November 2013

Developmental patrimonialism? The Philippine preference for pork, part 2

handouts

Filipinos have a preference for pork. They expect their elected representatives to provide private or club goods, such as money, roads, community halls, rather than public goods like legislative scrutiny, economic policy, and the like. Yet this has not prevented their economy to grow at the same time. In this sense the Philippines might be considered a developmental patrimonial state. The following is how Tim Kelsall explains the concept based on the findings of his research

 Africa may have some of the world’s fastest-growing economies, but investment and incomes still lag far behind other regions. Conventional development wisdom lays the blame on a governance syndrome known as neo-patrimonialism, a system of personal rule held together by the distribution of economic rents to clients or cronies. But recent research … shows that neo-patrimonialism is not always as economically damaging as the development community believes…(It) may even help, the climate for business and investment (and) can be compatible with rapid, pro-poor, economic growth (emphasis added).

To paraphrase Kelsall, neo-patrimonialism comes from Max Weber’s concept of “patrimonialism”, an “ideal-type” of traditional rule in which authority is founded on ties of personal loyalty between leader/patron and subordinates/clients. The system is maintained through the distribution of perks or rents. These benefits are distributed among clients with no distinction between private and public property.

Neo-patrimonialism is a political economy in which patrimonialism is overlayed with elements of modern governance and rational-legal systems that differentiate between private and public domains on paper, but where informal practices still trump formal rules. Developmental patrimonial states according to Kelsall have exhibited these characteristics, but were also capable of long term vision and able to

distribute economic rents in a way that balanced the demands of political stability and economic growth, while facilitating investment through …‘relationship-based’ governance.

The rents being talked about here, are not just monopolistic, the sort that takes welfare from consumers and transfers it to producers. They also involve Schumpeterian rents, associated with entrepreneurial ventures and wealth creating innovation. Developmental states are able to  train resources at both kinds of rent-creation and make them serve a national development agenda. The motives behind this need not be altruistic, as higher long-run growth provides better rewards for those at the top of the patron-client network.

The findings of Kelsall are similar to the conclusions of Solon, Fabella and Capuno (2009). When they looked at the spending behaviour of provincial governors in the Philippines, they found a kind of competitive developmentalism at work along patrimonial lines as political clans sought to outdo each other to win local elections. Where rival clans have been present, the consolidation of power has not led to complacency. Instead of simply plundering all of their discretionary funds, patrons have had to ensure that a significant portion of it ends up serving their local constituents for them to survive in the political jungle.

The Philippines has been described as a patrimonial state by Hutchcroft (1998). He attributes this to the capture by local elites of the levers of the state under the American commonwealth period and beyond. The Martial Law regime centralised rent-creating and distributing capacity, an important pre-requisite for becoming a developmental patrimonial state based on Kelsall’s findings.

Although the post-EDSA era has decentralised power to local elites by restoring congress, it has kept the power of the purse with the executive branch as demonstrated by its ability to impound and re-align government spending without congressional authority. This centralisation as some have pointed out covers large lump-sums in the budget, effectively giving the office of the president immense powers to dispense patronage with minimal oversight from a complicit congress with which it shares some of the spoils through pork barrel.

But despite the opportunity for this sort of patrimonialism, and the fact that the countries’ ratings in traditional indicators of good governance have not improved much over the past decade, the Philippine economy has experienced a relatively stable and sustained period of economic growth for over a decade. It has been the fastest growing economy in the region over the last two quarters.

Becoming developmental?

Since the third quarter of 1998, the country has had 60 consecutive quarters of growth averaging 4.9 per cent year-on-year. It created about 11 million net new jobs during this period. Since 1999 the country’s capital formation has outstripped investments making it a net saving rather than a net borrowing nation, largely on the back of foreign remittances. Macroeconomic stability, that eluded the country in the 1970s to the 1990s was restored. 

On the fiscal side, the government was able to tame its budget deficits. From 2001 to 2011, the government’s net borrowing averaged a mere 1.98 per cent of GDP per annum based on IMF figures. Debt as a percentage of GDP fell from a peak of 68% in 2003 to 42% in 2011, and it is projected to fall to 33% by 2018. The orderly transition from Arroyo to Aquino, and the continuity of policies have, despite the political recriminations and legal prosecutions that followed, made this sustained performance possible.

Fiscal consolidation and resilient growth has led the three most prominent credit rating agencies to upgrade the country to investment status. This has given the Aquino administration fiscal space to focus on social and economic programs. These include expanding the conditional cash transfers program, which began under its predecessor. In 2014, the government will boost funding for this to Php 40 billion covering in full the four million estimated poorest households nationwide.

In the past, such a large program would have presented opportunities for waste, political interference and corruption, resulting in policy failure. That has not been the case here. A recent impact evaluation of the program conducted by the World Bank has concluded that it has been effective in fulfilling its desired outcomes–school enrollments and attendance rates are up, while malnourishment is down among children of households that are participating.

Between 2012 and 2013, social and economic services received the lion’s share of increased fiscal spending growing from a combined total of P1.05 trillion to P1.2 trillion. The 2014 budget increases this to P1.4 trillion. Included in this is the closing of the school building deficit and increased public works expenditures. The government aims to spend 5% of GDP on public infrastructure by the end of its term in 2016.

Increased spending on education and health to develop human capabilities will be an important determinant of future growth in a world where human capital counts more than physical capital, as Peter Evans suggests. The 21st developmental state will need to develop the kind of institutions that foster this kind of investment.It will require a political consensus to support it in a sustained manner. In a country with large social disparities, that can only be achieved through some sort of rent management.

What PDAF and DAP represent

PDAF and DAP have caught the ire of the middle and upper classes in urban centres who regard these as pork barrel. To them this type of spending represents patrimonial plunder and a hindrance to development. PDAF has accounted for 1.2-1.3% of the General Appropriations in the last three years. DAP amounted to 5.3% of the budget in 2011 and 3.2% in 2012, of which only 9% went to projects identified by members of congress. In 2013, about 0.8% of the budget has been approved under the program.

What PDAF and DAP represent from a neopatrimonialist point of view is an investment in political stability. Compensating powerful elements of society with such rents, buys support for inclusive development spending to provide a social safety net for the marginalised sectors of society. Without such an “investment” the country would have slipt into political chaos during the Arroyo administration. This would have disrupted economic growth and hindered the country’s fiscal capacity for investing in social development as what happened in the 1980s following the assassination of Benigno Aquino, Jr.

The question now is whether such a set-up needs to continue beyond the present administration’s term of office. As Kelsall points out,

Developmental patrimonialism has a limited shelf life and will not be appropriate everywhere.

What the recent Pulse Asia survey on the pork barrel reveals is that people are still unwilling to change things dramatically. They will still allow for clientelist side payments to be made, with some caveats or none at all, to facilitate local development spending.

As the Philippines enters middle-income country status where the pace of growth is providing increased fiscal capacity to deal with the requirements of social and economic development, it is possible for the illegal practices associated with pork barrel to be legitimised through some new formal compensation and benefits arrangements for elected officials and other mechanisms such as state-subsidised political party campaigns, or a combination of both.

Whether this happens or not depends on the political pulse of the country, and what the ruling elite perceive is in their best interest. Other factors may come into play, such as the Supreme Court ruling on the constitutionality of PDAF and DAP, the actions of prominent leaders and mobilisation by civil society groups.

Given the public approval for the president’s handling of the situation (as borne out by the Pulse Asia survey), much will also depends on what the administration perceives it can and should change, and the capacity it retains after all the dust has settled to set the agenda for the remainder of its term.

Regardless of what happens though, it is important for the policies that foster growth and social equity to be preserved as President Aquino hands over the reins to his successor in 2016. Only sustained growth holds the possibility for improved governance down the track.

The final solution

“It is tempting, if the only tool you have is a hammer, to treat everything as if it were a nail.” – Abraham Maslow

Mama gave her 12 year old child a laptop because he needs it for school. One day she catches him watching porn. She freaks. So she installs all sorts of parental controls in the laptop. But the kid is a horny techie and breaks through mama’s walls easily.

Mama catches the kid again. This time she is super freaked and takes the laptop away.

“Absolutely no more internet for you until you are 18,” she says.

“But I need it for school, mama.”

“Not anymore,” she replies, “I’m moving you to another high school where they don’t use the internet.”

“You’re moving me to Flintstones High?”

“Yes, because as far as I’m concerned that’s the only way to keep you away from porn,” she said with finality.

Later that evening mama is watching the news and she learns about Janet Napoles. She is aghast.

“My God! Those crooks should be jailed!”

Cynical papa who is sitting beside her on the couch replies, “Honey, you can jail those crooks but others will just take their place.”

“But we cannot tolerate corruption. We have to do something,” she protests.

Papa replies, “You could ask the government to put in stricter controls.”

“Good idea,” she says.

She gathered her friends the following day.

“I’m sure you saw the news. You must be as outraged as I am by the Napoles scam,” she said.

“Yes, how awful,” they replied. “We have to do something about it. We can’t have our children growing up in that kind of world.”

Someone stood up and said, “Let’s make our voices heard. Let’s march. Let’s call for plugging the leaks and jailing the crooks.” And they all began to chant, “Plug the leaks, plug the leaks, jail the crooks, jail the crooks.”

The problems of the world were solved and they all went home happy. Over dinner, mama told papa about the meeting.

“But you’ve been overtaken by events,” he said

“What do you mean?” she asked.

“The administration announced it is adding stricter controls,” he told her.

“That’s great news!” she exclaimed.

He replied, “I hate to be the one to tell you this but I’m pretty sure crooks will still find a way to get their hands on the money.”

Mama was appalled. She called another meeting to tell her friends the ugly reality she learned from papa.

“It seems that we can’t eliminate stealing just like that,” she told them.

“What do we do now?” they asked each other.

“We need to learn more about the issue,” one observed.

“Let’s invite experts to explain it to us,” another proposed.

And so experts were invited to a series of merienda lectures. Scholars from academe, political analysts, economists, lawyers, politicians, clerics, business and civil society leaders, communists, columnists, and anybody who had an opinion on anything showed up. And they lectured. And they ate. Between bites, one said this, the other said that, and on and on and on. There were so many opinions expressed and so many nuances pointed out that no one came out any wiser, only fatter from gorging on too many meriendas.

Halfway through the merienda lecture series, mama told her group, “No more lectures! I have a simple solution. Let’s just take away the money!”

“That’s right!” the group replied. And they began to chant, “Take away the money! Take away the money!”

At long last the final solution to the problem of corruption was found. Take away the money. Everyone would be going home happy and self-satisfied. And then it happened.

There is always, in any gathering, someone who has to say the most uncomfortable thing at the worst possible time. She said, “Take away the money, take away the laptop. That’s how we solve problems?”

Disappointed

The President stepped on the podium last Wednesday with a message. He talked about the PDAF and the DAP, and how the conversation has switched to how some people think he has stolen. The words, “Pork Barrel King” come to mind. This is a turn of phrase used by the militant left, and by the opposition. Well, at least, that’s the underlying message. The change in conversation orchestrated by what passes as the opposition is a well thought of character assassination. Hit the President where he is most vulnerable, and so Jinggoy Estarda was the B-29 that dropped the Little Boy poop.

For weeks the conversation shifted from theft— corruption at the hands of Estrada into this manufactured one. These days you don’t need actual proof, just the idea— and boom, thas the news. And so the President thought to fight back against this character assassination, going so far as interrupting the teleseryes people enjoy to give his piece.

What the President said was nothing new. Much of it, mentioned in this blog weeks ago as things you should know. The President’s explanation was a dumbed down version of the things Secretary Butch Abad had always mentioned in his press releases, press conferences, and interviews carried also by cable news. The ProPinoy piece was based on those press conference, and nothing that couldn’t be googled.

It shouldn’t really come as a surprise, reading my timeline through much of the President’s speech was a running commentary from the public. One would assume to wait for the entire speech to conclude, but we hear what we want to hear and react accordingly. It was pretty much broken along party lines. No surprise there— the militant left hate anyone in power— so true enough they did what we expect them to do.

If you believe the President before, and believe in his campaign to rid corruption, then you would be satisfied with the President’s explanation of what DAP is— or was. If you never liked the President before you have no cause to change your mind with his latest speech.

For many weeks now, I have grown… disappointed, and frustrated at the state of things, particularly the state of the conversation, and morose at the lack of intelligence in our national life. I’ve come to understand why our nation is such as it is today. Our elders— those who pass as our leaders have no idea what they want to do. Just so there is no ambivalence to this. I particularly look at the opposition. It really isn’t love of country that drives them. It isn’t really a sense of building something much better, but rather a sense of “what’s in it for me”. Then there are some personalities— driven out by the administration— who have naturally sought to ally themselves with the opposition. Driven by anger, by bitterness they have no idea of the world they want to build, no thought as to its shape and structure and no grounding of what’s real and possible. So they would rather shoot the nation in its foot.

So nothing gets done. Nothing is accomplished.

For three months we have had this supposed conversation on pork barrel and PDAF. We seem to have started to miss the point. For some, they have started to drown with too much information. Taking time to process this information so they drown at it. It is a case of if you look too deeply into the abyss, it starts to look back at you, and you are gripped with inaction because of the depth and scope of the problem.

So we miss the point. As the President said, it is about the thief and it is about the thieves.

Much of our nation’s problem isn’t about the lack of law. So a lot of people believe it is the system that’s flawed. Anyone who has read the COA report on the PDAF can read the heart of the problem. We have laws, the COA wrote but those laws were not executed. So this mess happened.

The problem is a multi-layered one. For the simplest of it— isn’t so much as fixing the system or adding more layers of law— but the solution to the problem, first and foremost is to execute the law. The thieves— or in this case, the alleged thieves need to face justice.

Many argue the government isn’t doing, or doing very little. Building a case isn’t easy. Building a case that doesn’t get thrown out in court isn’t easy. Is it enough what this government has done? At the very least, it is a good start.

That’s what many people fail to grasp. This is a start. The Aquino administration is a start. Not the death and be all, and end all of fighting corruption or “fixing the system”, it is the start to doing that.

Is it a perfect start? No. It is riddled with problems, and riddled with missteps. It is often seen as moving too slow, but it is a start. It is a beginning. The importance of that can not be stressed enough. In building a business for example, the most important step is getting off your butt and starting. Starting.

What most people fail to grasp is the understanding that the granular detail is less important than the general direction. So for corruption, the general direction is throw those who made a mistake to jail. To set an example. To mean business.

The President once gave the analogy that the Philippines is like a rundown house. Roof leaking. Doors, broken, etc. It is easy enough to fix such a house when you have all the monies in the world, but the reality is that the Philippines doesn’t. So sometimes it is patch work. Leaks plugged, and patched. Sometimes it is an industrial strength fix. That’s what should get done today.

Right now, we have a case building around three key people: Senators Enrile, Estrada, and Revilla. Focus on that. Get them to jail. If down the road the President’s allies happen to have cases built against them, then go for it. That’s what people raving about the DAP can’t seem to focus on, except, “Bakit kami lang? Bakit sila lang?”

If we focus on “Bakit kami lang? Bakit sila lang?” Then we will have a nation that can’t do anything except sit still and make kuwento like bums in the street corner. We will have a nation that shoot itself in the foot. That’s a shame, wouldn’t it?

This is why I am so disappointed.

(Part 2): Petilla Health Model

Access to health services
Complementary to the national government’s initiative to expand the insurance coverage, the province also adopted a mechanism to further increase Philhealth enrolment in its locality. To target individually-paying members (whose challenge is to induce voluntarily enrolment, and regular and on-time payment of premiums), the province regularly promoted the services and benefits of Philhealth and disseminated reminders about relevant payment information via SMS.
Expansion of enrolment among the poor is also given importance. While the adoption of the National Household Targeting System (NHTS) database aided the national government in identifying poor families to be enrolled under the Sponsored Program, it does not guarantee inclusion of every poor household. And even if a poor Filipino is enrolled as sponsored, the use of Philhealth benefit (or of the facility, to begin with) is not guaranteed either.

The development of a system called the Philhealth Link program aided the province in addressing this problem. Designed to enable membership verification within the facility (in the case for example, when sponsored patients are unaware of their Philhealth enrolment), the program also becomes a useful tool for enrollment expansion.

Under the program, a facility personnel coordinates with a Philhealth employee who then validates the membership by matching the name, age, and/or residence of the patient, thus allowing for verification even in the absence of Philhealth ID. (To incentivize proper and efficient matching, the province compensates the Philhealth personnel-in-charge based on the number of cases successfully matched).

This mechanism allowed the facility to identify and include dependents, as well as poor patients not sponsored by the government since they are yet to be included in the NHTS database. Identified dependents and poor patients (as verified by a DSWD officer installed within the facility) are subsequently included in the list of sponsored members, thus ensuring the grant of Philhealth benefits to poor patients who choose to use the services in the facility.

Using the radio broadcast, billboard installation, and SMS, the province also promoted its health facilities— particularly the free services available to the poor—to further induce better availment. Using the funds received by the facilities from Philhealth, the province even provided monetary “rewards” for every service used by the patient; not only as a form of incentive but also to address the constraints entailed from lack of transportation money.

Lessons from the model
Critical to the success of the Petilla Health Model is the incorporation of an effective incentive mechanism to drive each player to behave in a manner that resulted in mutually beneficial outcomes for the various stakeholders: higher funds from Philhealth prompted local officials to ascertain the insurance coverage and service availment by the public; higher returns of rendering service in public facilities encouraged retention of doctors in government hospitals; and the ensured access and affordability of services, in addition to the rewards offered, encouraged the public to make use of the health services available.

Yet, despite its commendable outcomes, the Petilla model is not perfect. There are still ample opportunities for its improvement; it is not politically easy to implement, and has yet to cover services at the municipal level. It also may or may not be fully replicable in other areas. But surely, the basic lessons behind the reforms—coordination, information, simplicity of rules, innovative use of resources, and incentives—can be an effective guide for other local governments to follow.

Ragos is a researcher of and a member of the Sin Tax team of Action for Economic Reforms.