Chalmers Johnson

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.

BFFs, NO! Developmental State, YES!

For all its talk of good governance and economic reform, PNoy’s government seems to be struggling at both. It needs a circuit breaker to change its current trajectory.

Last week, two surprise announcements were made. Well perhaps one was a surprise, the other was to be expected, but shocked a lot of people nonetheless. The first had to do with the resignation of Jose “Ping” De Jesus as secretary of the DOTC (Transport and Communications). The second was the less than stellar growth rate recorded in the first quarter of the year of 4.9%.

According to “Mareng Winnie” Monsod, Ping De Jesus her former colleague in Cory Aquino’s cabinet resigned due to his distaste for the shenanigans of his assistant secretary, Virgie Torres, a political appointee and shooting buddy of the Benign One himself. It appears that Mrs Torres who was already on the nose for two scandals involving her alleged abuse of authority was causing interference in the way Sec De Jesus wanted to run things at the department.

What’s more is that the DOJ Sec Leila De Lima, another highly esteemed member of PNoy’s cabinet had recommended suspension for Mrs Torres pending investigation of her latest infringement. What broke the proverbial camel’s back for Sec De Jesus, was PNoy’s decision to just ask Torres to go on leave for awhile, disregarding the DOJ’s recommendation.

A pattern emerges

This case mirrors the treatment of Sec Jesse Robredo, a highly decorated public official. In that instance another shooting buddy of PNoy in the person of Ricardo Puno was appointed undersecretary and was preventing Robredo from running the agency effectively. Despite the Luneta debacle involving Puno, who again was found liable by the DOJ secretary for mishandling the rescue of hostages, PNoy once again came to the aid of his BFF (best friends forever!).

At some point surmises Mareng Winnie, Robredo and De Lima might follow De Jesus and leave the PNoy administration.

It could not happen at a worse time as the economy seems to be slowing as a result of government underspending by a magnitude of 70 billion or three and a half conditional cash transfer programs in the first quarter alone. This according to the nation’s chief statistician NSCB Sec Gen Virola dragged the growth of the economy down from 5.1% supposedly to 4.9% effectively causing the NEDA to rethink its growth forecasts for the year.

Despite the approval given by Congress before the start of the year and the zero based budgeting approach instituted which presumably cleansed the roster of projects of wasteful anomalous spending, the current administration still found itself stumbling at the gate with a review of costings delaying its spend. Senator Ralph Recto a former NEDA director general says, “Use it, or lose it.”

Unfortunately, these two events are just symptomatic of a dysfunctional state and set of institutions that continue to hound the Philippines.

The BFF phenomenon

Ferdie had his cronies. Cory had her kamag-anaks (close relatives or Kamaganak Inc), Eddie had his fellow generals. Erap had his drinking kumpadres, Ate Glo had her husband’s classmates, and Noy has his shooting barkada (update: or Kaibigan Inc as the Inquirer has put it). It’s a BFF phenomenon replicating itself with each successive administration. Despite their rhetorical flourishes, they just can’t help but stick to the same playbook.

What’s the reason for this?

Well it goes to the heart of what institutions are about, which in economic theory is all about reducing transactions costs. Let me break it down for you…

In a nation like the Philippines, where business transactions are lubricated through personal relationships and kinships, using close friends and connections are one way to minimize costs associated with screening and monitoring business contracts, partnerships and joint ventures.

So it is in running a government, the sheer size of it makes it necessary for the one appointing to efficiently select appointees to help him share the burden. So often the shortest possible route to that is appointing BFFs.

The use of personal ties does not always lead to dysfunction. In post-war Japan where the top graduates from the premier law schools were often recruited into the economic bureaucracy, a member of an incoming “cohort” would often rely on school ties to forward his or her career. In fact, companies were wont to recruit graduates from the same universities mainly because of the close connections they had with public servants in these powerful agencies.

Todai Law School, University of Tokyo: has one of the most powerful of school cliques in Japan. Alumni are well-placed in the upper echelons of government, banking and industry.

The term they used for this was gakubatsu or school cliques which are ensconced in the upper echelons not only of government, but banking and industry. Within this batsu, is the Todaibatsu, or the “bastu of all batsus” which refers to alumni of the University of Tokyo Todai Law School, whose education features a heavy dose of public administration, more like political science, and economics.

This mixture of a merit based appointment and school/class based loyalty system enabled these bureaucrats to work cohesively and professionally, which in turn permitted policy to be developed independent of local as well as international pressure or influence, to strengthen economic policy and manage public-private cooperation.

The developmental state model

In his widely celebrated book on the powerful Ministry of Trade and Industry, MITI and the Japanese Miracle, the late Prof Chalmers Johnson outlined how the Japanese bureaucratic model worked

The first element of the model is the existence of a small, inexpensive, but elite bureaucracy staffed by the best managerial talent available in the system…they should be educated in law and economics, but it would be preferrable if they were not professional lawyers or economists, since as a general rule professionals make poor organization men…

The second element of the model is a political system in which the bureaucracy is given sufficient scope to take initiative and operate effectively. This means, concretely, that the legislative and judicial branches of government must be restricted to “safety valve” functions…to intervene in the work of the bureaucracy and to restrain it when it has gone too far…

The third element of the model is the perfection of market-conforming methods of state intervention in the economy. In implementing industrial policy, the state must take care to preserve competition to as high a degree as is compatible with its priorities. This is necessary to avoid the deadening hand of state control and the inevitable inefficiency, loss of incentives, corruption, and bureaucratism that it generates.

The fourth and final element of the model is a pilot organization like MITI. The problem here is to find the mix of powers needed by the pilot agency without either giving it control over so many sectors as to make it all-powerful or so few as to make it ineffective.

What Johnson was describing is basically the East Asian economic model based on the developmental state or the BeST Consensus (BeST stands for Beijing, Seoul and Tokyo). The Commission on Growth and Development in its findings covering the factors that gave rise to rapid and sustainable growth gave a tip of the hat to the fourth element. Its term for this is “reform teams”. According to the report

The business of “feeling for stones” in fast-growing economies was often carried out by highly qualified technocrats in small, dedicated “reform teams”. Singapore had its Economic Development Board, Korea its Economic Planning Board, and Japan its Ministry of Trade and Industry.

Reform teams were not burdened with adminstrative duties, but they were given direct access to the top of the government. Malaysia’s Economic Planning Unit reported directly to the prime minister. Taiwan, China’s…Council for Economic Planning and Development, reported directly to the president. Indeed, several future heads of government sprang from their ranks: the second chairman of the Council later became president of the country.

From this unique position…the reform teams helped coordinate the government’s efforts and overcome administrative opposition and inertia.

Although technocrats unchecked by political forces can fail to balance economic with political and social concerns, political forces unchecked by technocratic knowledge can be disruptive.

In the Philippines, the closest resemblance to a “reform team” is the NEDA which creates the revolving five year medium term plans and screens development projects. The latest roll-out is the Philippine Development Plan 2011-2016.

Unfortunately, while the director general of this agency does sit within cabinet, his stature is often relegated to a planning or “secretariat” function. We also witnessed in the case of Sec Romulo Neri how the clout of the NEDA chief could get superceded by political players and personalities outside of government.

The NEDA in its original design was meant to perform the function that the cabinet cluster under EO#43 sets out to do. Under this over-arching framework, the NEDA’s sole job is to act as secretariat for one of the clusters, on economic development leaving social development, climate change, governance and justice to be handled by other lead agencies.

The Philippine reform experience

If we look at our own track record at performing economic reform, the reform teams have traditionally been held by players close to the president, a Joe Almonte under Mr Ramos or a Joey Salceda under Mrs Arroyo.  Love them or loathe them, the reforming credentials earned by their presidents (whether you agree or disagree with the type of reform is immaterial) can be credited to them and the teams that worked with them.

Following in that tradition, I formed the view that the person best placed for this role would be Mar Roxas, the president’s failed vice presidential running mate. Although EO#43 has been branded a power play on the part of the opposing faction to “cluster out” the incoming chief of staff, I believe that it has the exact opposite effect. A reforming team requires a strategic “helicopter view” of the world.

Had the E.O. pigeonholed the chief of staff like it has the NEDA chief, the occupant would be unable to move out of this administrative strait jacket. Perhaps the strongest suit of Mar is his being a former DTI secretary, which puts him in good stead with the various industry groups and the economic bureaucracy. Given his skill sets, he should be able to drive a number of key reforms across all five cabinet clusters.

It is reported in today’s Inquirer that his rivals within the office of the Executive Secretary want Mar Roxas to take the DOTC secretaryship supposedly to keep him away from the Palace. Given the shambolic state that the administration currently is in, with its rookie student council style of governance, the presence of a veteran like Roxas might help steady the ship and keep it on course.

Conclusion

If the government of the Benign One ever hopes to dig itself out of the rabbit hole it has dug itself in, now is the time to do it. It will have to show its reformist credentials soon. The paternalistic state was one where BFFs thrived. It was compatible with the misplaced faith in “the Market” to deliver its citizens into the promised land of economic prosperity wherein the state played a diminished role.

As inconsistencies between the outcomes of this model and what it predicts has become apparent, perhaps our leaders will realize that the responsibility for charting our own path lies in our hands and not that of foreign aid donors and advisors. Perhaps this “re-awakened sense” of self-determination is the vision lacking in all our plans.

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