Italy claiming as its sovereign possession all areas previously occupied by the Roman Empire.”

The Department of Foreign Affairs and Chairman Joma Sison are of one mind on the issue.

In response to a self-serving position paper where the Red Chinese Embassy claimed “Huangyan Island (China’s name for Panatag Shoal) has been the traditional fishing area of Chinese fishermen for generations,” and “It is China that first discovered this island, gave it the name, incorporated it into its territory, and exercised juristiction over it”, the DFA said:

    “Historical claims must be substantiated by a clear historic title. Fishing rights are not a mode of acquiring sovereignty. Neither could it be construed that the act of fishing by Chinese fishermen is a sovereign act of a State, nor can be considered as a display of State authority.”

Chairman Sison adds that if Red China can cite historical records then the Philippines can cite pre-historic records:

    “Archaeological evidence shows that the islands, reefs and shoals at issue have been used by inhabitants of what is now the Philippines since pre-historic times.”

So there.

But Red China stands by a map with a nine-dash line that it presented to the UN on May 7, 2007, the day after Vietnam and Malaysia asserted sovereignty over their respective continental shelves. The nine-dash line is a u-shaped squiggle between the southeast asian landmass and the Philippine archipelago. Red China claims it owns everything inside that wavy doodle.

The issue then is the provenance of the map and the u-shaped nine-dash line. I asked a forensic expert to look into it as my own little pro bono contribution towards easing tensions between the Philippines and Red China.

The forensic report is hereby submitted for your perusal and evaluation:

    “Sir:

    Upon a careful examination of the aforesaid ancient map, I have reached the following conclusions;

    First, the map is authentic. However, there is evidence that it was tampered. If, as the Chinese Embassy claims, the map was drawn by the famous Chinese Imperial cartographer Hao Shao centuries ago, then the lower left corner area of the map would have the chop of Fu Manchu and not the smiling face of Mao who only became China’s emperor in 1949;

    Second, I was suspicious of the u-shaped nine-dash line because it did not look as old as the map itself. I applied chemicals to the line, to see if there was anything hidden beneath it. The test proved negative. However, the line moved after it came into contact with the chemicals. Suspecting that it was not actually a part of the map, I put a tweezer to it and I was able to lift the entire u-shaped object without any difficulty. Hence the wavy object is not an integral part of the map;

    Third, laid flat and straight the u-shaped object measures about 10 inches. I snipped off a quarter inch from it and put that under an electron microscope. What I saw surprised me so I conducted additional tests on the object. The tests confirmed what I observed using the electron microscope. The object is a dried noodle string. Subsequent DNA and carbon testing suggests that the said noodle may have slipped from Mao’s chopsticks sometime in 1949;

    Fourth, Mao was a sloppy noodle slurper.”

I presented the forensic report to Comrade Shu Li, the Embassy apparatchik who wrote the self-serving position paper on Panatag. Caught off-guard, he begged for time to consult with his ambassador, Her Excellency Madame Suzie Wong, before giving me a response. He called back two days later.

Below are excerpts from the transcript of my phone conversation with Comrade Shu Li:

    Shu Li: “China not intelested in explolation and exploitation of oil on Huangyan Island. China only catching shak for shak fin soup and dumpling, you see?

    MB: “But you have to ask for our permission, you have to abide by international law.”

    Shu Li: “Communist China lespect intelnational law but hungly stomach know no law like youl plesiden Elap always say, okidoki?”

    MB: “Is that it?”

    Shu Li: “Ha? Ok, I undelstand. So solly, so solly. Ok, Chinese Embassy invite you to noodle soup.”

    MB: “No thanks.”

    Shu Li: “Ha? No eat shak fin? Ok, we eat Yang Chow flied lice, vely delicious also, okidoki?”

    MB: “It’s FRIED RICE, you land-grabbing commie PLICK!”

Identity Matters

How the principle of “shared destiny” shapes the way voters behave.

image courtesy of hiphopwired.com

In the West, identity politics is often equated with minority interests. Barack Obama in 2008 won the presidential contest by refusing to campaign as a black candidate the way the Rev Jesse Jackson had attempted before him. Hillary Rodham Clinton on the other hand came close to shattering “that highest, hardest glass ceiling” but succeeded only in giving it “eighteen million cracks”.

Identity politics can also be used to wedge voters on social issues. Witness how Rick Santorum used it to stake out his claim over social conservatives in the Republican primaries this year. The problem with this strategy is that it often relegates a candidate to a non-mainstream status unable to appeal to a general electorate. But what should happen if the minority or disenfranchised group becomes the majority or mainstream the way the masa or lower income voter has become in the Philippines?

It was Joseph Ejercito Estrada who first harnessed this vote based on his cinematic role as a working class hero when he ran for and won a seat in the Senate back in 1988. Since then, he demonstrated just how potent it can be. One of the reasons identity is such a formidable force is due to the notion of having a “shared fate”. To forge this sense, symbolism, images and myth-making plays an important role. This is why rituals are so important for religious groups in forging a shared social identity.

It was not too long ago, 2009 to be exact, when the love affair between the Aquinos and the masses was reignited. Popular and religious ceremony following the death of Corazon Aquino created a shared sense of community. Not just that, but a line of succession from Noynoy to his vice presidential ticket mate Mar Roxas was established when the two shot to the top of the surveys in their respective candidacies.

Mayor Jejomar Binay entered the vice presidential race as a dark horse with former president Joseph “Erap” Estrada occupying “top billing” in their ticket. “Erap” elected in 1998 as president had been ejected from office in 2001 by an angry bourgeoisie mob who were now endorsing the Aquino-Roxas tandem. His continued popularity with the poor helped chisel away Manny Villar’s edge over Aquino with these target voters. Villar’s chances collapsed once it was revealed that his claims of humble origins were not credible.

It is quite puzzling, but in an election year dominated by the protest vote, why was it that Estrada continued to garner such wide popular support despite his previous conviction for plunder which was the same accusation made against Gloria Arroyo?

Simply put, for the poor, the word corruption has different meanings depending on the context in which it is used. In the context of Arroyo’s presidency, corruption was all about her stealing the office of the president from “Erap” through people power forged by the bourgeoisie and subsequently from Fernando Poe, Jr. through electoral fraud. Enriching her family while in office was the sole motivation in their minds for doing such dastardly deeds.

In the context of Estrada’s presidency, the poor did not see corruption in quite the same terms. They did not equate his presidency with corruption the way the more affluent middle and upper classes did. Mr Estrada’s concern for the poor was seen as his overriding motive. If he stole at all, it was not from the public coffers, and he only did so in order to help the poor even more. As his former budget secretary maintains to this day, his administration was decidedly pro-poor in its allocation of resources.

In short, Erap was used as a scapegoat by the elite for their own moral failings, while Gloria never could share that sense of shared destiny with the poor the way he had.

For this reason, Erap could not fathom a coalition with the middle forces knowing what their mental frame was. Binay himself often confronted these same interest groups as the mayor of Makati, the country’s premier business district. They had wanted him out for years and campaigned against him in several electoral cycles.

Despite allegations made by Makati’s elite of Mr Binay’s dodgy practices, the city he managed consistently topped the nation in terms of literacy and health. He demonstrated through the years his sense of shared fate with the poor who have benefited from his administration. This unique selling point and the relentless campaign that he ran allowed him to win the vice presidential derby with a razor thin margin.

At the national level, Mrs Arroyo had contended with these same business groups who had wanted her out for betraying the mandate they had bestowed on her to institute “good governance”. She who had once been quite popular with the masses would never be forgiven for knifing not one but two of their champions in the persons of “Pareng Erap” and FPJ in the back.

Having stumbled down the slippery slope of transactional politics in a bid to win back the masses, Mrs Arroyo found neither favour with them nor with her bourgeoisie patrons, the Aquinos being chief among them. The schism that erupted between their two houses threatened to disable her government. She then resorted to nearly despotic rule to complete her term of office.

Having suffered a backlash for turning against Mrs Arroyo and joining the Estrada/FPJ camp, the Aquinos once again endeared themselves to the masses whose sympathy was translated into an electoral avalanche. They who represented the best virtues of their class through their altruistic sacrifice once again rode a wave of euphoria into office.

Although the vice presidential contest was a mere sideshow to the main spectacle, its outcome has turned out to be significant. Instead of concentrating power in the hands of the bourgeoisie, the masses chose to hedge their bets, and rightly so.

Split identities

While President Aquino has remained wedded to the same neoliberal economic principles of low taxes, less government and less spending, which his mother had adhered to to please the bond market, Mr Binay does not appear to hold the same attachment.

Take the case of mass housing for instance. The vice president has called on the government to tap into the foreign currency stock that the country has amassed largely owing to the OFW or overseas Filipino worker phenomenon to fund a mass housing construction boom. This would seem logical and fair given that one of the first things OFWs invest in is housing for their families.

Tapping our foreign reserves, as I have said many times would stem the rise of the peso because much of the spending would leak externally through imported materials for construction, at least initially. This would give our manufacturing sector and dollar earning OFWs some space to breathe instead of giving the bourgeoisie license to go on overseas trips and purchase luxury goods from abroad.

In the medium term, local manufacturers of cement, iron and steel could expand their productive capacity to replace imports leading to an investment boom. This method of pump priming the economy, however, is contrary to the method applied by PNoy’s economic managers who in their first year and a half applied “Aquinomics” by contracting fiscal spending to “crowd-in” private investment. The formula did not work and is partly to blame for the “noynoying” tag assigned to the administration (the IMF outlook sees the Philippines once again lagging behind in ASEAN for the next two years).

In the case of rolling back the value added tax rate on petrol, the vice president has said that he differs with PNoy in that he is in favour of it. Binay is demonstrating through these nuanced approaches that unlike the president’s fervent adherence to economic rationalism, he only wants to find pragmatic solutions for the country’s poor.

Recall that in the latter part of Corazon Aquino’s term of office, when the power crisis raged in Luzon, the public had grown weary of her inability to govern the market. The same could be happening today. The president’s mantra that the power sector has to be liberalized and privatized in order to be stabilized will lead to higher rates and cost his allies votes in Mindanao.

The politically savvy Binay has sought to capitalize on this by having a “united Mindanao” represented by Miguel Zubiri and Aquilino “Koko” Pimentel in his senatorial line-up. With Pulse Asia showing Binay’s endorsement being the most potent among political backers, he believes that he can lock-in the Mindanao vote by uniting these warring camps. The island will be crucial in winning the 2016 election.

PNoy on the other hand has doused speculation fed by his own deputy spokesperson that a split with the vice president is “inevitable”. Just like his mother before him, PNoy has chosen to remain “above the fray” and not endorse the nominee of the party of which he is titular head as Roxas intimated he no longer wants to seek the presidency but will be at the disposal of his party. He seems to have lost the will to fight.

Binay in turn will have Sen Jinggoy Estrada as his vice president and “people’s champ” Rep Manny Pacquiao who is expected to run for governor in 2013 in his senatorial line-up in 2016. This in turn will make an Estrada-Pacquiao tandem likely in 2022 followed by a Pacquiao-Binay, Jr ticket in 2028. The pattern set by Estrada, Sr will it seems be replicated by them.

The triumph of the parties that are closely aligned with the masses means that the ruling Liberal Party and its bourgeoisie/elite constituency could be on the periphery of power for years and years to come. The affair with the masses seems well and truly over.

So what should the Liberal Party do?

If I were in their shoes, I would work doubly hard to recruit members of the electorate that comprise the masses to join their party. Identifying genuine champions of the poor with solid track records and attracting them should be their number one priority at this point. It might be an NGO leader who works in the rural or urban poor community or a highly successful social entrepreneur whose innovations have changed lives. By assembling such a collection of individuals, the LP could change the nature of the game and translate their present weakness into their strength.

They have nothing to lose. If they apply a normal, traditional political strategy, they will fail anyway. At least if they go with something new and daring, they will win a major victory in terms of institutional renewal. Even if their candidates come within striking distance of the winner’s circle, that would still be seen as a victory for new, non-traditional politics at the national level.

By redefining their identity, they will also redefine the identity of the Binay led UNA coalition. This strategy is admittedly quite bold and risky, but that is the whole point. It would take the nation by surprise. The fact that it would be attempted by a major political party let alone the ruling party would be completely unheard of and might force voters for the first time to assess candidates based on their platform rather than popularity.

But in order for the LP to execute this strategy, it will have to get to work straight away by conducting a thorough search for prospective candidates, building up their public profile and supporting their campaigns. Only after the party has built a sense of shared destiny with the broad masses of the population will it be able to mount a serious challenge to the mammoth support enjoyed by the opposing mob.

Their ultimate goal is not only to shape the identity of their party but that of the voters, too. If voters are given a non-choice of picking candidates cut from the same cloth, then they will choose to clothe themselves with the ones that offer “winning appeal”. That shapes the identity of the voter as someone who merely follows the herd. If on the other hand they are offered a genuine alternative, they may just surprise us on election day.