July 2013

A new Philippine political architecture

Fed up with political dynasties and pork barrel scams? There is a better way for the Philippines, and it does not require a constitutional overhaul.

The political-electoral system in our country today has followed the same dynamic since the founding of our republic. At the heart of this dynamic lies the family institution or political dynasties comprised of wealthy local elites, the landed class, or caciques as Benedict Anderson put it, some of whom trace their lineage back to the late-Spanish and early American colonial periods.

In order to win at elections, they have needed to dispense patronage to their local constituents. Winning gives the elected official access to the resources of government to recoup the initial investment in political capital and continue providing patronage with abandon. In a symbiotic, co-dependent relationship, the president who needs to win cooperation from congress for his or her legislative agenda, and to gain approval for annual budgets, uses pork as the means to secure it.

The patron in this arrangement is the president; the rent-seeking clients are members of congress and local government. The clients direct pork to their pet projects through line agencies or NGOs. Despite previous attempts at tightening the system to prevent the funds from being diverted back to the project sponsor by way of commissions and kickbacks, allegations of corruption still abound.

The money siphoned off keeps the elected official in power perpetuating his or her clan in politics. Political parties are paper entities, controlled as they are by an alliance of political families, headed by the dominant patron. Term limits have not solved the problem as Pablo Querubin found, only made it necessary for dynasties to be more entrenched (they have expanded their reach and become “fatter” as Ronald Mendoza has put it in order to guarantee succession when term limits expire).

Underdevelopment can be traced back to this cycle of “patrimonial plunder” as Paul Hutchcroft put it. Jurisdictions in the country that are dominated by political clans have been found by Mendoza to suffer greater poverty and lack of development compared to those that are not. Although the caveat, as Solon, et al point out, is that some development oriented spending can occur, especially following local government devolution, when there are rival clans vying for positions, which may lead to some form of oligopolistic competition as each clan seeks to outbid the other.

This dynamic is no longer confined to local politics or the house of representatives. National elections for the upper house are dominated by dynasties as well. There will be the occasional interloper: a celebrity or media personality who might get in the game, and once in office, will begin to exhibit the same habits as the “insiders”. There will be the occasional grandstanding politician who will denounce the system, but by and large, everyone lends their tacit approval to what goes on.

Filipinos who put so much faith in personalities due to their preference for ” relational contracts” or dealing through close associates, kith and kin, often fail to see that having a few reform-minded politicians whom they trust enter a den of dynasties simply won’t cure the situation. There needs to be a more drastic overhaul.

The big “game changer” has been the revelations courtesy of a whistle blower of corruption at a grand scale allegedly involving an ever growing list of senators and congressmen complicit in fraudulent use of their congressional pork barrel. Fraudulent NGOs are supposed to have been used as fronts to certify the completion of ghost projects. This has sparked a debate over the very legitimacy of pork and calls for its abolition have been raised.

The Palace has responded by simply window dressing the situation, declaring that NGOs must seek certification with the Department of Social Welfare and Development. Benjamin Diokno has serious doubts that this solution will work. He claims the cure is worse than the disease. It is also important to note that some of the allegedly fraudulent deals involve proceeds of the Palace’s “shadowy funds” as Diokno describes them from gambling and oil revenues. So it would be unseemly for a member of the executive to be charged with essentially policing its head.

Aside from calls to abolish pork, the elections of 2013 sparked a separate debate over whether to abolish political dynasties. These seem unlikely to happen. The reason is simple: congressmen and senators for the most part won’t commit an act of political suicide, which is what the abolition of pork and dynasties will mean for them given the dynamic I have summarised above.

Others have called for constitutional change that would convert our system to a parliamentary, Westminster style democracy. This will bring about stronger political parties which they claim will spring into life simply because of the change despite the absence of a strong tradition and set of incentives supporting it. This will definitely not happen. Not under the watch of the current president, anyway, who ironically, is the only one since Cory Aquino to have the numbers in both houses of congress to do so. Such a super majority is hard to come by.

Reforming the political system will require a different set of tools that are less absolute or fundamental on the one hand, but more structural on the other than what the Palace has produced so far. In simple terms, it will involve moves that do not require constitutional amendments or absolute bans, but are more systemic than just tightening the paper trail of pork barrel audits.

What changes am I talking about?

We often think that since poverty is an economic problem it requires an economic solution. So we think that the solution in this case is to fund local projects. Pork barrel or Priority Development Assistance Funds as they are officially named is seen as essential to spread these projects equitably.

But the slow rate of poverty reduction can be empirically connected to the lack of political contestability at the local level.

It is a political problem that requires a political solution. The solution would be to strengthen political parties and decouple them from political dynasties. The policy tools required for this involve a combination of measures.The first pillar involves state funding of political parties, the second pillar involves increasing the salaries of elected officials, the third pillar involves providing equal opportunity for non-dynastic candidates to run for public office under accredited political parties. Pork barrel funds would play a significant role in providing the money to finance these reforms in a budget neutral manner.

The first pillar: funding political parties

The House passed in the 15th Congress a bill called the Political Party Reform Bill. It was a consolidated bill whose sponsors spanned the political spectrum. Had it been acted on by the Senate it would have delivered a significant reform to our political system. Given that one of its principal sponsors is now in the Senate, we should see some progress on this front.

One problem with the current bill, which the senate can refine, is that it is patterned too much after the American system in which state subsidies only become available when the party has raised counterpart funds through contributions from party members and donations from individuals and organisations. This simply is not appropriate for the Philippines at this stage of its political development.

The final bill should simply provide parties access to the pork barrel funds and direct 90-95 per cent of the Php 27 billion in the 2014 or any succeeding budget on a pro-rata basis based on the seats held in both houses. This would mean directing 95 per cent of each senator’s Php 200 million and 90 per cent of each congressperson’s Php 70 million pork barrel allotment to the political party he or she is a member of.

The parties can still engage in development assistance, outreach and projects as prescribed in the draft bill, but it will have to follow a clear set of guidelines and reporting procedures in acquitting these expenses. Centralising pork to the parties would provide an incentive to tow the party line and prevent turncoats by giving the party financial leverage over the local member.

If parties abuse their allocated funds, they can lose their accreditation and the allotments to them will cease. This makes it much easier to discipline offenders and would create a powerful incentive to maintain above board transactions.

The second pillar: increasing salaries of elected officials

The first pillar would aid political parties, but what is in it for the elected official? Why should he or she go along with it if it goes against his or her interests?

As compensation for giving up 90-95 per cent of their pork, the legislator should be given the remaining 5-10 per cent in the form of salaries and other perks. That would mean Php 10 million a year for each senator and Php 7 million for each congressman. The president should receive in my view Php15 million a year for managing a Php2.7 trillion budget.

To lend some perspective to this whole thing, let me benchmark with Australia where each MP receives AU$127,000 (Php 5.3M) a year before allowances. The Prime Minister who is the highest elected official gets AU$330,000 (Php 13.85 million) a year. Each representative also gets an additional AU$100,000 (Php 4.2 million) a year for printing costs as well as $32,000 (Php 1.3 million) in electorate allowance to handle costs incurred in relation to their constituency work.

If we want our elected leaders to walk the narrow path, we should pay them well. The scandal involving paying senators bonuses at the end of the year exposed a serious problem that can be dealt with if we simply paid our elected officials more. Public office is a public trust, but it should not involve living in penury, which then forces public officials to engage in corrupt practices simply to meet the limitless demands of their rent-seeking clients in the community and to recoup their campaign expenditures.

Third pillar: opening access to elective office

The third pillar involves opening access to elective office which means giving equal opportunity for political party members who are not members of political dynasties to be elected into office. If we simply relied on the first two pillars, we would have a weak structure because political dynasties could simply register their own party and get the pork that they would be giving up back by dominating the party with their family members.

The funding of political parties with state funds will only work if political parties are inclusive. In our banking laws and regulations, banks are limited in giving out DOSRI loans, or loans to directors, officers, staff, and related interests of the bank. DOSRI loans are capped at 20 per cent of the bank’s loan portfolio. A bank caught in violation of this rule risks losing its franchise.

We need a similar cap to prohibit spouses and relatives within the 2nd civil degree of consanguinity or affinity from occupying more than a certain ratio of a party’s officially endorsed ticket for a jurisdiction. This would still be in keeping with the Section 26, Article II of the Constitution that says, “The State shall guarantee equal access to opportunities for public service political dynasties as may be defined by law.” A dynasty under this arrangement exists when a certain cap is breached. This is different from the way it is defined under Senator Miriam Santiago’s bill which bans spouses and relatives from running alongside an incumbent.

The reason I am suggesting we impose a cap rather than an outright ban is to address the argument that we would be denying dynastic members their rights to pursue higher office and limiting choice among voters. Providing a quota or a cap allows them that right but regulates it so that political races become more contestable. In the same way that governments can regulate competition among firms and force break-ups of companies to prevent undue market power from being concentrated, this new rule on political dynasties would operate.

A new architecture for the future

With these three pillars in place, our political architecture would be better matched to a more modern, progressive society. It will lead to greater professionalism and integrity in our public institutions and elected officials, limiting nepotism, favouritism and corruption.

Through the three pillars outlined above, we can renovate our political system without resorting to drastic Constitutional reform.These reforms will work within the funding envelope that the state already sets for itself. It will reverse the dynamic that has led us to a downward spiral in our political life as dynasties have consolidated their hold on every level of elective office.

The challenge of governing our nation is not simply about the mechanics of government. By that I mean it is not simply about procuring textbooks for students, guns for policemen, equipment for weathermen, flood control systems for our cities, and the like. It is not simply about administering well and honestly, but setting the long-range plan for our nation. And that involves having a vision as well as a political and economic blueprint to build a modern Philippines. The current structure we inhabit is no longer suited to our needs. We need a new architecture for the future.

UPDATE:

The following table should make it clear why we need electoral campaign finance reform. It is a conservative estimate of the cost of fielding a national and local ticket for a general election from president down to councillor. The amount involved in running a full slate is Php 76 billion, Php 5 billion shy of the PDAF for three years of Php 81 billion. The remainder can be used for wage adjustments of national officials and for strengthening Comelec’s and COA’s monitoring systems.

elections

The next table comes courtesy of IDEA a think tank dedicated to electoral reforms. It shows the year in which various countries in Latin America have adopted some form of public funding of political parties. This should be an indication of just how behind the times we are.

Table 1

Solving Manila’s traffic problem can not be done by bus alone

The problem of Manila’s traffic, garbage, flooding always seem to come to mind whenever Rain starts falling. It is of course, particularly, grueling when it does. You have people cranky and tired from work being stuck in traffic for hours on end. It all makes for a lethal combination.

The same complaint really has been going along for years. The biggest solution has been to limit the number of cars on the road. It worked particularly well, for awhile. But “The Color Coding” scheme (it really is an Odd-Even number scheme) was never really meant to last this long. And yet the same framework conditions existed when it was first introduced. The same problems persist.

The “Problem”, if any isn’t really a “traffic” or “garbage” or “flooding” problem. It is a problem rich with the lack of systems, political will and driven by one simple thing: self-interest.

The sheer number of unlicensed buses for example is at its heart, self-interest. The commuters insisting on being picked up or dropped off at odd places is self-interest. The reports of police and traffic enforces getting kick-backs from groups for protection is self-interest. And we get to the real heart of the problem: the fiefdoms of the various city-states of Metro Manila is at its heart, self-interest. Flooding in Quezon City affects traffic in other parts of the Metropolis. Traffic in Makati or Ortigas along EDSA sprawls a jam as far away as Quezon City. And of course garbaged dumped in one creates havoc in another. And so on. With so many egos to feed, was there any doubt as to why the city is in such a state as it is?

During the 2010 election, I asked Manny Villar about this. Why can’t Metro Manila be governed by a single entity? At its heart of course is the difficulty in getting all those officials to simply not have jobs. Not to mention the scores of local officials in various city halls who would have to find a job. So the problem of unification is one of self-interest. How do you reconcile the greater good against one’s ability to put food on the table?

Even the whole question of why MRT needs to be subsidized could simply be solved by having a unified city. The MRT is currently being subsidized by the entire nation. Which is grossly unfair, don’t you think to people living in Cebu and Davao or in the poorer parts of Mindanao who have to pay for it? Why couldn’t Metro Manila pay for its own infrastructure. It accounts for how much of the country’s GDP? Doesn’t Quezon City and Makati alone account for scores of billions of pesos that surely could be spent on improving city infrastructure? Or if one really must— surely, adding a business tax specifically to go to subsidizing and funding public transport (not just the MRT) would go a long way in rationalizing an otherwise chaotic street?

In order to solve the many problems of Metro Manila it has to be thought from a holistic perspective. How does one part fit in the cog of things? How much data is available? How much is enforceable? In short, how are we to design Metro Manila?

In many ways, the MMDA has done a remarkable job with what little it really is allowed to do, legally. There is without a doubt that Metro Manila suffers from years of operating as a kludge. Like many things Filipinos are forced to do, due to circumstance.

With so much self-interest, with the lack of thought for design and holistic approach (something I’ve learned most people are adverse to while working on Magna Carta for Philippine Internet Freedom), how can we solve our Capital city’s problems, much less the entire nation? We need less ego, and more reframed minds.

Short notes III: Reality check for those who want pork abolished

It ain’t gonna happen. Congress will only change its name. We had CDF then PDF and now PDAF. Anybody want to suggest a name for pork’s next incarnation?

There is a legitimate reason for pork.

“The PDAF makes possible the implementation, in every congressional district, of small-scale but significant projects which can not be part of large-scale projects of national agencies. These projects, which are generally in the form of infrastructure, health, education and social aid packages, directly touch the lives of our district constituents and make the government a meaningful presence in their daily lives.”

Yes, PDAF can be the source of massive graft and corruption but it can also make a difference when used properly. Just because there are crooks in some districts is not reason to punish those districts that have honest public servants. Cynicism and simplistic thinking will not get us anywhere.

Abolishing pork is a simplistic solution that comes from a know it all mentality that has no respect for the constituents of a district. Simply eliminating pork disempowers citizens. It takes away their prerogative to deal with their representative as they see fit.

Citizens do not lack for a course of action. They can sue their representative or never vote for them again or better yet, salvage their representatives and hang a sign on their necks saying, Magnanakaw huwag tularan. Why take that power away from citizens, why do for them what they should be doing themselves?

How will our people learn, how will they develop into mature citizens if know-it-alls are always trying to impose what they think is best for those they deem too stupid and ignorant to know what’s best for themselves?

There is a legitimate reason for pork. Let those who need it learn how to make full use of it. Better to abolish know-it-all ism instead.

Short notes II: Letter to the angry foreigner with red hair

Dear Thomas van Beerbum,

I read your letter to the crying policeman. Very impressive. Except you are a tourist and have no business participating in demonstrations aimed at destroying our democratic system. Being a part of an International Solidarity Mission, a delegate of the International Conference on Human Rights and Peace in the Philippines, and a fan of Joma Sison does not give you license to participate in a domestic disturbance.

You are a guest in my country. Weren’t you ever taught that when you visit someone else’s home you are supposed to be polite and civil to everyone who lives there, not only to the ones you like? Besides, who told you that you can waltz in to my home and act like you own the place?

Where does your arrogance come from, coming here to teach us Filipinos how to govern ourselves? Who appointed/elected/anointed you to be the great teacher to the Filipinos? Are you still tripping on that White Man’s burden thing?

I know you hate US-imperialism but what made you think Dutch-imperialism was something to be proud of? Did the Indonesians and Africans love being colonized by your people?

If you want to become a partisan and install a government led by Joma Sison then apply for Filipino citizenship first. Once you are a naturalized Filipino you can bitch as much as you want.

In the meantime, go back to where you came from and play with your arrogant self over there, before I give you the kind of bitch-slapping your mother should have given your red-head punk ass a long time ago.

Short notes I: Dear Customs Commissioner Ruffy Biazon

I was floored by your statement on politicians who protect corrupt customs employees.

“We have come across situations wherein the corrupt ones have the audacity because they know some people are backing them up. One of my proposals is to insulate Customs from political influence. How do we do that? We come up with a policy or a law prohibiting recommendations for employment in the bureau.”

Seriously? Don’t you know that the only two people who can order you to do anything relating to your job are the Finance secretary and the President? Anyway, don’t bother me with why you can’t do your job. You are being paid to perform and not to make excuses.

But since the president is willing to give you one more chance… here’s what you can do to restore our confidence in you.

Take the twenty or fifty most powerful customs men, the ones with the toughest political and/or religious backers, and fire them.

However, if for some legal reason you cannot just fire them – because there are a lot of crooked lawyers and justices with TRO powers out there – then take those twenty or fifty customs lords out of their present positions, assign them to desks inside your office, make them cut paper dolls all day everyday and have them mail the dolls to their influential backers. Show them who is the meanest bastard in customs. Remember, in the position you hold, it is better to be feared than loved.

Close-Open

What’s better for economic growth?

In the debate over the economic provisions of the constitution, we often hear that it would be better for the Philippines to lift all restrictions on foreigners. These are what prevent investments from flooding into the country, its advocates say.

One way of arguing for full liberalisation is to point to our progressive regional neighbours and say that they are less restrictive towards foreign participation in their domestic markets. Since they are growing much faster through investments, what we ought to do is adopt their policies and completely liberalise all the sectors of our economy.

This notion is often repeated and reinforced by politicians, businessmen, think tanks and commentators in the media. They portray opposition to full investment liberalisation as either based on selfish interests or irrational xenophobia.

The problem with this stylised argument is that it may not necessarily be grounded on fact. It could be a situation where a lie repeated often enough can become true in the minds of the public.

To test the assumption that our regional neighbours are not restrictive towards foreign investments, I consulted the World Bank’s Invest Across Borders report which contains the most authoritative information on statutory rules and regulations that govern foreign investment in domestic economies around the world.

This allowed me to answer the question, which region in the world is the most open to foreign direct investments? Is it:

a. East Asia and the Pacific (EAP)

b. The Middle East and North Africa (MENA)

c. Latin America and the Caribbean (LATAM&C)

d. Eastern Europe and Central Asia (EECA)

e. South Asia (SA)

f. Sub-Saharan Africa (SSA)

g. High income OECD nations (OECD)

Most would rank the OECD nations as the least restrictive followed by East Asia and the Pacific. This is based on the notion that richer and more prosperous countries generally tend to be more open to investment from abroad. No other region in the world has bridged the gap between rich and poor like EAP with MENA coming in second.

So what does the data tell us? The rich OECD countries are definitely the most open to foreign investments. But among all these regions, the EAP region is astonishingly the most restrictive. The following table comes straight from the World Bank’s findings:

Ownership Limits for Foreign Investors by Sector

Region/Economy Mining, oil & gas Agriculture & forestry Light manufact-uring Telecom Electricity Banking Insurance Transport Media Construction, tourism & retail Health care & waste manage-ment
East Asia & Pacific 78.4 82.9 86.8 64.9 75.8 76.1 80.9 66 36.1 93.4 84.1
Middle East & North Africa 78.8 100 95 84 68.5 82 92 63.2 70 94.9 90
South Asia 88 90 96.3 94.8 94.3 87.2 75.4 79.8 68 96.7 100
Latin America & Caribbean 91 96.4 100 94.5 82.5 96.4 96.4 80.8 73.1 100 96.4
Sub-Saharan Africa 95.2 97.6 98.6 84.1 90.5 84.7 87.3 86.6 69.9 97.6 100
Eastern Europe & Central Asia 96.2 97.5 98.5 96.2 96.4 100 94.9 84 73.1 100 100
High-income OECD 100 100 93.8 89.9 88 97.1 100 69.2 73.3 100 91.7

Source: World Bank (2010), Invest Across Borders.

Note: The table shows the average levels of ownership caps placed on foreign investors across eleven of the most regulated sectors (with a score of 100 indicating complete openness or full foreign ownership permitted). There were 87 countries in the sample.

For all but two of the eleven sectors featured, EAP is the most restrictive—and even in the case of those two sectors, electricity and transport, EAP came second only to MENA. The IAB report acknowledges this by saying,

East Asia and the Pacific has more restrictions on foreign equity ownership in all sectors than any other region.

The caveat is that EAP also shows the greatest intraregional variance with less populated jurisdictions like Singapore and the Solomon Islands having fewer restrictions and highly populated ones like China and Indonesia imposing more in their service sectors.

When it comes to private ownership of land, the IAB report also shows EAP being the most restrictive to foreigners. The following is a screen grab. It shows that only 33 per cent of the EAP’s economies allow foreign ownership of land compared to 52 per cent for SSA, 80 per cent for MENA and SA, 95 per cent for EECE and 100 per cent for LATAM&C and OECD. Only three of the ten economies surveyed allow it. Most economies only lease land to foreigners and provide weak lease rights at that (the leases cannot be used as collateral for loans, subdivided or sublet).

land ownership

When it comes to ownership rights, EAP scored 83.3 out of 100 coming in fifth after the OECD (100), LATAM&C (98.2), EECE (97.6) and SA (93.8), ahead of SSA (77.3) and MENA (68.8). This again runs counter to the prevailing view that EAP provides greater security to foreign investors over their property rights, more than other regions.

The ease of doing business, particularly the cost of entering a country is the last thing we will look at. The ease of establishment is measured by the number of steps and length of time needed for setting up a foreign business. The following table also comes from the IAB website:

Starting a Foreign Business

Region/Economy Procedures (number) Time (days) Ease of establishment index (0-100)
Middle East & North Africa 9 19 58.6
High-income OECD 9 21 77.8
Eastern Europe & Central Asia 8 22 76.8
South Asia 9 39 62.5
Sub-Saharan Africa 10 48 51.5
East Asia & Pacific 11 64 57.4
Latin America & Caribbean 14 74 62.

Note: Ease of establishment index (0-100) evaluates the regulatory regime for business start-up.

MENA and the OECD are at the top of the league table with 19 and 21 days for each of them respectively to open a new business. LATAM&C and EAP are the worst performers in that order providing additional hurdles to them. It takes 64 days on average in EAP and 11 steps to open a new business. In China it takes 65 days on average and 18 steps, which is above the regional average. In the ease of establishment index which reflects the regulatory regime of regions, SSA and EAP are the worst performers in that order, meaning their regulatory regimes are the most difficult and least familiar to foreign firms.

Given its lack of openess, poor accessibility of industrial land, and larger regulatory burden, it is astonishing how the EAP experienced faster growth and pulled in larger investments compared to other emerging markets in the world as shown in the following charts.

These results will seem counterintuitive, especially for those who have been fed a steady staple of neoliberal ideology. It’s a case of empirical evidence contradicting normative beliefs: the most restrictive EAP region grew fastest and attracted the greatest value of foreign direct investments.

So why has the Philippines managed to lag behind its regional neighbours in terms of growth and development? What factors allowed them to take-off and overtake us? That is a subject for a much longer conversation and a later post. Suffice it to say that framing the problem around liberalisation in certain sectors, accessibility to land, ease of establishment or even property rights does not provide a convincing answer.

Let me conclude with what that this discussion demonstrates, and that is opening up our domestic market to foreign competitors is not a guaranteed way to bring about economic transformation. It is not a panacea. It does not necessarily follow that if you open up, you will attract more investments or grow much faster. There is a missing ingredient in all this, an “omitted variable”, as it were.

In part two of this series, I will discuss the various strategies employed by the East Asian tigers in their quest for economic prosperity and how the political and economic history of the region diverges from common public perceptions of what happened.

The path towards “inclusive growth” – some indicators

In his fourth State of the Nation Address before a joint sitting of Congress, President Noynoy Aquino made reference to inclusive growth, inclusive progress or broad-based growth about thrice in his hour-and-a-half-long speech, but he mentioned the words transformation 15 times, change 14 times and reform 11 times. At the midpoint of his term, PNoy sought to bring home the message that change in the culture of “wang-wang” which he coined in his inaugural state of the nation address has taken place under his watch and that as a result of the reforms he instituted, the path for providing opportunity to all has been opened up irrevocably.

Inclusive growth as he declared in his speech was about providing everyone the chance to have a go at life, what the Australians call “a fair go”, which constitutes a social contract that if you work hard at bettering yourself, you can move ahead in life. It is not about guaranteeing the same outcome, however, meaning it is up to the individual whether to take advantage of the opportunities presented, or not. Providing equal opportunity means building human capabilities to pursue “the good life”.

The Asian Development Bank has come up with a Framework for Inclusive Growth which provides a set of indicators for measuring whether governments and societies develop that basic level of capacity in its people. The framework is comprised of three pillars: the first one supports economic growth to expand opportunity, the second one supports social inclusion to provide equal access to economic opportunity, and the third supports social safety nets for those who slip through the cracks. There are a number of indicators for each pillar.

I have sampled a few and collated the results for the Philippines and six other emerging economies from our region to compare the different paths we have taken down the road of inclusive growth and development. Let me start with the most basic one: income or the lack of it. Having a decent level of income is one of the most basic measures of material well-being. Social disadvantage comes from not having income sufficient to live on. The following chart shows the proportion of people living on less than $2 a day for us and our Asian neighbours at the start of the 90s and the end of the noughties.

income

At the start of the 90s, Vietnam had the highest rate of poverty at 85.7%, followed by China and Indonesia which were each at 84.6%, India at 81.7%, the Philippines at 55.4%, Thailand at 37.1% and Malaysia at 11.2%. By the end of the noughties, India had the highest poverty rate at 68.7%, followed by Indonesia at 46.1%, Vietnam at 43.4%, the Philippines at 41.5%, China (29%.8%), Thailand (4.6%) and Malaysia (2.3%). In percentage terms the countries that had the largest decline of poverty was Thailand which saw a drop of 88%, followed by Malaysia (-79%), China (-65%), Vietnam (-49%) and Indonesia (-46%).

The Philippines and India saw the least amount of poverty reduction at -25% and -16% respectively from their initial states. Despite the periods of rapid growth that both these countries experienced during the past two decades, the relative insensitivity of their poverty rates to growth is a bit disconcerting.

The most important predictor of future income is of course the amount of schooling one receives. This is best measured by the years of schooling a person achieves by a certain age. The following chart shows the average total schooling for youth aged 15-24 at the start of the 90s and end of the noughties for the same set of countries.

school

At the start of the 90s, Malaysia and the Philippines recorded the highest totals with 10.2 years and 8.1 years for each of them respectively. China (7.6 years) and Thailand (7.2 years) came next, followed by Indonesia (6.5 years), India (4.6 years) and Vietnam (4.5 years). Two decades later and Malaysia retained the top spot with 12 years on average, but China with 10.9 years overtook Thailand (10.6 years) and the Philippines (9.7 years). Vietnam nearly doubled its number of years to 8.8 overtaking Indonesia (7.7 years) and India (7.1 years). Vietnam succeeded the most in this area lifting the average years of schooling by 4.3 years, followed by Thailand (3.4 years) and China (3.3 years). India lifted its average by 2.5 years, followed by Malaysia (1.8 years), the Philippines (1.6 years) and Indonesia (1.2 years).

The Philippines which started out as first runner up has been relegated to fourth in ranking among these seven countries with Vietnam closing in. The high tech industries of the Philippines and India demand college educated workers. This means that good employment opportunities in these two countries are available only to a few. To be able to perform well at school, children need adequate nutrition.

When people suffer starvation at a young age, it affects their future prospects in life. Malnourished children suffer learning difficulties as their mental development is set back. The prevalence of underweight children under five years becomes a significant predictor of future misery. The following chart depicts this for the same set of countries.

underweight

At the start of the 90s, the highest levels of malnourishment were found in India with 52.8% of children underweight, Vietnam with 36.9%, the Philippines with 29.9% and Indonesia with 29.8%. They were followed by Malaysia (22.1%), Thailand (16.3%) and China (12.6%). At the end of the noughties, India still had the worst result at 43.5% followed by the Philippines (20.7%), Vietnam (20.2%), Indonesia (17.9%), Malaysia (12.9%), Thailand (7%) and China (3.4%).

Both India and the Philippines saw their prevalence drop the least in percentage terms by 18% and 31% respectively, while China and Thailand saw it drop the most by 73% and 57%. The huge disparity of income in India and the Philippines is the main cause of their underperformance.

Finally, how can an individual seek human well-being if he or she does not even survive early childhood. The under-five mortality rate provides an indication of the quality of health care provided to mothers during pregnancy and children at the very start of their lives. The following chart shows the number of deaths per 1,000 live births across the same sample of countries.

child mortality

At the start of the 90s, India had the highest rate of child mortality at 115 deaths per 1,000 live births, followed by Indonesia with 85, the Philippines with 59, Vietnam with 51, China with 48, Thailand with 32 and Malaysia with 18. By the end of the noughties, the mortality rate in India dropped to 63, while in Indonesia it fell to 35, likewise in the Philippines to 29, Vietnam to 23, China to 18, Thailand to 13 and Malaysia to 6. In percentage terms Malaysia saw the largest drop at 67% followed by China at 63%. India saw the slowest reduction at 45% followed by the Philippines at 51%.

Baseline

These figures provide a good baseline for measuring inclusiveness within these countries. There are more indicators provided by the ADB, but these form the core set for anyone interested in studying inclusive growth. The Philippines seems to be in the same situation as India, in that they both experience the slowest reduction of social disadvantage among these countries–social disadvantage which is experienced at the very beginning of life. It is for this reason that the social reforms undertaken by the government are worth noting.

In his SONA, the president announced that he would be increasing the coverage of the conditional cash transfers to four million families and the period of eligibility up until children reach the age of 18. Patterned after successful programs in Brazil and Mexico that have been around for over a decade, the program screens participants based on a multi-dimensional test of social disadvantage. It provides cash straight to them through e-cards given to the mothers to avoid the usual bureaucratic double handling. They continue to receive a monthly cash transfer if they keep their children in school, make them undergo vaccinations and receive reproductive health counselling at health centres.

Their compliance and continuing eligibility is monitored regularly by the Department of Social Welfare and Development. A recent impact evaluation conducted by the World Bank shows that the intended program objectives are being met. School enrollment and attendance and better nutrition has been observed among children of CCT participating communities compared to non-participating ones. Although the poverty rate of the Philippines did not shift significantly between 2009 and 2012, it does not mean that this program was ineffective. The intergenerational nature of this reform implies that the Philippines will begin to reap the benefits of Pantawid Pamilya six to ten years after it was instituted. That means only by 2016 and beyond will this reform’s impact be noticeable through national family income and expenditure surveys when the children of Pantawid reach the working age of 15 years.

It will be PNoy’s successor who will reap the social dividend from the expansion of this program. It is true that this reform can now be considered irreversible in the sense that it will be hard for any successive administration to retract it. The only way to phase it out would be to make it obsolete by reducing the number of poor households. Although the president inherited the program from his predecessor, he can claim credit for rapidly expanding it. The other reforms which the administration instituted, such as closing the classroom gap, the sin tax law, expanding affordable healthcare, offering rent subsidies to informal settlers and the reproductive health act could also reap benefits for successive administrations.

What is disconcerting is how many Filipinos among the educated and upper socio-economic groups still oppose the reforms just mentioned, begrudging the opportunities given to the poor as mere dole outs. It is a sign of just how exclusive and inequality tolerant we have become as a society. Perhaps it isn’t any wonder why our growth has not been very inclusive so far, and why the path towards inclusive growth needs to be pursued even more vigorously by the current administration.

Pork to the parties, not the polies!

Why giving money to political parties not politicians is a better idea than scrapping their pork.

It’s been in the headlines for over a week, after the Inquirer broke the story of a scam allegedly involving 23 congressmen and 5 senators and Php10 billion of Philippine Development Assistance funds (aka pork barrel) being siphoned off over more than ten years by a syndicate known as JLN which stands for the initials of the lady accused of heading it.

A member of the syndicate, a close relative, blew the whistle on the boss after a row between them turned ugly. It blew the lid off the issue whether we as a nation still want to maintain the practice of pork barrelling in Congress. If these allegations are proven, it would simply confirm what a lot of Filipinos intuitively know, and that is that these funds or a significant proportion of them, which are meant to benefit local constituents of politicians simply go into their re-election kitty.

Some efforts through the years have been made to make it harder for or limit the amount of corruption or kickbacks from contractors to solons in exchange for awarding projects to them from taking place. The alleged conspirators have been able to defraud Filipino taxpayers by setting up ghost projects involving dummy recipient NGOs issuing fake receipts to help fulfil audit requirements and make everything seem above board with the imprimatur of the legislator who endorses the so-called “development” project.

The Palace, which understandably is concerned, given its reputation for clean and honest government has ordered a full and exhaustive probe through the Department of Justice spearheaded by the National Bureau of Investigation. This would inform and provide evidence to the Ombudsman which has started looking into it. The person accused by the whistle blower appears ready to front the enquiry.

As this developed, public support for abolishing PDAF has mounted. Senator Franklin Drilon, the man expected to assume leadership of the upper house has appeared to welcome the idea. The question will be whether the budget to be approved by Congress will still contain these allotments to its members or not, and whether Malacañang would be able to control the legislative agenda without them.

The opposition for its part considers the investigation a political ploy designed to bash it in the lead up to the 2016 elections.  Three of the five senators linked to the scam, Senators Jinggoy Estrada, Bong Bong Marcos and Bong Revilla seem set to run for higher office. Prior to the 2013 midterm elections, a number of senators from the opposition bloc were engulfed in a similar scandal. The results of the elections seem to indicate that the issue swayed voters not to vote for their kin who were running to join them.

To be fair, the issue is not just about Congress and pork. It involves funds from the Malampaya project which along with the proceeds of the PCSO and PAGCOR Prof Benjamin Diokno describes as “shadowy funds” that are not subject to the usual process of budget scrutiny and deliberations by Congress. For as long as they are hidden, Diokno believes they will always be prone to corruption and a source of patronage and rent-seeking.

Here is how Prof Winnie Monsod weighs the pros and the cons behind the issue of pork:

In sum, what are the benefits of the pork barrel system in the Philippines? One, it gives the executive branch tremendous leverage over the legislature, which is supposed to provide checks and balances (the executive branch can withhold the pork). Two, it gives incumbent legislators an unfair advantage over their electoral opponents, because of the projects (if successfully implemented) they bring, or the money (if pocketed) they can use to buy votes. And what are the costs? At least P21 billion a year of taxpayers’ money that arguably could have been more efficiently and equitably used for the welfare of the Filipino people.

The problem with the abolishing pork is that you need the endorsement of the very people who benefit from it to succeed. This is exactly the same impediment to getting Congress to abolish political dynasties. Pork may be seen as the vehicle for the network of patronage emanating from the Palace to Congress to the people. In the past it has been indispensable in getting significant bills involving painful economic reform to pass. Some say even the impeachment of the Chief Justice would not have taken place without it.

Pork is then used to help solons get re-elected either through the projects they fund or through amassing some form of rents that then get used for their campaign. What’s more, this tacit arrangement seems to exist with the grudging consent of the public who don’t believe that public servants can afford to live on their salaries and run for office based on them alone. There is therefore a trade-off or deal with the devil being made here. Economic reforms are not costless to produce–they require some form of corruption in a developing economy.

The problem with that is it perpetuates a system of patrimonialism which many say lies at the heart of our problem of underdevelopment, i.e. we would not have to resort to this form of “transactions costs” if we had a strong party system in which policies mattered, where elected members toed the line or faced the consequences from their own caucus.

The problem with our system is that political dynasties control the parties, or stated in another way, parties are merely a front for the family franchise, and they are financed largely through a system of patronage that emanates from the presidency, who requires their support to push his agenda through. It is a co-dependent arrangement of patronage and rent-seeking that perpetuates itself.

How then do we untangle this web? Do we simply abolish pork? That presents a number of challenges as well. How will Malacañang push its legislative agenda? What forms of illegal activities would congressmen resort to to raise campaign funds?  But we are getting ahead of ourselves here. How would we get congressmen and senators to act against their own self-interest in the first place?

The answer lies in campaign finance reform: by using the PDAF to finance political parties. The amount involved, Php21 billion a year or Php63 billion per term, is a lot of money. With that kind of money parties could become professionally run organisations that would endorse candidates and provide seed money for their campaign. This system would still favour incumbents who presumably would still be high ranking members of their parties. It would still be subject to the audit and accountability rules of the Comelec and the Commission on Audit, since they are public funds.

The good thing about giving money to the political parties not the elected politician to disburse is that it gives their executive committees greater power to influence and discipline their members who will be relying on their endorsement to seek re-election. It will still be rife with influence peddling, factionalism and perhaps patronage, but that is the nature of politics. Some parties will do a better job of managing their affairs and that will be their selling point to the electorate.

The downside of this proposal is that rather than the money or at least a good proportion of it going to fund development projects that benefit constituents, all of it would now go to the political parties. Of course the way in which parties use these funds would be up to them. They could presumably still engage in development projects, but that would be a matter for them to decide. They may decide to keep all of it to manage their affairs and fund election campaigns of their members.

My answer to that objection would be to say that although shifting pork to parties does come with a cost to the constituent community, it does bring some benefits as well in the form of better policies and programs, with less padding for corruption, as parties are strengthened and get weaned off the system of patronage and rent-seeking. This would not happen if we simply abolished pork. These benefits would accrue to society and presumably outweigh the costs.

Some might say this is too risky. Even if we give money to parties, they will still be run by politicians, and every time you hand money to a politician you are courting disaster. Well, perhaps it does involve some risk, but it is a risk we should be prepared to take if we are to develop a different set of political institutions in our country, one that provides incentives to stronger parties, rather than the current arrangement which degrades them.

The next step after that would be to allow equal access to non-dynastic members of the party through legislation that would allow campaign funds to be disbursed by the state to political parties subject to their meeting certain requirements that allow greater access and participation to party members that do not belong to any established political family. That will be the subject of a subsequent post.

Kurap at mahirap pa rin

Poverty does not seem to be abating, neither is good governance improving much.

This inconvenient truth is the conclusion derived by the National Statistical Coordination Board (NSCB) as of its latest data releases.

Back in April, it found that the change in poverty incidence in the country during the first semester of 2012 (27.9 per cent) was not statistically significant from what it was during the same period in 2009 (28.8 per cent) and 2006 (28.6 per cent).  This rather dismal outcome of the administration’s first two years in office was downplayed by the Palace. It came after the employment report for the April-2013 quarter showed signs that jobs generation was heading south despite the economy’s stellar growth posted in the same period.

Then last week, the NSCB released a set of indicators on Philippine development. When it came to our performance under the global scorecard for good governance, the report said,

The country’s percentile rank based on the World Governance Indicators (WGI) on control of corruption, rule of law, regulatory quality, and voice and accountability had low probabilities of attaining the 2016 targets.

It went on to say that the likelihood of us achieving a better score in terms of government effectiveness under the WGI by 2016 were high. Government effectiveness is different from control of corruption, rule of law, regulatory quality and voice and accountability, though. The former is probably what you would call, “good enough” governance as opposed to “good governance” which is what the latter implies. In the “light v darkness” narrative promoted by the ruling party, “good enough” governance is simply “not good enough”.

The most telling sign that the administration has failed to address the governance issue so far is that the country’s latest ranking in the Ease of Doing Business report slipped two places (from 134th to 136th) and that there was a drop in total investments in 2012. Reducing the cost of doing business is vital to attracting investments. Many say, that in order to open the floodgates to foreign direct investments, all we need to do is change the economic provisions in the charter that limit foreign participation in the local economy.

I personally have a different view, but even if, for argument’s sake that were to happen, if the cost of doing business remained high, it would still discourage investors from investing, as per the current situation in many sectors of the economy that already have been opened up to foreign investment.

It appears when it comes to fulfilling the administration party’s mantra of kung walang kurap, walang mahirap (there will be no poverty if there is no corruption) the government is making little headway, notwithstanding its herculean efforts to impeach the Ombudsman and the Supreme Court Chief Justice and jail the lady president that appointed them. By their own standards, the government seems to be failing in achieving its vision. As a result, income inequality, or the gap between the rich and the poor seems to be widening, as borne out by another NSCB paper released last week.

The government tried to put on a brave face by saying that income among all groups has risen. Unfortunately for the poor, their incomes have risen, but not enough to keep up with the higher cost of living to lift them out of poverty. The conditional cash transfers program which was given a significant boost by this administration was not sufficient. By the NSCB’s calculations, the cost of the government’s welfare program of about Php40 billion for the full year of 2012 was only half the amount required to deal with the problem in the first semester of that year.

The economic management of the nation does not seem to be progressing very well. The Philippine Development Plan talked about promoting inclusive and sustainable growth, but what we seem to be having is none of the sort. Despite all its efforts to improve the efficiency of tax collection and expenditure, to reduce debt and increase social spending and to promote the country as a destination for investment through good governance, these results show that we are just as far away from achieving that goal as we were before.

My advice to the government is not to seek to airbrush these blemishes from its record. It should acknowledge that its efforts thus far have fallen short. The president and his team need to then chart a different way forward. In other words, they need to attend to that “vision thing“, which is what I have been arguing it should have done from the start.