January 2013

Hands off Enrile’s staff, please

“I can’t live if living is without you” – Mariah Carey

Let’s put a stop to all the talk about an illicit love affair between Senate President Juan Ponce Enrile and his long time chief of staff, Atty. Gigi Reyes. It is none of our business what Enrile does with his staff.

Our only business is with Enrile’s pubic life, whether he behaved above board in handling the finances of the Senate and whether or not Atty. Reyes stepped over the line as Enrile’s most trusted staff aide. So let’s move on and give Atty. Reyes credit for tendering her irrevocable resignation immediately after Sen. Cayetano’s privilege speech.

Everyone agrees she did the right thing except Enrile, to whom she is indispensable.  “I will talk to her. I will convince her to stay because there are so many administrative matters that I can no longer handle and which she is more knowledgeable,” he said. 

I was curious how Enrile would use his persuasive powers to talk Reyes out of her decision so I activated the listening device that I surreptitiously implanted on Enrile’s neck many years ago, back when I was working undercover for a not-to-be-named spy agency.

I turned the device on by remote control and put on my headphones. I waited. And waited. That’s what spies do 99 percent of the time. We wait. I must have fallen asleep at some point because Johnny and Gigi were in the thick of it when I finally caught up with them.

“My God Gigi, don’t let go now! Hold tight!” 

“It’s going to get very messy if I don’t let go right now, Sir.”

“I don’t care about the mess! Just keep doing what you are doing.”

“But, Sir, quitting now is for your own good. It’s the only way to stop Senator Alan Peter from shafting you with your own staff.”

“You can’t quit! You know I can’t do it by myself anymore. Not at my age. You have to help me out.”

“I’m tired of it. What else can I say?”

“Gigi, I’ve never had anyone like you working on my staff. I’ve grown to depend on your helping hand.”

“But everyone in the office can do what I do for you. I trained all of them. They won’t leave you hanging high and dry, they know as much as I do about giving you complete staff work.”

“Hija, I don’t mind if they take over from you every once in a while but not full-time. It will take too long for me to get used to a new hand. I’m too old for that.”

“Look at it on the bright side, Sir. We had a great run.”

“Don’t talk to me in the past tense! My God, I’m still Senate President. I have a lot of power. And so do you. I made you chief of staff because I needed a good head in my office. You are the best I’ve ever had.”

“Thank you. But Sir…”

“Anong but but? What’s the matter, are you tired of heading my staff? Don’t you like it anymore?”

“I never said I did not like it.”

“Then why do you want to stop what you are doing?”

“It will explode in our faces if I don’t. Cool off a bit, we can always pick up where we left off.”

“My God, Gigi, I don’t have time to play around. I’m not young anymore.”

“Sir, I’ve made my decision. I’m going, I blew it and that’s it. I won’t take you down with me as well.”

“Gigi…”

“Sir, your BP is shooting up. Let’s stop this. NOW.”

“MY GOD, GIGI…”

“Medic!!!”

I don’t know what happened next because my wife called from downstairs, “Get your ass down here breakfast is getting cold!”

I rushed downstairs and told her, “Honey, you’re not going to believe what I listened to all night long…” hoping that would explain why I overslept.

“What do you mean listened? You started to snore as soon as you put on your headphone. You were dreaming.”

“I was?”

“Yes and you’re perspiring, what did you dream about?”

“Oh nothing, just another staffer getting a mouthful from her boss.”

Kabataan Partylist files their vision of Internet Freedom

Kabataan Partylist representative Raymond Palatino files their vision of Internet Freedom in the Philippine House of Representatives. It is a first step in the ongoing debate of Internet Freedom, Cybercrime, and the very state of Internet Freedom in the Philippines.

Not surprisingly, the vision that Kabataan Partylist is highlighting is one narrowed to the relationship of the user to local Internet Service Providers. This isn’t surprising, given the present state of the Internet in the Philippines, and the push of Kabataan Partylist and similar organization for “better internet”. So, this isn’t surprising, given the Kabataan Partylist’s ideology. This is the polar opposite of the Philippine Cybercrime Prevention Act.

So how does this vision of the Kabataan Partylist begin?

It starts off with a definition of what they believe Internet is. “Internet,” Kabataan Partylist writes, “refers collectively to the myriad of computers and telecommunications facilities, including equipment, and operating software which comprise the interconnected worldwide network of networks that employ the transmission control protocol or internet protocol, or any predecessor or successor protocols to such protocol to communicate information of all kinds by wire, radio, or other electronic media.”

It seems to suffer from an identity crisis, encompassing even the data stored on “electronic media” like hard drives, flash drives, usb flash drives, and broadcast, which refer to “wire”, and “radio”. Attempting to be clever, but muddling the issue of what the Internet is.

I asked this once of Senator Ed Angara on twitter, why his definitions in the Cybercrime law were far from the dictionary definitions. What I meant to say, far from the definitions that normal people— society in general say it is. And I got something like the definition in law is different, because it is. Why don’t lawmakers stick to the definitions that Industry experts have come to agree on already? Why diverge? Why muddle?

In Kabataan Partylist’s defense, they do mention TCP/IP or the Transmission Control Protocol/Internet Protocol that drives the Internet, which is more than what other similar initiatives like the Cybercrime Prevention Act says it is, which co-incidently mentions the Internet only twice, and has not defined what it means. Another example, under the 14th Congress, Senator Trillanes filed Senate Bill 2145: “The Telecommunications Convergence Act of the Philippines,” and it reached committee level.

The Kabataan Partylist goes on to define what Internet Access is. They mean how users connect to the internet through a “computer with a modem”, and using “common methods of Internet access such as dial-up, landline, T-lines, WiFi, satellite, cell phones, and similar technologies”.

Truth be told I remembered this entry from @franky on Facebook. I am uncertain if the post is public, but he was referring to Commission on Election resolution on online advertising by politicians, and he wrote: “Another example of not understanding how the internet works.”

Exactly.

Haven’t you noticed that more, and more people are connecting to the Internet using Post-PC devices? Smartphones and tablets, and to limit “Internet access” to “computer with a modem”, and to differentiate “cellphones” from computers is a very limited understanding of what this is all about. I fear that this bill, should it become law will be obsolete even before it has an opportunity to work.

The Kabataan Partylist vision of Internet Freedom can be summed up as an “Internet Service Contract Act”.

The Universal Access to the Internet, Rights Rights of Internet Users, provisions for instance, makes one wonder if we’re not reading that this is an “Internet Service Contract Act”, and not really, one on Internet Freedom. The Kabataan Partylist vision for example is silent on the Rooting and Jailbreaking.

Leonardo da Vinci, Edison, Henry Ford, and Woz have one thing in common. They all had to scratch an itch. They all tinkered, and at the heart of the hacker ethos that’s what it is. Hackers aren’t the lawless individuals media often portrays them to be. Hackers are curiosity unbridled that you go and set out to explore— to tinker— to ask, “what if?”

What has this got to do with the Internet, and the whole notion of Internet Freedom? At the core of what the Internet is— is this hacker philosophy. Putting all these pieces together makes the Internet work, and at the heart of that is that tinkering— developer mentality. Without it, this whole Internet, this whole “rebellion”, and “democratization” of information, technology and basically just about everything will not have come to be real. The Kabataan Partylist version of Internet Freedom is silent on this. I think it is fundamentally important that rooting, and jailbreaking are fundamental rights that ought to be recognized just as network neutrality— that data be seen equally be recognized because this spurs innovation.

The Kabataan Partylist bill is the Cybercrime Prevention Act all over again— but in this case, the polar opposite. Where the Philippine Cybercrime Prevention Act stands is the government and law enforcement vision of the Internet. Which, naturally, means they want the maximum ability to do their jobs. Take down clauses, cybersex ideology, and in my opinion— “draconian powers” are natural byproducts of being in the other side of the fence.

The latest Distributed Denial of Service attacks, defacement of websites are just some of the things that make people seethe. It isn’t helping the cause to achieve Internet Freedom in the Philippines. In fact, it is doing quite the opposite. It is making it harder to get people who don’t know to understand what this is all about. When a gun is pointed to your head, or when the voices are screaming, the natural reaction is to scream back. Let me tell you that government isn’t too pleased with attacks. People rarely listen when all they can see are guns, and screaming. So that’s the other good thing about the Kabataan Partylist coming out with their idea of what Internet Freedom is. So a real debate can happen. We can see people’s ideas and not ruckus. This is what an informed democracy is about. The people talk, and hash out our differences like adults. We could all use a little emotional quotient, as much as we have an intelligent quotient.

We all want Internet in the Philippines to be blazing fast. How many times have we heard ourselves say that downloads are too slow? You know, just to get that deck that’s urgently needed? Let’s not even talk about how much video on the Internet buffers or how productivity is affected because of slow internet. The Internet is more than that. How to achieve faster downloads requires more than the rights to get online, or to have faster speeds. That’s the effect. That’s the endgame, how to get there means something else. It is, in my humble opinion important to get the fundamentals correctly.

It is an interesting first step that Kabataan Partylist has in fact written their view of what the Internet is. In fact, it is laudable first step. It is a sign that there is at least some attempt in Congress to think about this. What saddens me is that this is the Cybercrime Prevention Act all over again. It is a shallow piece that looks at it from one point of view, just like the Government thinks about it in their point of view. Like the Cybercrime Prevention Act, it does fall short of what actually needs to be done. The Kabataan Partylist mean well— I mean how can you not mean well, if you only want good Internet for all? The Cybercrime Prevention Act also means well. It meant to go after the bad guys that in the government’s and the law enforcement point of view, they can’t. I like to think that none of these approaches are malicious, nor foolhardy. In my humble opinion, both views represent the poles of what ordinary people think of the Internet. I hope that experts in the field can come up and advice all these people of what should be done. What limits and powers there ought to be. This is still a laudable first step in the process of understanding, and a welcome part of the ongoing debate. At least, they are trying. I hope that everyone can come together— all spectrum— to have real governance. There is much to bridge in the gap of intelligence, and understanding, and I hope that people and groups can come out and teach.

It is in my belief that the Magna Carta for Philippine Internet Freedom that Senator Santiago filed represents the end goal of these two distinct points of view. It balances some of the rights— and adds more to the rights that the Kabataan Partylist want, at the same time, the MCPIF addresses the need of government to have some teeth. What’s more, it is my humble opinion that the MCPIF goes beyond both measures as it seeks to balance rights, governance, development and security.

(Disclosure: the author is a founding member of Democracy.Net.PH, and he helped draft the Magna Carta for Philippine Internet Freedom with fellow members).

ambush me

    “Inflicting pain on the weak is the aphrodisiac of the powerful” – Charles Simic

“Ambush me na naman ang ginawa ni Enrile,” said my Cordillera guru, Jobak, after he heard Enrile declare in a privilege speech, “I reiterate my motion to declare the position of Senate President vacant.”

“Be careful Master,” I cautioned him. “He might sue you for libel.”

“If he really wanted to spare the Senate “the venom which is aimed solely at me” then he could have simply submitted his irrevocable resignation, ‘di ba? Tapos na ang usapan sana! But instead of putting a gun to his head he asked his colleagues to shoot him. Ano pa ang tawag dun kung hindi ambush me please?” he explained.

“But why would he do that?” I asked.

“Because in parliament when a member makes a motion the door is open to an objection. Alam na niya yun. Para ka naman tanga,” he said before hitting my head with his rod.

“Aray! But how could he be sure that his motion to declare the Senate presidency vacant would not be carried?” I asked with my arms covering my head.

“Eh ikaw ba naman kung napamaskuhan ka ng mahigit na isang milyon sisipain mo ba yun nag regalo sa iyo?”

I changed the subject. “Master, I do not understand why Sen. Lacson who does not even accept his pork barrel is defending Enrile and attacking his critics.”

“Are you familiar with the various committees in the Senate?” he asked.

“Yes,” I replied.

“Good. Then tell me about the Senate Committee on Accounts and who chairs it,” he said.

“Committee on Accounts?”

“Torpe!” Another blow to my head. “The Senate Committee on Accounts is in charge of ‘auditing and adjustment of all accounts chargeable against the funds for the expenses and activities of the Senate.’ I-google mo! Sen Lacson chairs that committee. Now do you see why Sen Lacson is so defensive?” he raised his rod again.

“Yes, Master. So that’s the end of that chapter in the annals of Senate corruption?”

“It all depends on how far those four senators are willing to go. They can still raise a lot of ethical issues if they are willing to incur the ire of their colleagues and subject themselves to scrutiny as well.”

“Do you think they will do that, Master?”

“Are you asking me if any or all four of those complaining politicians are going to pursue a scorched earth policy against their own house?”

“Yes. Will they sacrifice themselves for daan matuwid in the Senate?”

“Do leopards change their spots?”

Philippine Festivals You Should Not Miss

The Philippines is known as a country that is rich in culture and heritage so it is no longer surprising that various colorful and unique festivals are being held in different parts of the country all year round.

The tradition of fiesta came from the many Spanish religious practices that is why most Filipino festivals are celebrated in honor of it’s patron saints or any major events in the life of Jesus Christ and His Mother Mary.

So when planning your next travel in the Philippines, book a flight or schedule a road trip to your province of choice during its festival so you will be able to be hit two birds in one stone. To give you a taste of the diverse culture ad traditions in the Philippines when celebrating fiestas, I suggest you start first with the following Philippine festivals that should top your list to see and experience.

 

Moriones Festival
Image Source: Liz Reyes

1. Moriones Festival. Moriones Festival is being celebrated in the “Lent Capital of the Philippines“, Marinduque, every lent season. This whole week celebration starts on Holy Monday and ends on Easter Sunday.

Morions are men or women in costumes and masks replicating the biblical Roman soldiers during Christ’s time. They can be seen roaming around the streets of Marinduque for a week like normal people. Dressed in colorful tunics, scary faced masks and helmets, the mere sight of a morion is already enough to send kids scrambling back to their homes.

But don’t be deceived, morions may look snotty in the outside but they are not. In fact, these centurions are very much willing to join you for a picture taking. They also love engaging in antics or surprises to draw attention of tourists. So don’t be scared or surprised if you are walking in the town proper and see a morion coming near and trying to scare you.

Aside from them being a pleasant sight to see in the streets of Marinduque’s town capital Boac, the morions, as part of the Moriones Festival, also plays a crucial part in the Senakulo during Holy Week.

The Senakulo, a lenten play that depicts the life, suffering, and death of Christ, starts staging on the evening of Holy Wednesday and ends late evening of Black Saturday. Aside from Jesus Christ, one of the main characters in the senakulo is the Roman soldier Longinus, who also happens to be a centurion. When in Marinduque during Holy Week, be sure to specifically, look for Longinus. He’s easy to spot–he’s blind on one eye and is the most famous morion off all.

Aside from the afternoon lent processions, senakulo, Battle of the Morions and “pugutan” (reenactment of the beheading of Longinus), the main highlight of the Moriones Festival is actually the Via Crucis or the Way of the Cross which starts as early as 8:00AM of Good Friday. You have the option to go along with Christ, the other penitents, and morions or simply watch–though it is highly suggested that you go with the Way of the Cross since it is actually a one of a kind experience seeing every step of Christ’s suffering. Better be ready to endure the heat of the sun though and just consider it as another form of penitence. The Via Crucis ends with a “crucifixion” before lunch.

 

sinulogfestival
Image Source: Sinulog Website

2. Sinulog Festival. The Sinulog Festival is probably one of the grandest, popular and colorful festival in the Philippines. Sinulog’s main festival is held every year on the third Sunday of January in the province of Cebu to honor the Santo Niño, or the child Jesus, who used to be the patron saint of the whole province of Cebu.

Sinulog comes from the Cebuano adverb “sulog” which is “like water current movement,” as this is the best term to describe the forward-backward movement of the Sinulog dance.

The nine day celebration of Sinulog features participants in bright-colored and garbed costumes while dancing to the rhythm of drums and native gongs. Aside from the famous street dance, fluvial parades and SME trade fair which features Cebu export quality products are also some of the activities to watch out for.

Every year, Cebu is flocked with thousands of tourists from around the world just to witness this one of a kind celebration. In fact, getting a hotel to stay in Cebu City is actually a feat since most accommodations are fully booked already. Thus, if you are planning to street dance with the Cebuanos during the Sinulog Festival, be sure to book your flight and hotel a year before.

For more information on Sinulog Festival, please visit www.sinulog.ph

 

Continue reading…

 

 

Who’s blocking Freedom of Information?

Some quarters, including the media, are blaming President Noynoy Aquino or PNoy for the long delay in the passage of the Freedom of Information (FOI) bill. They say the FOI’s main obstruction is P-Noy’s fear, uneasiness, reluctance, or passivity.

Some politicians in the House of Representatives then use this as an excuse not to act on FOI, killing it softly, ostensibly to protect the President and gain his favor.

Take this story from Interaksyon,com (16 January 2013), which reinforces the above perception. The title is: “With time running out, PNoy remains passive on FOI.” Really? Read the article; the author of the story, Dexter San Pedro, quotes PNoy’s remarks:

“’Well, tatanungin nga natin, ilang araw na lang natitira sa session ng Kongreso pagpasok. ‘Di ba, proseso nila ‘yan. Naibigay na namin ang inputs namin sa FOI. Ang pagkaintindi ko’y matatanggap ’yung mga amendments na minungkahi namin so hinihintay na namin ‘yung finished na output [There are only a few session days left for Congress. But that is their process, right? We have already given our inputs on the FOI. Our understanding is that they have accepted the amendments that we have proposed so we are waiting for the finished output].”’

PNoy’s statement above should by now dispel any doubt about his desire to have the FOI passed. FOI was his election campaign promise. The FOI is a crucial element of the administration’s open government program (OGP).

The expression of Malacañang commitment to FOI is found in its inputs and amendments to the Congress bill. In fact these have been incorporated into the House’s FOI bill, sponsored by Representative Erin Tañada and others. The House bill reflects and upholds the Malacañang view on FOI. The House bill is essentially the Malacañang bill.

The perception that PNoy is passive about FOI or even resistant to it is thus dead wrong. Yes, he has concerns about the misuse of government information (understandable in light of attempts of vested interests to use any means to undermine the credibility of his reforms) and the threat to national security (understandable in light of the tense maritime disputes between the Philippines and China). But the FOI bill approved by the Senate and the bill pending in the House have amply addressed these concerns.

PNoy is now signaling Congress to act on FOI. To repeat and paraphrase what PNoy said: Malacañang is done with the amendments and inputs for FOI and have submitted them to Congress. Congress has accepted accepted them. We are waiting for Congress to make the final output, which is the passage of the bill. So to the House leadership, just do it!

Yet what has the House leadership done? The opposite of what PNoy wants it to do. It has not calendared the FOI, which has been approved by the House’s Public Information Committee, for the plenary debate.

Each session day is critical. Only nine sessions days remain before Congress adjourns, and by then everyone will be attending to the elections.

Not calendaring the FOI for discussion means only one thing: The House leadership is sabotaging the FOI. It cannot even accommodate a debate on the FOI.

We anticipate the leadership’s excuse. Speaker Sonny Belmonte and Majority Floor Leader Boyet Gonzales will tell the FOI champions in Congress that they are doing PNoy a favor by not having FOI passed. They will announce to everyone that they are trying their best to pass FOI, but there’s not enough time to have it passed.

All this is BS. Speaker Belmonte, also known as SB, will be made accountable for the non-passage of the FOI in this Congress. SB cannot use as an excuse the lack of time because he and Boyet Gonzales have used all the tricks to delay its passage. Moreover, it will be ugly and awful for SB and his followers to use PNoy as the excuse for failing to pass FOI.

We applauded SB before, for despite the intense pressure from his peers in Congress, he facilitated the impeachment of former Chief Justice Corona and the approval of important controversial bills, namely the sin tax reform and reproductive health (or responsible parenthood).

But it will be a great tragedy for SB if it turns out that he is the main obstacle to FOI. Let not his record be stained; let it not be him who causes embarrassment to PNoy, Malacañang and Congress. Ultimately, SB must act to move forward the FOI and prevent this disaster from happening.

Challenging Conventional Wisdom about the Philippines

We could characterise our country as being stuck in a developmental trap where the only way to make it more competitive is to improve the productivity of its labour force. The primary way to do that is through capital deepening. But without capital, productivity declines relative to other countries where investments flow. The nation’s inability to raise productivity deters future investors, and on it goes.

It’s that time of the year, the month of Janus, when people take stock of what has gone before and produce an outlook for what lies ahead. Most balanced and fair commentators in the Philippines (and there are some) often highlight the things that year in, year out don’t change. It is funny because year after year, all they seem to offer are the same old platitudes, which our leaders do take to heart, but it all seems to lead to the same old results.

Let us start with the economy. Most analyses about the economy point to our strong macro-economic fundamentals. This year is no different. The growth registered in 2012 was 6.5 per cent. It is about the same as the average for the financial years 2000-01 to 2009-10 which was 6.1 per cent based on the national statistics board. The first two years of PNoy’s presidency have tracked closely to that long-run average. Nothing new there.

Aside from respectable growth, the country has experienced a relatively mild inflation rate of 3.2 per cent in 2012. Again, over the past half dozen years, apart from the blip in 2008 when the global financial crisis was in full swing and food prices soared, the country’s annual inflation rate has fluctuated within a narrow band of 3-5.5 per cent. There is nothing new or surprising here either.

The third item is employment. The latest data shows that from October 2011 to October 2012, the country suffered a net loss of 900,000 jobs. That would seem alarming. But considering that in the previous year, employment rose by 2.5 million, a truly anomalous situation, the recent decline (or correction in my view), means that over the two years, the nation created an average of 800,000 new jobs per year. Again, there is nothing new there. Net job creation has hovered around that mark for the past decade.

In order to prove that there has been some progress made, most analysts usually point to the intangibles. A change in the national mood due to renewed efforts to address intransigent issues is usually heralded as a precursor to better times ahead. Again, this year is no different. Without a doubt, there has been progress with the enactment of several laws, the impeachment of the chief justice, the improvement of budget rules for transparency, and the reaching of an agreement that might settle the conflict in the south.

Another way to argue that there has been renewed confidence in the Philippines is by pointing to the property market, buoyed by the business process outsourcing industry, the peso, buoyed by the country’s credit rating upgrades, and the stock market, buoyed by our sound macro fundamentals.

The only problem with all this is that it has yet to translate into what really counts —growth in fixed investments. Again, there seems to be no change here. In 2012, foreign direct investments have amounted to a mere $1.5 billion. That is about 3 per cent of the total that flowed into the ASEAN-5. This is a very dismal result, as usual.

The question here is why? The reasons given usually are a lack of competitiveness, restrictive investment policy, and poor governance and institutions. I would like to tackle these one by one, and offer my own insights into why I think the conventional wisdom surrounding them are misguided, and offer my own solutions.

Competitiveness

It is a bit farcical but after the National Competitiveness Council’s efforts over the past two years to improve the country’s score in the World Bank’s Ease of Doing Business report by talking to foreign experts, understanding their methodology and working to satisfy their requirements, the result for 2013 was that the country slipped by two places down to 138th place in a league table of 185 nations. There had been a change in methodology, as there often is, which did not reflect the nation’s efforts, the NCC said, but needless to say, it is still a dismal record.

Disparities in administration across local government units as well as in- and outside of special economic zones and inefficient systems at national agencies are often cited as the causes for the abysmal performance, as is petty corruption among bureaucrats. While the Ease of Doing Business report indicates that government regulatory red tape has not improved, it would be wrong to say that the country’s overall competitiveness has not.

The Global Competitiveness Survey by the World Economic Forum takes a broader look at the issue –not just at how different a country’s rules, regulations and tax policies are from the leading economies of the world where most investments come from, but also at how well its labour force, infrastructure and innovation systems, to name a few, stack up in comparison. Here the country performed a bit better by advancing 22 places. It is now in the upper half of the league table. Whether this is enough to make investors change their minds is subject to speculation. We have to wait and see.

However, one of the main obstacles is the rising peso. It appreciated by 7 per cent last year. This makes the cost of producing things in the country for export relatively more expensive, particularly for the labour-intensive business process outsourcing industry. We could characterise our country as being stuck in a developmental trap where the only way to make it more competitive is to improve the productivity of its labour force. The primary way to do that is through capital deepening. But without capital, productivity declines relative to other countries where investments flow. The nation’s inability to raise productivity deters future investors, and on it goes.

Something has to break the cycle, and this won’t occur by simply relying on the Invisible Hand of the market, as private players suffer from the free rider problem—waiting for the first mover to take action before joining in. It will take some coordinated effort by government, and I will have more on this, shortly.

Investment Policy

Another oft-cited problem is the country’s overly restrictive policy on foreign ownership in selected industries. The 1987 Constitution is identified as the culprit. Actually, prior to adopting the present constitution, there were more industries in which foreigners could not invest or own a majority stake in. Under the present charter, foreigners are restricted from owning a major share in the mining, utilities and education sectors. They are also prohibited from owning land.

Removing these restrictions analysts say will unlock the investment potential of the country, creating jobs for millions of Filipinos, allowing them to escape poverty and the country to realise its true growth potential. The representatives of the foreign chambers, local economists and some foreign bankers claim this is what is needed. Are they right?

If we look at the size of the industries in question, mining accounts for about 0.9 per cent of our gross national income, utilities 2.7 per cent, and education is so small it does not even merit a separate line in our national accounts reporting. With respect to employment, the mining industry employs 250 thousand, utilities 153 thousand, and education 1.2 million. That is about 1.6 million out of a total work force of 37.7 million!

That means that to make a serious dent in the number of  unemployed which was at 2.7 million in October, 2012, we would have to at least double the size of these industries so that they could employ twice the number of people. I cannot really see this happening in the utilities sector or education. To double the size of those sectors would require a doubling in the demand for their services, which is close to impossible.

Mining, one might argue could double its size, but it only employs 250 thousand. Also, the problem here is in guaranteeing world-class labour and environmental regulations while ensuring that the nation derives a fair share of the profits from mining operations, since what is being dug up out of the ground belongs to the nation, and mining firms are only seeking ownership of the right to mine it on their behalf.

When it comes to the ownership of land, foreign investors do not really see that as a deterrent since they can obtain long-term leases and very favourable rates at the special economic zones in the CBDs of the nation and in the regions. Where it proves a deterrent is to small-time investors who want a piece of the property boom. Again, does the property sector look like it needs a boost? I would even argue that it needs to be slowed down because of possible overheating.

Governance, Institutions and Political Reform

The final missing ingredient that is currently the flavour of the month among our business and political elite is good governance and institutions. The improvement in this aspect is cited by the World Economic Forum as the reason why the country improved its business environment in 2012. Faith in institutions is grounded on the belief that this is why the Industrial Revolution took place in England in the 18th century and not in China, which was just as prosperous as Western Europe at the time.

To attain the foundations for rapid economic growth, the same set of of superior cultural norms, institutions and technology have to take over the ways of “traditional societies” or the “primitive mode of production” found in the the developing world today, so the theory goes. According to one author who has written a very short introduction to global economic history, however

The English constitution had many features that promoted economic growth, although they were not the ones stressed by modern economists, who emphasize restrictions on taxation and the security of property. Parliamentary supremacy actually resulted in the reverse…the English state collected about twice as much per person as the French state and spent a larger fraction of the national income.

…France suffered because property was too secure: profitable irrigation projects were not undertaken in Provence because France had no counterpart to the private acts of the British Parliament that overrode property owners opposed to the enclosure of their land or the construction of canals or turnpikes across it. What the Glorious Revolution meant in practice was that the ‘despotic power’ of the state that ‘was only available intermittently before 1688…was always available thereafter’. [emphasis mine]

Over the past decade, there has been a new school of thought emerging called the California School of Economic History which has challenged the paradigms of the New Institutional Economics school. Its general conclusion is that the Industrial Revolution took place in England because of the discovery of coal as a cheap substitute for wood as an energy source and the Americas as a source of metals and farmland. Coal led to steam power which in turn lowered transportation costs. The so-called Scientific Revolution of the 17th century had very little to do with such inventions.

What allowed England to compete with China and India which were then the leading centres of manufacturing in the world was their investment in labour-saving technology such as coal-powered steam engines to increase the efficiency of their cotton mills. A population boom in the hinterlands of China led to labour-intensive production which made the adoption of such mechanised production technology uneconomical, since capital was expensive and labour cheap.

Multifactor productivity is what led to competitiveness which led to higher wages for English workers, which led to further productivity improvements and so on. The entire 19th and 20th century was all about the de-industrialisation of Asia and the catching up to England by other Western states such as Germany and the US and later by East Asia which belatedly includes China. This was achieved through deliberate state policy which sought to channel limited capital into strategic sectors.

Failed Wisdom

The failure of conventional wisdom to explain why the nation’s competitiveness is in such a rut should force us to look elsewhere. Posing the problem in that manner is misguided to begin with. The first question we need to ask ourselves is, why do we even need foreign direct investments in the first place? The conventional answer to that question is that we need them because we don’t have the capital to finance development ourselves.

Again, I would challenge that view. From 2000-01 to 09-10, investments in the country have grown by 7.1 per cent per year on average. That is even with our low attraction rate of foreign investors. Since the the last decade, national savings has exceeded investments, meaning we are a net saving nation now. Many have said that was because private investors were wary of investing under the Arroyo regime. But the Aquino government does not seem to have convinced them to change their minds and invest their surplus capital. There is something amiss there.

More importantly, the inward flow of dollar remittances from overseas Filipinos has created a national treasure amounting to $85 billion worth of foreign reserves. That is about the size of the Czech Republic’s entire economy. It is also about 75 per cent larger than the total official reserve assets of the Reserve Bank of Australia, which was at US$49 billion in December 2012. Let me ask then, what is an economy the size of the Philippines which produces about $250 billion a year doing with reserves of that amount compared to the Australian economy which is about $ 1 trillion a year? Do we need to maintain such a high level of reserves relative to our economy?

Policy Implications

The reason why our policy makers have not realised that they are sitting on a pile of untapped wealth is because they have been used for so long to go cap in hand to the foreign community for loans. There is a saying in business that banks will only be willing to lend to you when you don’t need to borrow. The same holds true in our case. Yet our officials continue to trumpet the ease with which they are able to borrow, without realising that they don’t need to do so anymore.

The preceding discussion leads to the following policy implications

  • Continue to raise taxes in order to close the fiscal gap. Continue tax reforms such as the sin tax law that has just been signed. Expand the tax base by closing loopholes and consider other measures to raise revenue such as fiscal incentives rationalisation and a one per cent national land tax piggy backed on local property taxes. If we can reduce the gap to within 1-2 per cent of GDP, that would be fine. If we could completely close the gap, that would be even better.
  • Undertake coordinated investments in strategic sectors by leveraging sovereign wealth. Japan and South Korea did not rely on foreign direct investments to boost their economies during their periods of rapid growth because they directed their banking institutions to lend to heavy industries with their implicit sovereign guarantees. We can adopt a new approach by setting up a sovereign wealth fund, which would serve as the main vehicle for channelling our excess foreign reserves into infrastructure, minerals exploration joint ventures, agro-industry clusters and clean technology hubs. I have outlined how this could be done here and here. There are enough internal resources currently to increase our growth rate by 1-2 percentage points a year for the next four years. Once government acts as the catalyst, other players, including foreign investors will follow. This will incidentally temper the rise of the peso, which is currently hurting our export sector.
  • Continue to improve and enhance our educational system. Higher educational attainment among our populace is one of the best ways to resolve our economic and political problems. A highly literate and skilled workforce not only is what our industries need, it is also what will help shape political reform. Tinkering with our political system won’t really address the problem. An educated voter will not be satisfied with handouts from the government but will demand much more.

If we focused on these three policy areas: improving our tax revenues, coordinating investments and enhancing educational opportunities, then we will be on our way to unlocking the development trap that we find our country in. It is important for our leaders to challenge conventional wisdom regarding what is hampering our nation’s growth potential. Otherwise, we might find ourselves attempting to improve our situation using the same methods, year after year, decrying the same problems, but achieving the same dismal results.