August 2014

Grace Poe and the MRT

Earlier today, Senator Grace Poe took the MRT without fuss, without bodyguards, just like an ordinary citizen would. The lines were long, as they typically were. The senator, whether it was a calculated political move, or not, did what others could not. Perhaps, it was easier for her to brave the lines, to ride the carriage of the masses. Perhaps, it was a fact-finding mission to better frame herself ahead of a hearing on the MRT at the Senate. So she get praised for rubbing elbows with mere mortals. She gets praised for sympathizing with pain.

President Aquino did the same when he first took office. He banned the wang wang, and chose to stop at all intersections. He took to eat at sidewalk vendors while visiting the United States— in stark contrast to the opulent dinners by the previous regime. Along the way, people forget this side of the President. People forget this side of the story.

Jesse Robredo too is fondly remembered as being a simple man. He rode public transport home. He took no airs, and was a humble man. What a nation would ours be with a man like Robredo at the helm?

The lesson of the Aquino presidency is lost to many. The simple lesson it brings is that what kind of man we elect on top sets the tone, and sets the direction. The policies come less so. They, much to many’s dismay come into second place to the quality of the leader’s moral fiber. It is what it is, for now, at least until the nation is more cosmopolitan than provincial.

Many critics will disagree, of course, with Aquino’s style of reform. Corruption of course is far from eradicated. We have many weaknesses that are only now coming to light. Many of the changes are in the form of layers, but many expect the reform agenda to be loud, and big. My expectation of Aquino’s agenda has been grounded, and well formed from the beginning. So I understand where he and his men come from. With Mr. Aquino, I knew from the get go— by intuition— this was the guy who would drive us forward, however imperfect, into the next tier.

I sympathize with many of Aquino’s critics because I find myself in the position that they are in now, at least, when considering a hypothetical Ms. Poe as president. Without doubt, Senator Poe is doing all the right things I have come to expect of a President of the Philippines. She is perhaps the kind of leader I’d like to see on top of the food chain. Better than the Binays’ who have shown such fervent desire for being the top dog, but none of the humility.

Grace Poe seems to make populist choices from the get go. She seems to do what Mr. Estrada should have done. I liked her championing the Freedom of Information bill. Didn’t really like that she didn’t add much substance to the bill. It seemed to me something that needs more beef (but I have settled on the idea that that is but a pipe dream). Her taking up the MRT route is another that suggest she has taken a populist stance, certainly, but the difference is, Ms. Poe seems have a tad more substance than Mr. Estrada does. (If anyone needs a reminder of the Estrada Presidency he needs to look no farther than what’s happening in Manila now).

So this is where my intuition kicks in. It kicks in to push hard on the breaks. I have never been a fan of populist positions. Well, populist in the sense that the policy panders to people, and that’s it. [Mr. Aquino’s policy also seems to favor people first, but very little pandering.]

The MRT is a broken system, of course. It is obvious. What isn’t is the systematic understanding of the problem. Many of its problems stem from its conception, and exasperated by pandering to the people needlessly such as a subsidy driven by political choices. Many of the problems of the MRT originate from the fact that this ought to have been a locally executed project— by the governments of Metro Manila, and in a sane, and rational world the Senate of the Philippines shouldn’t be operating on solving. This is a local matter that should have been initiated, and as problems arose, repaired locally.

Metro Manila is not the Philippines.

Such concept eludes many, and unlikely to change anytime soon.

While it is admirable that Ms. Poe rode the MRT, with certainly good, and great intentions to help solve a problem, I hope it would lead to the untying of a problem of epic proportion without pandering to the public.

When Good Governance Isn’t “Good Enough”

MRTaccident

Four years under an honest, sincere leader like President Noynoy Aquino (PNoy), and the mood of the nation has palpably shifted, from one of hope and optimism that greeted his election in 2010, to one of fear and loathing at the prospects in 2016 when he is supposed to step down (talks of lifting his term limit notwithstanding).

Four years is a sufficiently long time to take stock of how far down the path of good governance (daang matuwid) PNoy has taken the nation. The opinion polls suggest that while an absolute majority still are satisfied with his performance, fewer and fewer people think he is succeeding or doing a good job. If this trend continues, the people who rate him poorly may become the majority.

In his last State of the Nation Address, PNoy acknowledged that the task of reforming institutions in the country will not be completed by the end of his term. By the government’s own scorecard, the administration is failing in all but one of the Worldwide Governance Indicators of the World Bank, the global benchmark for good governance, nor is it expecting to achieve its governance goals by the end of PNoy’s term in office.

When it comes to achieving inclusive growth and development, regarded by many as the holy grail of good governance, for which it is just a means (kung walang corrupt, walang mahirap), slow progress indicates the intransigence of the situation. Poverty incidence and unemployment rates remain stubbornly high, despite the uptick of our GDP growth figures for over a decade now.

In this context, where does blame lie? Were the actions taken by the administration towards implementing good governance the right ones? To answer these questions, we will need to retrace its steps. But before that, let us first lay the foundation for the analysis.

The role of any government is always two-fold: to expand the productive sectors of its economy, and to invest in human capital while providing social and environmental safety nets for those who slip between the cracks.

A government cannot raise enough revenue to perform the latter, unless it performs the former really well. Inclusive development is premised on rapid, robust, and sustained growth taking place. The benefits of growth are often distributed unevenly though, so governments often need to step in to spread them more equitably across society.

Some minimum standards of competence and probity need to exist for a government to perform these functions well. In developing and emerging economies, these tasks are made more complicated due to the limited nature of available resources, weak organizational capacity and poor institutional integrity. But as demonstrated by East Asia in the last century and now by Sub-Saharan Africa in the early part of this century, governments need not be whiter than the falling snow to perform these functions well enough.

Retracing steps

Early in his administration, the president was concerned about changing the atmospherics to promote good governance, which was what he rightly perceived as his mandate from the Filipino people. He sought to achieve this by:

–          Replacing Mrs. Arroyo’s appointees and going after his predecessor through the courts. This was achieved with a series of executive orders, impeachment complaints and charges being filed. When the PDAF and DAP controversies broke, this extended to filing cases against incumbent legislators, such as senators Juan Ponce Enrile, Jinggoy Estrada and Ramon ‘Bong’ Revilla.

–          Improving the integrity, efficiency and effectiveness of the government’s expenditure program through reforms in the Department of Public Works and Highways and Department of Budget and Management. Corollary to this was making the budget process, the bidding and awarding of contracts, more transparent and accountable.

–          Improving the collection efficiency of revenue agencies such as the Bureau of Internal Revenue, Bureau of Customs, and government owned and controlled corporations by going after tax cheats and smugglers, reforming the governance of corporate boards and initiating a performance based bonus system.

In all this, the administration has actually been quite successful in getting what it wanted. Mrs. Arroyo is under hospital arrest; the Chief Justice appointed by her was impeached and convicted; her Ombudsman resigned; and, the three senators mentioned have been suspended and are in detention. New budget and procurement procedures are now in place. Collections and dividends from revenue generating agencies and corporations are up, meaning to say their performance is improving.

So what has the administration done wrong? Why are its approval ratings going down now despite its many accomplishments in the area of good governance? I would like to go beyond just the immediate causes to offer three fundamental problems. Three things, which I believe the administration is guilty of—they are:

  1. Focusing too much on reforming the government’s budget and expenditure processes and not enough on a whole-of-economy policy agenda.
  2. Focusing too much on the process of good governance and not enough on the ultimate, end-goals or outcomes of good governance.
  3. Not being bold, or forward-looking enough in its plans and vision for the country.

Let us tackle these one-by-one.

On the first point, the administration, by focusing on the efficiency of the government’s expenditures, limited itself to influencing a mere 20% of GDP that the annual budget represents. Economic policies, which affect 100% of the economy, on the other hand, have been neglected, to say the least. Just consider the following:

–          We are facing an imminent energy shortage, despite paying some of the highest electricity rates in the region. Some parts of the country are already experiencing regular, rotating blackouts.

–          We are facing a logistics and ports crisis, with freight landing but remaining inside Manila’s container port due to regulatory bottlenecks at the national level, which have led to unlicensed trucks being apprehended by the city of Manila. This crisis in Manila is going on despite the excess capacity that exists in Batangas and Subic Bay ports.

–          Our urban roads are congested limiting the flow of people and goods around the city, impacting on our productivity and the cost of delivering basic goods and services.

–          The metropolis suffers from a lack of urban planning, co-ordination and integration with surrounding regions.

–          We are paying some of the highest rates for internet and telecommunications services, and suffering from one of the slowest internet bandwidth speeds and poor connectivity in the region.

–          The NAIA, our most important gateway to the world, is considered one of the worst airports. Even the opening of an extra runway in Sangley Point a few years from now will simply ease congestion slightly.

–          The MRT and LRT systems are hampered frequently with accidents and breakdowns.

–          Our public transport system is not safe for the riding public or motorists.

–          Pollution is choking the city, leading to health risks and higher health bills.

–          Our higher educational institutions continue to slide down global league tables and a lower proportion of their graduates succeed in passing their professional licensure exams.

–          The sleeper issue is water. Will there be enough of it with all the growth happening in our urban centers?

Now energy, ports, communications, transport, roads, clean air and water, education and skills all affect the efficiency and productive capacity of our economy. If regulatory and line agencies lack the capability to independently plan, manage, monitor and guide the players that operate in these sectors in line with national development goals, then the future growth of the economy will be significantly constricted.

‘Plan rational’ missing

If a government cannot develop what the late-Chalmers Johnson called a “plan rational” for growing productive sectors in the economy and use its economic agencies to effectively line up the players in their respective spheres of influence to attain the targets of this plan, then it won’t achieve the kind of growth that results in massive improvements in its people’s quality of life.

The administration has identified the business process outsourcing, electronics, semiconductor, logistics, tourism, manufacturing and agro-industrial sectors for growth, and yet if you look at the basic infrastructure needed to power them forward, which includes human capital and skills, the policy frameworks are not providing a conducive environment for this to be a sustainable future.

Over-processed, under-performing

On the second point, the administration has focused too much on the process of good governance, not enough on the outcome. PNoy has focused on cleaning up the bureaucracy of corruption, institutionalizing right procedures of governance, and improving transparency and accountability.

Those are noble things, worth pursuing no doubt. However, in seeking to improve the processes by which the state governs society and the economy, it should not neglect to forge effective tools with which to improve the outcomes of processes without having to clean up the system, entirely.

As the only entity in society with the right to grant licenses, franchises, monopolies and provide public goods, the government actually has some clout to shape the economic landscape if it wanted to. It can direct state resources, finances and act as guarantor to projects that it sees as strategic in nature.

During East Asia’s rapid rise to prosperity, bureaucrats would grant loans at concessionary rates and issue licenses to operate in strategic sectors of the economy to favored companies. In return, they or their political masters would often receive commissions for facilitating these transactions that would go to their political machineries. They were, in this respect, no different from our own bureaucrats.

The only distinction lies in the fact that the recipients of such cheap loans and coveted licenses were obligated to produce results in line with national development targets. If they failed to achieve these performance standards, bureaucrats would wield the stick to rein them in, i.e. loans would be retracted or they would be forced to consolidate or be threatened with the entry of new players. The economic agencies had the tools and acted cohesively to do this.

In the Philippines, we have neglected to develop such tools and organizational cohesiveness. If we had a national policy to increase the average speed of our internet service, for instance, and the current providers were not meeting this target, then our regulators should have the power and authority to slap hefty fines and penalties on them, threaten to suspend their licenses or bring in new players from abroad. The targets should be easy to measure and verify, clearly defined and pre-agreed.

The same should apply elsewhere. Of course, the constitution might stand in the way of some policy tools, such as liberalizing foreign ownership in certain sectors. The problem with full liberalization for its own sake though is that if you continue to have weak agencies without the tools to shape the behavior of players in the market, we could simply end up with foreign players behaving just as badly as local ones. Having said that, all options must be on the table.

The government through its budget process has started to initiate performance based budgeting, which is focused not just on how much gets spent or what outputs are produced, but the outcomes it achieves. This is a positive step. The next logical one would be to empower agencies with the right policy tools to achieve the desired outcomes.

Bolder vision, action-oriented focus needed

On the third and final point, if the government is not bold or forward-looking enough in its plans and vision for the country, then it follows that the agencies which develop policies and regulations for the economy will not be ambitious or strategic enough in wielding the tools for shaping its future. Without a national agenda, agencies will be more susceptible to being ‘captured’ by narrow, vested interests.

Of course the government has developed targets in the Philippine Development Plan. The question here is whether these are the right targets needed to develop a grand vision and narrative for where the country should be heading. Are they bold and forward-looking enough? Are they outcomes-based as opposed to being outputs- or even process-based?

In my view, many of the targets in the Plan remain output-oriented. What matters to the broader public is not how many passengers go through Ninoy Aquino International Airport, for instance, but how comfortable and easy it is for them to do so. There ought to be measures that monitor and track this. There could be 40 million passengers going through NAIA by 2016 as per the plan’s target, but they could all be unsatisfied and disgruntled with the service.

A more visionary target would have been to open a new airport by 2016 to service the expected inflow of passengers into Metro Manila. If the government had come into office with this as a bold target, then agencies and investors would have known what to do and where to invest their resources. The same could have occurred in power.

If the government came in and said we needed to produce X additional megawatts by 2016 and to lower the average cost by Y per cent, while reducing greenhouse gases by Z tons, and empowered responsible agencies with the mandate, resources and tools to get it done, we could have avoided the current situation. I believe dissatisfaction among many citizens stems from the impression, rightly or wrongly, that government just does not have a plan to solve their everyday problems.

When President John F. Kennedy in 1961 set a bold, long-range vision and asked for extra appropriations from the US Congress to put a man on the moon by the end of the decade, no one at that point knew how it could be achieved. There were no feasibility studies. The technology was not even available. NASA had to learn by doing, taking action that brought them closer to that vision through experimentation and adapting their plans and organization accordingly.

The many challenges facing our country are adaptive in nature. Intergenerational poverty, climate change and conflict ridden communities: the solutions to these problems are not known in advance. Even experts are confounded when they apply their current state of the art tools. But that should not deter our leaders from framing a bold and inspiring vision for the future, and to set the scene for government, clients and stakeholders to collaborate in finding a unique way forward.

Good (or “good enough”) governance?

As PNoy enters the final third of his time in office, the clock seems to be ticking much faster. People have 2016 on their minds. What he needs to do now is race to the finish line. As he contemplates the legacy that his government will leave behind, he may need to re-think his agenda thoroughly.

While pursuing anti-corruption and good governance is a laudable goal, admittedly it takes several presidential terms, decades even, before this can be fully accomplished. His government has taken many positive steps down this path, and should be commended for it, but as he himself acknowledged in his penultimate state of the nation address, the journey will not end when he steps down.

Given that good governance in its strictest sense will not be achieved during the life-time of his administration, what steps can he take now to achieve better outcomes in many policy areas that directly impact the lives of residents and ratepayers, and will affect the future growth potential of the country?

These steps, when taken, would constitute “good enough” governance, because the process for achieving outcomes may not be perfect, but at least they will allow the government to perform its primary role of expanding the economic base, and with it the capacity to address social disadvantage and environmental damage.

Once the economy has expanded sufficiently, government will be able to raise more revenue, and shall have more resources, which will allow it to continue down the road of good governance and inclusive development.

If the government fails to lift the standard of our economic infrastructure, then growth could stall, and many of the positive steps this government has taken so far might falter as well. When that happens disillusionment might set in, and many of the reforms initiated by PNoy might be wound back.

Finally, the citizenry, for its part, cannot wait decades (or even another term for that matter) before the promise of good governance is achieved, nor should they be made to wait. Four years under PNoy may have already taught them that the path of good governance is just too long and arduous. Their growing dissatisfaction with the results is a sure and telling sign that, as far as they are concerned, good governance simply isn’t good enough.

What Mar Roxas, et al can learn from Jojo Binay

He must get under their skin. A lot. By them I mean the good governance (GG) club comprised of Mar Roxas, the Liberal Party (LP) headed by Senate President Frank Drilon and Budget Secretary Butch Abad, civil society and Big Business. As to why, after four years under an honest leader like President Noynoy Aquino (PNoy), who has been pushing for institutional reforms in the bureaucracy with some modest gains, the Filipinos seem set to throw their lot with someone in 2016 who does not come from their flock?

By ‘someone’ I mean Vice President Jejomar Binay, whom they regard as an apostate to their gospel of GG. He has the highest approval rating of any public official in the land including that of PNoy. The latest nationwide poll conducted by the reputable Pulse Asia shows him way ahead of rival contenders for the presidency. Even if you grouped together the support for Grace Poe, Mar Roxas, Allan Peter Cayetano, et al, Binay would still come out on top.

And nothing seems to be able to slow him down from claiming the presidency in two years’ time. Not the revival of old corruption charges against his wife, the former mayor Dr. Elenita Binay, nor allegations of misuse of PDAF by his daughter who is in Congress, not even allegations of overspending on a public car park by his son, the current mayor of Makati, seem to break his stride. To top it all off, the three siblings of PNoy have all but come out in support of Binay’s candidacy.

Talks of a merger between the LP and Binay’s party UNA as well as possibly extending PNoy’s term are all aimed at one thing: ensuring the survival of the Liberal Party as a fighting force into the next presidential cycle. But these demonstrate just how desperate the GG crowd is at the moment with elections in 2016 on the horizon.

It’s one big conundrum that bedevils them. If PNoy has proven that the GG works, why do/es his heir/s apparent appear/s to be languishing at the bottom of the presidential derby? And corollary to that, why is Mar Roxas, his partner in arms, not able to gain the support of more people?

It is no secret that Big Business supports the candidacy of ABB (Anyone But Binay). They are represented by Bill Luz, the former executive director of the Makati Business Club, who now heads the National Competitiveness Council, which is geared to lift the country’s competitiveness in the World Bank league tables, by reducing redtape as measured in the Doing Business Survey.

It is Big Business, also going by the moniker “civil society” that have been trying to oust the Binays from their perch as rulers of the Central Business District of Makati since the people power revolution ensconced them in city hall back in 1986. It is no secret that it is this group that Secretary Mar Roxas associates with, given his own family’s commercial background as owners of the Araneta Centre in Cubao.

Ironically, the way the Binays have fought off the pressure from the business community has been through an inclusive growth and development agenda in the city, something that the GG club have yet to implement elsewhere. The Binays have made sure that the business community paid their fair dues in the form of city and real property taxes to ensure that the lower income classes benefited from the growth of the city.

The problem for the GG crowd is that the Binays, despite being considered ‘stationary bandits’, have proven to be benign autocrats of Makati, fostering an effective program of human development among the poorest in the city that has become the envy of the rest of the nation, without sacrificing the growth and competitiveness of the city.

Indeed, in Bill Luz’s most recent competitiveness rankings for cities and municipalities in the country, Makati has come out on top. Now how can a city which is supposedly run by a corrupt, dynastic, autocratic family remain on top of competitiveness surveys and produce human development indicators that are the ‘best in class’?

The answer is not good governance, but ‘good enough’ governance.

Wait. Hold-on, you might say. The economic vibrancy of Makati comes from its business community. They are the ones who make Makati great. You would only be half right in thinking that. What makes a city competitive is the regime of taxes and regulations, as well as the quality of services offered to residents and businesses. The economic vibrancy of a city can be attributed to the business sector, and for that Makati only comes in second in Luz’s study.

At the national level, we have seen the limits of GG in formulating what Chalmers Johnson called a “plan rational” for the country to govern and expand the economic spheres of activity through robust, coherent policy and regulation.

If you look at the national economic agencies of government, they are in total disarray. The country is heading for, or perhaps already is in, an energy crisis, with rotating brownouts now a reality in several parts of the country (coming to your neighborhood soon, unless PNoy invokes emergency powers, says Energy Secretary Petilla). Power rates are the highest in the region and yet regular power outages may be in the offing in Metro Manila next year. This will severely impact the country’s competitiveness.

Then there is the so-called “ports crisis” as the logistics industry is up in arms with cargo unable to leave Manila’s ports due to no integrated master plan for Manila and the surrounding regions. The LTFRB has been in conflict with the MMDA, unable to process applications for truckers on time, which has led to the prevalence of unlicensed operators. Provincial buses are another cause of paralysis.

We turn to rail policy and here, it was not too long ago the manager in charge of maintaining the Metro Rail Transit came under fire for favoring bidders with close relations to his family. Frequent breakdowns and accidents have resulted causing the riding public to suffer delays and lower productivity due to inefficient public transport.

The PPPs that came into effect this year were improperly co-ordinated causing great aggravation to the motoring public as roads and elevated skyway projects have simultaneous commenced, almost in a mad rush to leave a physical legacy after PNoy steps down from office.

The airports have notoriously been a source of shame for the country being labelled the worst in the world. With the NAIA-3 becoming fully operational, some of the congestion will be eased, but only slightly. To cope up with increased demand, another runway at Sangley Point needs to be rushed. It took a decade to get NAIA-3 finally running, how long will it take for Sangley to come on stream?

Shifting to telecommunications and internet policy, we have one of the slowest, if not the slowest internet speeds in the region. Congestion experienced by networks has been the subject of much investigation in the senate as complaints of bad service permeate. It seems that the regulatory body in charge has failed to set the proper framework to ensure that services offered by private providers was adequate to meet the needs of an increasingly technology-connected population. The high cost and poor quality of service again affects our global competitiveness.

Transportation, information technology, communications, and energy policies all play a significant part in expanding the economic activity of a nation and are a major input to the cost of basic goods. Without robust regulatory agencies staffed with people who have not worked for the big players or are in cahoots with them, supported by a good attraction and retention policy, the result is what we see.

Secretary Mar Roxas was in charge of the Department of Transport and Communication for a good period of time. The policy frameworks in the areas of air, port, rail, logistics, information and communication were within the scope of his portfolio. The current secretary was apparently hand-picked by him. The GG agenda seems to have stalled if not utterly failed to set the right framework for future growth. Electricity, transport and communications policies are all in shambles.

Yet, PNoy’s presidency has almost solely been devoted to improving the expenditure side of government through reforms in the Department of Budget and Management. For an administration to be so focused on the efficiency of government expenditure means it concerns itself with only one fifth of our economy (which is what the national budget represents). The economic regulations, however, affect the whole economy because of their impact on both the public and private sectors.

The reason why PNoy was so focused on reforming the budget process? He wanted to prove that his GG mantra works. And yet, all that happened was a slowdown of expenditure in the first two years of his presidency, leading to a halving of economic growth. His budget department tried to fix this with the Disbursement Acceleration Program, which has now gone down in flames.

The LP through Sec Abad is now pushing for bottom-up or participatory budgeting through local government units with Mar Roxas, now secretary for the interior and local government in charge of handing out grants to them. Can the GG club redeem itself, following the DAP debacle in the lead up to the elections?

The problem with this scheme is that expenditure is only one side of local government success. You need a proper taxation regime in place. When Jejomar Binay spoke before the influential Centre for Strategic and International Studies in Washington, D. C., he narrated the challenge he faced when he first became mayor of Makati. The city’s finances were in disarray, experiencing chronic deficits. He needed to fix it through proper revenue measures to improve the quality and availability of services.

PNoy entered Malacanang Palace with a “no new taxes” pledge, which has resulted in no new revenue measures being passed except for the sin tax law, which Frank Drilon championed in the senate. Unfortunately, this pledge has limited his ability to fulfill his social contract with the Filipino people.

Meanwhile his acolytes in the senate keep proposing measures to erode the tax base by increasing exemptions, or reducing tax rates. They also want to increase the salaries and benefits of government employees, en masse, thereby putting upward pressure on spending. These senators, who have not had a day of executive experience in their political lives, would not know how to balance a budget if they were to succeed PNoy in 2016. And yet each of them would vie for the mantle of GG.

The social contract came with the age of enlightenment in Europe. The covenant entered into by the state and industry was one whereby taxes would be imposed on businesses; and in return, the state would provide basic public education and sanitation to provide a healthy, literate workforce for the factories being built during the Industrial Revolution. Here we are in the 21st Century and the proponents of our social contract do not understand the essential bargain required to educate masses with the skills needed for the Information/Digital Age.

The GG club’s approach to higher education is to shut down erring schools. PNoy said he charged CHED Chair Licuanan with closing the nursing schools who were producing graduates that did not pass the nursing board exams. She then proceeded to form “commandos” to do just that. Three years later, and according to the government’s own statistical report card, the proportion of board passers has actually declined, not risen. What happened here? Did they really go after erring schools, or just the ones that posed a threat to the big universities?

Meanwhile there is still not an adequate level of financing for higher education in place that would make tertiary education an entitlement, and lift the quality of the sector. Our universities continue to slide down the global league tables.

In each of these policy spheres, the responsible agencies have been susceptible, if not downright captured by large industry players whom they were meant to regulate. Policies are not being developed by independent agencies. As a result, the needs of clients and the nation at large have not been looked after. There is no long-term view to policy. In addition, the technical and leadership capacities of people running these agencies is severely hampered by a lack of proper resourcing.

For the economy to expand rapidly, it requires rational players in economic agencies who come from the best and brightest. These individuals need to be selected on the basis of merit. They need to have the resources to be able to fulfill their mandate. Our competitiveness and future economic vibrancy depend on that happening.

Coming back to Jojo Binay. If you look at the performance of his own housing portfolio through the government’s own statistical scorecard, his agencies look like they are hitting their targets. This is again another feather in his cap—unlike the GG scorecard, which shows PNoy’s government failing in all but one indicator of the World Governance Indicators, the one for political stability, which has come about through his popularity and taking care of the military and police through the budget.

As we come to the final third of PNoy’s presidency, it does not look like the GG goals are going to be met, nor do we find a rational set of policies being laid down to govern the economy’s expansion. For investments and jobs to be created, we need to have a high performing economic bureaucracy taking charge of all these policy areas. Unfortunately, so far we have not built that capacity and the results speak for themselves.

What Mar Roxas, et al from the GG club can learn from Jojo Binay is the following:

  1. Governance is in the doing, not the talking.
  2. Governance is about developing rational, long range policy, independent of vested interests, i.e. the major players in industry.
  3. Governance needs to be felt on the ground for it to be sustainable.

The Binays represent a formula of benign, “good enough” governance that has worked at the local level for over two decades. For Mar and the rest to offer a viable alternative to him, they will need to provide us with concrete evidence that their formula for GG has done what Binay and Makati has been able to achieve. Sans that documentary proof, they might as well throw in the towel.

Our experience with PNoy has exposed the limits of GG. The thesis that kung walap corrupt, walang mahirap. Binay on the other hand has proven the success of “good enough” governance. It has proven to be more appropriate given our stage in development to be content with setting the framework for business to thrive and expand, while ensuring that they pay their fair share to make this growth inclusive.

It doesn’t matter that he has acted like a “stationary bandit” preying on the rich to give to the poor, while ensuring that the rich still get to keep their wealth and build their empires. It doesn’t matter that the Binays have amassed wealth in the process and have turned into a formidable political dynasty. This has allowed them to take a long-term view of development and govern the city without being beholden to the big end of town.

If the GG club want leaders who are honest, yet able to win elections without becoming beholden to vested interests, they need to initiate campaign finance reform and provide state funding for political parties. The only other option is what the Binays are doing in Makati.

Economic agencies are a rich source of campaign finance through the licenses, franchises and policies they craft that can easily be made to favor the big players. The reason they are weak in a developing and emerging country context is precisely to allow political bosses to use them as a source of campaign donations. You see the system is not dysfunctional. It is purposefully built to serve their needs. The only way to fix corruption and incompetence in these agencies is to finance political parties so that they do not have to depend on them as a source of funding. Then invest in their capacity and upkeep.

If we don’t fix this, then we should not complain that our choices come election time are so limited.

Good (or Good Enough?) Governance

Chastised, toned down, hurt, and exhausted:

These are all words used to describe the mood and sentiments expressed by President Aquino (PNoy) during his fifth State of the Nation Address to Congress. Reeling from the effects of impeachment complaints filed against him on the back of the Supreme Court ruling declaring certain aspects of his controversial Disbursement Acceleration Program (DAP) as unconstitutional, the president nearly broke down as he recounted the sacrifices his parents made to restore democracy.

Suggestions that he was acting like a dictator in usurping Congress’s power over the purse and in initially defying the Supreme Court must have cut him deep. The only intention he had in pursuing the DAP was to hasten the progress of his reforms aimed at addressing the needs of the country, PNoy opined.

Despite this momentary setback, PNoy indicated his willingness to keep fighting for the nation and also suggested that even without him these reforms would continue through the people’s (whom he referred to as his boss’) initiative. This in effect was an acknowledgement that the work of repairing the nation’s institutions and implementing good governance would not be completed by the time he steps down in 2016.

He admonished the nation to look for someone who would continue the effort. He continued to affirm that the path he has chosen (Daang Matuwid) was the right path, and that despite the support of the people to move his agenda forward, there continued to be forces at work to undermine him.

At a forum hosted by the ABS-CBN News Channel (ANC) in cooperation with the National Economic Development Agency, the man at the center of the DAP controversy, Sec Butch Abad cited the glowing words issued by the World Bank president in his recent visit on the progress made by PNoy’s government in pursuing an anti-corruption and good governance agenda.

And yet, by the governments own scorecard (which by the way is based on the World Governance Indicators produced by the World Bank), the government is failing in all but one measure of good governance.

An alternative SONA

As one analyst from the IBON Foundation pointed out, four years is a sufficiently long-time to assess whether PNoy’s time in office so far has been spent well. Based on the evidence, it seems poverty continues to remain high. Despite the lowering of the poverty incidence by some percentage points, it was pointed out that the poverty line was simply based on 54 pesos a day or about US$1.25. Perhaps the more accurate thing to say about that is that the severity of poverty has been eased, but poverty overall still remains high (at about a quarter of the population of 100 million).

Another crucial statistic is that the unemployment and underemployment rates remain the highest in the region. This is what accounts for the high poverty incidence. As pointed out by Sec Almendras and NEDA Director General Balisacan at the PHDevt Forum on ANC, this is mostly due to the low productivity of the agrarian sector of the economy, which is due to poor infrastructure, and low human capital investments, which the administration has been trying fix.

Despite forging a social contract with the Filipino people at the 2010 elections, the ruling Liberal Party spent the first two years of the Aquino presidency going after its predecessor, Gloria Arroyo and her appointees in key positions of government, including Ombudsman Gutierrez and the Chief Justice Corona. Though it was successful in jailing Mrs Arroyo, getting Gutierrez to step down and removing Corona from office, this came at a cost.

The slow rate of its expenditures on infrastructure put a drag on GDP growth, and other items in the social contract were derailed by PNoy’s earlier commitment not to raise taxes and to re-examine every item in the budget to exorcise any vestige of corruption allegedly left behind by the previous administration.

When the economy slowed down the next two years were spent trying to recover through the DAP. The economy did rebound, but then the PDAF and DAP controversies blew up in their face. In its last two years, PNoy’s government will seek to pursue its social contract for accelerating inclusive development while working within the bounds set by the constitution. DAP was an aberration that could have been avoided if it had simply prioritized the social contract to begin with.

Evading the traps

The challenge of any government is always two-fold: to expand the spheres of productive activity in the economy, while increasing the social safety nets of those who slip between the cracks. What separates the “convergence club” of nations that are catching up with the rich nations with the “divergence club” that are falling behind, is the integrity and continuity of economic governance. This is “good enough” governance as opposed to good governance as espoused by the World Bank.

When using good governance as the benchmark, both converging and diverging economies fare poorly. There is no significant difference between the average governance scores of converging countries from their poorer counterparts. What is different is their ability to pursue economic reforms, which expand investments and produce jobs.

In a developing country where wealth is concentrated within a few powerful groups, this task is not easy, especially as the ability of government to generate resources to maintain its autonomy from such vested interests towards crafting independent, coherent, and strategic economic policy is very limited.

When the tax to GDP ratio of a country is 10-20% (ours is hovering between 17-19%), the revenues just aren’t sufficient to enforce contracts, property rights and maintain transparent, accountable government (i.e. good governance). An estimate of how much it costs in the West to enforce a rules based system range from 40 to 60 per cent of the economy. In a developing or even emerging country context, that simply is not feasible given the low tax to GDP ratio.

Added to that are the costs associated with patronage to “payoff” vested interests to give way to reforms or to maintain political stability and security (think of business groups, rebels and the military), and you have a situation where the government’s ability to maneuver is significantly diminished.

When the whole purpose of running for political office is to capture the “off-budget” items such as franchises, licenses and monopolies the congress issues or creates, or to protect business interests by controlling appointments into regulatory agencies or by influencing key policies through legislation crafted in congress, it is hard for a government to pursue reform without sufficient “sweeteners”.

In an emerging country like the Philippines where the productive sectors of the economy are expanding and governments are able to raise more money for social safety nets, the challenge is in maintaining the momentum, while seeking a sustainable path to development (given the environmental and social costs associated with development).

More importantly, escaping the “poverty trap” of low or underemployment, intergenerational poverty in an atmosphere of expanding opportunity for some may lead to a “middle income” trap where development takes place within a narrow segment of the economy and fails to “trickle down” to the base of the social pyramid. It is within this context that PNoy finds himself with severely diminished political capital, in the last two years of his presidency.

Foreign chambers will challenge him to lift restrictions to expand investment opportunities in the economy, encourage greater competition and improve infrastructure. The marginalized sectors of society will press him to complete social reforms and expand the system of safety nets.

SONAw what?

PNoy will have to pick his battles from now on. Will he continue to pursue his ambitious good governance agenda, or will he be content with achieving “good enough” governance, the definition of which is to eliminate the worst forms of corruption (i.e. the most extractive) that do not facilitate the expansion of productive sectors and lock people into a path of dependency while maintaining the integrity of economic policy making and governance?

Coherent economic policy does not necessarily equate to liberalization. The power sector is a good example. For a long time we were told that the key to lower energy bills was to “leave it to the market”. This was accomplished through the EPIRA. Now we are seeing that this regulatory framework will not prevent a power shortage and higher energy bills. Calls for emergency powers to allow government intervention to correct a ‘market failure’ are getting louder.

This problem is not just confined to the power sector. In transportation, education, telecommunications, and internet policy, the independence of regulatory bodies and their capacity in formulating policy is hampered either by an incestuous relationship with the very industries they are meant to regulate or corruption.

Deregulation may simply lead to a glut of operators (as in the case with buses in the metro) or having global monopolistic capital capturing regulation as opposed to local monopolists, leading to the same market failures. What is required is a significant improvement in the integrity and capacity of regulatory bodies overseeing strategic sectors of the economy to help expand economic activity.

Success won’t be measured by how liberalized the sectors are but by how efficiently they operate, how low the prices they charge, how available and reliable are the services they offer. To monitor and track all that and wield the carrot and stick effectively to produce desired outcomes requires strong, well-resourced government agencies.

You might have guessed by now that the priorities of a “good enough” governance agenda are very different and more direct to the point than the good governance agenda, per se.

The next item in the agenda would have to be increasing the tax collection effort. Despite his claims that the sin tax indexation reforms did not constitute a new tax, the net effect is that it imposed a higher tax on tobacco and alcohol producers. The template for achieving this reform is just as we outlined above. Affected farmers were compensated with the revenues generated by the tax. The improvements in tax collection were earmarked to improve social safety nets through health expenditure.

This is a template the administration can use to expand the tax base. Forming a social contract requires sacrifice from some taxpayers, in exchange for greater investments in social and human capital. That lies at the core. One proposal would be to have a one percent property tax that would be invested in public and social housing to eliminate the problem of informal settlers.

A minerals and resource rent tax imposed in exchange for liberalizing the mining sector, with proceeds invested in a future fund to provide loans and scholarships to tertiary students would be another example. Whether this administration likes it or not, tax policy is an important lever for achieving its social contract. But to legislate and enforce a minerals and resource rent tax requires a beefing up of the economic bureaucracy. Again, “good enough” governance will get you there.

Ticking clock

As the PNoy administration tries to beat the clock in the remaining year and ten months that it has in office, priorities matter. Will it continue to pursue its good governance agenda, or will it focus on “good enough” governance? As shown here, the priorities are very different based on which agenda he uses. If he wants to pursue inclusive growth and development and fulfill his social contract with the Filipino people, he needs to follow “good enough” governance by improving the capacity of economic agencies within the bureaucracy.

This will make the strategic sectors of our economy perform more effectively and efficiently. It will allow him to generate additional resources, beyond just what the present tax code affords him, even with an intensive collection drive. He will need to look at generating additional sources of revenue by following the sin tax indexation template his government has developed.

Two years may not be enough to complete the good governance agenda, but it is sufficient to achieve “good enough” governance, which is more achievable and will be more direct in following the elusive quest for inclusive development. If he chooses the latter, he will be able to step down in 2016 having a more lasting legacy.