demographic transition

Succeeding Aquino

Political succession is the key to long-term economic growth.

The Philippines has been hailed as a rising star among emerging markets in 2013, but sustaining this strong performance will require a good succession plan for the Aquino presidency. Political succession as it turns out has been a crucial driver of long-term economic growth among emerging economies over the past fifty years.

A study conducted by Tim Kelsall for the Overseas Development Institute of Britain comparing the growth experiences of countries in the rapidly growing regions of Southeast Asia and sub-Saharan Africa has found that,

Contrary to currently fashionable ideas about ‘inclusive institutions’ and ‘golden threads’, (we find) that crucial to combining succession with growth is the embedding of policy-making in strong institutions of one of two types: 1) a dominant party with a tradition of consensual decision-making and leadership succession, or 2) a strong, organic bureaucracy, effectively insulated from changes in political leadership.

Sub-Saharan Africa, which today is the fastest growing region in the world, did experience respectable growth rates in the 1960s and 1970s. What prevented this region from sustaining its economic performance in the long-run was the failure of many countries to manage political succession well.

The same could be said of the Philippines. From the 1950s to the 1970s, the country experienced solid economic growth rates averaging between 4.9 to 6.4 per cent (see table below). Of course this was still well below the growth of Malaysia or Singapore, but it was respectable, nonetheless.

Source: NSCB

The 1980s spelled the end of this sustained growth as the Marcos regime, which had been in power since 1964 collapsed. The upheaval began with an international debt crisis and the assassination of Senator Beningo Aquino, Jr in 1983. “Ninoy” as he is popularly known was returning from exile in the United States where he was granted furlough by the regime to undergo heart surgery, after spending close to 8 years in prison. The then leader of the opposition was hoping to convince President Marcos to accept a power-sharing deal that would allow for a smoother transition to democracy.

Unfortunately, due to the ill-health of the former dictator (he was not totally in command of the situation), the conciliatory offer was not taken. Instead, the death of Senator Aquino led to massive street demonstrations and the eventual fall of the Marcos regime. They say that authoritarian governments offer a tradeoff: higher economic growth, in exchange for a higher risk of economic collapse when they fail to manage succession smoothly, and that is exactly what happened.

The 1980s saw a diminution of growth to 1.8 per cent. This was lower than the population growth rate, meaning per capita incomes retreated during this decade. The transition from Ferdinand Marcos to Corazon Aquino was marked by a series of coups, natural disasters and a power crisis. It is clear from the chart above that the Philippines never fully recovered from the trauma of this fall until the 2000s when growth averaged 4.8 per cent, roughly where it was in the 1960s.

Of course, the political transition was not the only factor that influenced economic growth during this period. The country was also making a transition away from protectionist industrial policy towards a more liberal economic position. The former had played into the hands of crony capitalists under the Marcos regime. Much of the debt that was accumulated during this time was illegally siphoned off. That was economically unsustainable.

Political economists Emmanuel De Dios of the UP School of Economics and Jeffrey Williamson of Harvard took a candid look at the possible factors that could have been responsible for us deviating from our upward path since the 1980s. They list the following as possible candidates:

  • political instability at a critical time in the 1980s
  • a subsequent failure to exploit the move of Japanese manufacturing FDI [foreign direct investments] into the region
  • an institutional weakness benign in the pre-1982 past but made more powerful since
  • some liberal policy package that penalized manufacturing when it was already on the ropes
  • emigration surge in the 1980s that stripped the work force of industrial skills
  • some massive Dutch Disease created by subsequent huge emigrant remittances.

They conclude that no single factor determined the outcome, but that all of them may have come together to create a ‘perfect de-industrializing storm’. I tend to agree with their findings although, the originating event is clearly the political instability that occurred as the dictatorship was in its death throes. The fact that Marcos or his party did not have a succession plan to manage a transition locked the country into a path of low growth in the subsequent decades.

Whatever the cause or causes of this, the authors acknowledge that the resulting pattern of growth has been less than ideal:

The path followed has led to a new stable equilibrium where a largely liberalized trade in goods coexists with a recurrent current account surplus built on remittances and strong (skill‐intensive) service‐sector exports. The peso is under steady pressure to rise in real terms, which leaves little room for (lower‐ skill) manufacturing to compete and expand. A considerable rise in the investment rate—still low by East Asian standards—would relieve the current account pressure for real appreciation and create more jobs. But the low investment rate may be part of an equilibrium where capital requirements are low simply because a significant share of the urban labor force is already abroad. [emphasis added]

In the first half of the current Aquino presidency, growth has averaged 5.8 per cent, close to where it was in the 1970s. Severe weather and economic conditions globally are not expected to knock it off its current path. As noted above, the trajectory is due to a combination of income flows from abroad and investments in the modern services sector. This has led to the criticism that it is not broad based.

A number of factors however seem to be lining up that could spell an end to this current “equilibrium”. The first is the slow but gradual demographic transition which could lead to an “economic sweet spot” where labour demand exceeds supply. A debate among technocrats is currently underway as to when exactly we will reach this tipping point. Central bank officials predict this could be as soon as 2016, while the more conservative economic development agency estimates for this to happen in the 2020s. I foreshadowed this debate in a post from two years ago.

The second factor is the gradual build-up of foreign reserves in excess of our external obligations, which is driving up the peso and convincing monetary and fiscal officials to consider setting up a sovereign wealth fund to address the investment gap that is hindering job creation. I have been advocating for this wealth fund as early as 2010.

The third factor is the “systemic vulnerability” from external threats to our national sovereignty and security, particularly from China, which could motivate the development of a national agenda towards building a better, stronger economy, to face these challenges from abroad. The same sense of vulnerability from both external and internal threats was what motivated Japan, Korea, Taiwan, Singapore and Malaysia to forge a national developmental agenda.

The key to all of these factors in producing the desired outcome is the ability of our political system to fashion a solid policy making capability from one of two sources: either through stronger political parties or a professional economic bureaucracy insulated from political interference. The continuity of a sound, stable policy making capacity with the ability to set the national agenda allows for considered, adaptive economic policies despite a number of political successions. This is the crucial element that would ensure sustained, rapid growth in the long-run.

Some further reading:

  1. The new Philippine political architecture: a blueprint for strengthening political parties.
  2. The national development project: Renovating the bureaucracy

 

Establishing and Managing a Philippine Sovereign Wealth Fund

This is the second part of a series on this topic. In the first part, I discussed why we need a sovereign wealth fund or SWF in the first place. My main contention was that the Philippines is currently suffering from “Dutch disease” or the adverse effects of a sudden rise of income from its export of labour and from a rise of confidence in its domestic economy. In this second part, I will discuss how we could govern and operate our own SWF.

The Santiago Principles established by 26 countries with SWFs known as the International Working Group or IWG  in 2008 lays out a number of generally accepted principles and practices or GAPP to ensure that “the SWF arrangements are properly set up and investments are made on an economic and financial basis”. One of the main reasons for this is that as government-owned  entities, as SWFs continue to grow in importance to global capital markets and perform a bigger role in corporate governance, they need to demonstrate that their investment decisions are not politically motivated.

Traditionally, SWFs took the surplus foreign reserves accumulated within a resource exporting nation and invested them in long-term projects overseas. This allowed recipient countries that were often capital constrained and developing to benefit from such investment flows. The size and relative lack of transparency of some SWFs however caused many actors in the international community to cast a suspicious eye at these funds.

In the Philippine context, as discussed in the first part of this series, I propose that our SWF be confined to funding projects within the country given our chronic underinvestment in infrastructure and need to resuscitate our industrial sector. Given however our historically poor track record at ensuring that government owned and controlled companies manage their assets in a prudent manner, the main concern in establishing a SWF would be to ring-fence it from the influence of politics.

The Santiago Principles help to define a set of best practices for us in establishing our own SWF in the Philippines. The Carnegie Endowment for International Peace talked about what the effect of signing up to these principles is by saying that

(b)y voluntarily submitting to the Santiago Principles, IWG members ceded their autonomy to establish governance arrangements in line with their individual needs and preferences. In a way, they made a conscious decision to limit the reach of their “sovereignty.”

You might be tempted after reading that to draw an analogy between the IWG to the World Trading Organisation or WTO which implements the General Agreement on Trade and Tariffs or GATT. Unlike that body, the IWG and its successor the International Forum of Sovereign Wealth Funds or IFSWF is purely voluntary and has no powers to sanction its members. The Carnegie Endowment does draw this distinction. What our Philippine authorities should do in drawing up the framework for its SWF would be to hard code “the Principles” in its charter.

As shown in the table below, the Principles may be divided into three distinct parts. These cover the legal and macroeconomic policy framework of the fund, its institutional and governance arrangements and structures, and finally its methods for managing investment decisions and handling risk. I am adapting the Carnegie Endowment’s description of these parts here.

Table 1: Santiago Principles*

Section What “the Principles” state there should be GAPP #
Legal framework, objectives, and coordination withmacroeconomic policies
  • disclosure of legal framework
  • definition and disclosure of policy purpose
  • public disclosure of funding and withdrawal arrangements
GAPP 1
GAPP 2
GAPP 4
Institutional framework and governance structures
  • clearly defined roles and responsibilities of the principal/owner (the government) and the agent (SWF’s governing body, officers and executives)
  • a limited role for the principal which is to set the broad  objectives, appointment of governing body or board, and oversight of operations
  • a clear mandate to the fund’s governing body to set strategy for achieving its objectives along with being accountable for its performance
  • delegated authority for independently implementing strategies and handling operations for officers and executives under clearly defined roles and responsibilities
GAPP 6 

 

GAPP 7

 

GAPP 8

 

GAPP 9

Investment and risk management frameworks
  • disclosure of investment policies
  • information about investment themes, investment objectives and horizons, and strategic asset allocation, including:
    1. disclosure of investments that are subject to non-economic and non-financial considerations
    2. whether they execute ownership rights to protect the financial value of investments
  • a framework that identifies, assesses, and manages the risks of its operations and measures to track investment performance employing relative and/or absolute benchmarks
GAPP 18 

 

 

GAPP 19.1

GAPP 21

 

GAPP 22

*adapted from Sven Behrendt (2010). Sovereign Wealth Funds and Santiago Principles: Where do they stand? Carnegie Papers No. 22, Carnegie Endowment for International Peace.

The policy aims of setting a SWF in the Philippines are clear: to channel excess foreign reserves in a productive way and to cope with the developmental needs of the country. As I stated in the first part of this series, existing legislation tasks the Bangko Sentral with ensuring an adequate supply of currency to meet our international obligations. It does not contemplate our current predicament where the annual flows of remittances and portfolio investments have made our gross international reserves (GIR) rise rapidly.

This has caused the appreciation of the peso which has put a strain on our exporters. Even our burgeoning business process outsourcing industry is beginning to feel the pinch of the currency’s upward trajectory. As I previously stated, the GIR is now sufficient to cover twelve months of imports and to meet all our external obligations with a comfortable buffer left over.

And it will keep rising especially if our government earns an investment grade credit rating as is expected next year. Our GIR should only be allowed to rise in proportion to our external commitments. As our economy becomes less dependent on foreign borrowing these external debts won’t rise as rapidly as they have in the past.

Once a targeted level has been reached, the Bangko Sentral should be authorised to declare any additional funds in excess of its requirements. The existing Central Bank Act should be amended to explicitly state this. The monetary board should be given the task of setting the appropriate benchmarks for making such declarations and for transferring excess funds into a SWF.

The nature of such a transfer, as I have suggested, should be in the form of a sovereign loan issued to the national government, which will own the SWF. This would help ensure that the projects which the SWF invests in will have a sufficient return to cover its borrowings and operating costs. It would also ensure that the value of the Bangko Sentral’s assets is preserved.

As to the appointment of its board and officers, the SWF would be subject to the same rules covering government owned and controlled corporations or GOCCs. The reforms carried out by the new GOCC law which created a commission that regulates the appointments, compensation and accountabilities of such officers would apply as well. This would include the need to provide audited financial statements and management reports.

In terms of the type of projects it would fund, I have suggested four potential areas or themes. This includes public infrastructure (such as the ones eyed for Public-Private Partnerships) aimed at both social and economic development, joint minerals exploration in consortium with private mining firms, industry cluster development projects, and clean, renewable energy projects.

The allocation of resources across these themes could be based on national priorities. Let’s be clear: the main purpose of this SWF would be to support the development priorities of the nation, and that should be stated unapologetically. But for specific projects, a set of solid business cases needs to be presented. When entering into joint ventures or consortia with private players, the SWF should also be allowed to exercise ownership rights over the project to protect its investments.

Just as with government financial institutions or GFIs, the SWF should be guided by proper prudential management principles that would monitor its risk exposure. Unlike the conservative treasury management practices of government banks and pension funds, the risk-return equation is different for an equity investor like the SWF. The risk tolerance would be higher while its returns need not necessarily be as big given its lower cost of borrowing. Its risk adjusted return on capital would thus be lower compared to commercial banks.

Some PPP bidders have expressed concern over political interference in the Philippines affecting their ability to set fees independently of the government. This has limited the appetite for actually managing the operations of the utilities and transport oriented projects. They have therefore chosen to participate only in building contracts. Takashi Ishagami of Marubeni Corporation has been quoted as saying that “the Filipino PPP is far away from our standard”. It has partnered with a local firm to jointly bid for a $1 billion railway project in which it would be merely supplying equipment.

That’s fine. If the SWF were to finance such partnerships, our excess foreign reserves would leak out of the country (as intended) through the purchase of foreign equipment. This will help temper the peso’s rise since these projects will no longer be financed through overseas assistance or equity from abroad. What could leak in, however, is foreign technology and know-how because as an equity investor, with a long time frame, the SWF would also have greater leverage to request that suppliers provide technology transfer to local partners. This should unapologetically be part of its investment prioritisation framework.

An Alternative to Charter Change

Rather than relaxing the maximum capital requirements on foreign participation in certain industries contained in our constitution, the government should instead be looking to accelerate the flow of funds into productive activity with the SWF as one of its prime vehicles. Where private players are too small to generate sufficient scale to participate in large projects, the government should encourage them to form a cluster and fund them to be able to compete with multinationals.

This incidentally was the vision of the late-Senator Benigno “Ninoy” Aquino for the Philippine economy which he explained in a speech delivered in Los Angeles back in 1981 while he was in exile. He sought to counter the Marcos regime’s formula of encouraging multinational firms to engage in extractive activities and to commercially fund projects like the Bataan Nuclear Power Plant. Juxtaposed to Marcos’ “crony capitalism”, Ninoy termed his philosophy “Christian socialism”.

Don’t be turned off by the name. As his remarks suggest, what he really meant was essentially a form of capitalism more akin to Northern Europe’s brand than to the English version as espoused by Adam Smith. The last time I checked, the German and Scandinavian economies seemed to be weathering the present crisis well, while maintaining one of the highest levels of income and social well-being compared to their Anglo-American counterparts.

Under President Benigno “Noynoy”Aquino’s rubric of good governance, the stage is now set to pursue that economic philosophy and vision for the country.  As the Carnegie Endowment for International Peace found, sound democratic institutions best explains a nation’s compliance with the Santiago Principles.

With the government now facing the prospect of receiving investment grade status in the coming year, it must prepare for any unintended adverse consequences this might have as more short-term investors flock to our shores, boosting the peso’s value and putting more of an already unbearable strain on our exporters of goods and services.

For good governance to yield economic benefits to the people, it needs to be used to address the developmental challenges facing the nation. If we act soon, we won’t have to face these same challenges in the future. The country is already in a gradual demographic transition that will lead us from an excess supply to an excess demand for labour over the next decade.

While we still send our surplus workers overseas, we need to channel the wealth they are creating for our nation into projects that would increase economic opportunities for our people back home. This presents our policy makers with a once in a generation opportunity to get things right. Given the discussion covered in this series, it would seem apparent that a SWF would be the way to go.

Christianity Undermines the Family

Yup, that’s right; that’s not a typo. The Catholic Church was responsible for reducing the size of families in Western Europe contrary to popular belief.

Before I get stuck in the details, a little context is needed.

The fight over the reproductive health bill in the Philippines has pitted the Catholic clergy and faithful on the one hand against secular, feminist, and humanists on the other. One of the contentions of the anti-RH camp is that the bill is anti-family and will cause a rapid decline in our population similar to what has occurred in Western Europe.

Here is Sen President Juan Ponce Enrile one of our elder statesmen opposed to the RH bill,

If you are going to contract the population, you reach a point in time where you will have less workers, less production, less consumption, less taxpayers to support the government.

And again, he goes on

The economic interest of the country will be a factor and the security of this nation for the next 100 years will be on the balance. Mind you, this bill is not really that easy. It’s a matter that will affect, will impinge on the faith of each one of us.

This popular belief which he expresses comes from the experience of Western European countries where fertility rates have dipped below replacement levels since the mid-60s. This is attributable to the rise of contraception use in those countries, the strength of the women’s movement and the legalization of abortion. Concurrent with these developments has been the collapse of the traditional family and with that the greying of the population.

The Philippines with its exposure to Western media and culture has still managed to maintain laws which reflect the predominantly Catholic nature of its population. This according to Sen Enrile is the only thing that prevents it from slipping into the demographic malaise of our European counterparts.

Modern Family

In reality, the decline of the traditional family in the West preceded the rise of modern contraceptives. In his new book The Origins of Political Order, Francis Fukuyama devotes an entire chapter the title of which I borrowed from him here to discuss this form of “European exceptionalism.” According to Fukuyama, dating the rise of the modern family is a bit tricky.

Karl Marx associated it with the rise of the bourgeois class during the Industrial Revolution of the eighteenth and nineteenth centuries. In the Communist Manifesto Marx claimed that the bourgeoisie “has torn away from the family its sentimental veil, and has reduced family relation to a mere money relation.”

For his part, Max Weber felt that the rise of individualism came about through the Protestant Reformation with its emphasis on personal salvation and the Enlightenment with its emphasis on individual rights and secular humanism. This would date the existence of modern families to the sixteenth and seventeenth centuries.

If Weber and Marx are correct then the collapse of traditional societies, which were based on extensive ties of kinship, restrictions on market transactions and individual social mobility due to informal social norms grounded in tradition, religion, and charisma, and the transition into modern societies which are based on individualism, meritocracy, egalitarianism and rational-legal forms of authority is only but a few centuries old.

The french historian Marc Bloch however believes that the rise of feudalism in the ninth and tenth centuries was in part a way of coping with the decline of kinship based tribal societies in Europe. According to Bloch, “Neither the state nor the family any longer provided adequate protection…Everywhere the weak man felt the need to be sheltered by someone more powerful.” This dates the birth of the modern family much sooner.

But it was actually around the sixth century, when the Catholic church, confronted with the marriage practices of newly converted Germanic tribes that had toppled the Roman empire, introduced changes to them. These tribal practices included marriage to cousins or close kin, the levirate or marriage to widows of deceased relatives, adoption and divorce. The church instituted edicts that forbade concubinage and promoted marriage as an indissoluble, monogamous and lifelong bond.

The reason according to Jack Goody was not theological but material in nature. Goody labels the marriage practices banned by the church “strategies of heirship” whereby kinship groups maintained control of property. At a time when the average life expectancy was less than thirty-five, the likelihood that a couple produced a male heir who survived into adulthood was quite low.

At that time the church encouraged donations of land and property to itself. Accordingly, women were allowed to own property to prevent their deceased husbands’ inheritance from reverting back to the family group in the absence of an heir. Thus, women’s rights to own and bequeth property was an unintented consequence of this teaching which profited the church largely. By the end of the seventh century, one-third of all productive land in France fell into the hands of ecclesiastical estates.

So there you have it. The rise of individualism, women’s rights and the modern society in Western Europe which is blamed for the demise of the traditional family originated from church law back in the sixth century. If it was motivated by material interests to outlaw old forms of marriage back then, it might be similarly motivated today in seeking to discourage new forms of family planning to prevent its flock from shrinking.

Fertile Ground

Finally with regard to the argument that the promotion of modern forms of contraception will lead to an irreversible decline of population and economic stagnation, I would offer the following chart taken from a study by Mikko Mryskyla of the University of Pennsylvania published in the science journal Nature back in 2009.

It shows two snapshots of cross-country fertility rates recorded in 1975 and 2005 on the vertical axis plotted against human development scores on the horizontal. Back in the twentieth century, you could be forgiven for thinking that the downward trend would have no end as countries that grew richer exhibited lower fertility rates. This is clearly shown by the 1975 scatter plot (in blue).

Here in the twenty-first century, that pattern has clearly been reversed with countries exhibiting advanced levels of human development recording a recovery (see the red scatter plot) of their fertility rates compared to previous levels set in 1975 (HDI or the human development indicator on the horizontal axis is a composite index of health, education and income levels).

The way that these countries have reversed the downward trend and produced the J-curve observed in 2005 has been by promoting a number of family friendly policies which include generous maternity/paternity leave allowances, free or subsidized childcare and pre-schools, pre- and post-partum care to mothers and newborns, and flexible working hours, to name a few.

Myrskyla has since then studied the relationship between happiness and fertility using data from the World Values Survey and has concluded that having children is “a long-term investment in well-being.” In the short-run however the data shows that having more kids poses challenges to happiness (less time for personal needs and interests). The policies mentioned help to counter that and allow families cope better with raising kids.

With such policies in place, these countries have seen their fertility rates rising above the demographic point of no return (of around 1.5 births per woman) to near replacement levels (around 2.1 bpw). Given that this field of policy research and development is still in its “infancy” (pardon the pun), we can expect to see more countries joining them and hopefully see fertility rates in rich countries reach replacement levels in the near future.

So to the doubters out there who still feel that modern family planning is anti-family, perhaps they need to brush up on their reading of events, both past and present.

Predicting the coming labour shortage

When will the Philippines reach its tipping point?

Suck! That was the sound of jobs and investments being plucked out of the West and sunk into China. That was then.

As the world economy gradually recovered from the global financial crisis in 2010, there was talk of the People’s Republic finally having reached a tipping point that would see it transitioning from being a predominantly labour-surplus economy to one that suffers from labour-shortages.

Last week as the Benign One appealed to employers to give modest pay increases as a way of quieting labour groups following the May Day celebrations, authorities in China were for the first time entertaining the possibility of allowing their currency the Renminbi to appreciate to increase worker purchasing power and tamp down inflation.

Wages as a share of GDP in the People’s Republic had peaked in 1985 at 57% and then dropped to 37% in 2007 (making it one of the most capitalist big economies of the world). They are expected to rise steadily from now on. By 2020, a dramatically different picture will emerge. The words ‘cheap labour’ and ‘China’ may not hold together for very long; good news to the Western world which has been suffering enormous trade deficits with this manufacturing powerhouse from the East.

The shift from a predominantly young to an increasingly aging work force is the result of family planning policies instituted in the early-80s with the famously draconian one child policy enforced in urban centres being the most prominent among them. As the number of jobs available continues to outstrip their capacity to fill them, the Chinese communist party has increasingly allowed unions to exert their bargaining power in several sectors of the economy to prevent social unrest.

Today rising wage inflation and a demographic transition have some talking of a significant slow down in growth of the world’s second largest economy (from the 10 to 12 per cent experienced in the last decade to 7 or 8 per cent). Chinese wages are going to rise significantly over the course of the next decade. This will cause it to shift from an export driven economy to one that is mostly consumption driven.

The Philippine case for a tipping point

Because of the uneven distribution of human capital in the Philippines, comparatively higher wages and skills shortages in some areas exist alongside a substantial labour surplus. There are patches of skills shortage while large swathes of the populace are unable to find employment.

The record of job generation over the last twenty years has not been all that bad though. As I previously stated (in a piece entitled Jobless Growth: Fallacies part 2 posted last year in this space but no longer available): nearly twelve and a half million net new jobs were created compared to twenty five million in the US which has close to four times our population.

This led me about a year ago (in another piece entitled The Coming Labour Shortage posted in this space but no longer available) to predict when the country might approach a tipping point of its own. Using modest economic growth figures and a steady slowing of growth in the labour force (which have been observed over the past two decades) my optimistic forecast was for our transition to a labour shortage situation to begin as early as 2015/16.

The more realistic scenario I came up with is for the two to be in balance around 2020/21. Beyond that I predict that labour demand will outstrip supply (see graph right). Incidentally, the value of labour supply that I predicted for 2009 was off by 30 thousand from the actual growth that was recorded (it sounds big, but it represents only one tenth of one percent margin).

Had we consistently adopted a set of sound family planning policies as late as the 1990s, we would have seen a more balanced labour market. Unfortunately, reproductive health and family planning have not found traction in our country. It would be good if our leaders started focusing on the big picture rather than the daily to-ing and fro-ing over who wins in the daily 24 hour news cycle. I would much rather prefer a discussion about how to hasten the day when we no longer need to export our work force.

The good news is that even under the “do-nothing” scenario, we seem to be heading for a tipping point within a decade. The bad news is that this might lead us to think that we can sit back and literally, “do nothing.” A complacent administration might be content with maintaining current policy settings and engaging in populist rhetoric to gain short-term political wins. Unfortunately, this is too often the case.

As I mentioned last week in a three part series on the eve of the anniversary of his election into office, the presidency of the benevolent one has so far suffered from a lack of strategic focus. I laid out a case for the following:

As a result, the public that voted him into office has been experiencing what social scientists call cognitive dissonance or noise created by a deficit between what they were made to believe would come to them and what they ultimately experienced after buying into his candidacy.

The Employment Plan

The Employment Plan 2010-2016 released a few weeks ago aimed to create a net increase of one million jobs per year. It was a carbon copy of the past administration’s often missed policy goals. Unfortunately, we do not yet have a Freedom of Information Act that would allow us to scrutinize in minute detail the manner by which the government came up with this figure.

Is it plucked from thin air? Is it just one of those “stretch targets” as I suspect it is? Do they have detailed industry, occupational and regional breakdowns of these projections? If so, is there a coherent strategy for building the skills base in the right areas to avoid serious skills shortages as is already apparent in some occupations?

There is an oversupply of college educated graduates and not enough vocationally trained ones. The K-12 expansion of basic education hopes to address this imbalance by introducing school based training in the trade occupations by 2015-16. The lessons from advanced economies tell us that such training has to be continued by employers through an apprenticeship or on-the-job training program supported by the government.

Meanwhile programs to reduce school attrition like the cash payments to poor parents need to be put in place so that more and more primary students stay in school and are able to acquire enough skills to be gainfully employed. The upgrade of teachers, educational facilities and resources also requires funding. The role of former state polytechnics to provide a pathway from vocational education into higher education has to be defined.

Not enough energy has been spent explaining what these reforms would mean. Instead the president has been parrying allegations about his poor work ethic. Ten to twenty years from now, this will all seem so petty and meaningless. Today however it is on top of the agenda.

The year 2020 might seem so very far away, but it isn’t really. It is less than two presidential terms away. In the final analysis, if the Philippines were to follow in the footsteps of its East Asian counterparts in reaching a tipping point by then, it will only be because its leaders were willing to do the heavy lifting today.

Reproductive Health: Lessons from Bangladesh

The first time a coherent population policy framework linked to family planning was adopted in the Philippines was during martial law. In 1968, contraception adoption in the Philippines (measured by the ratio of married women aged 15-49 who practice or whose sexual partner practices any form of contraception) was 15%*. By 1986, that ratio went up to 44%. The average number of births per woman during this 18 year period declined from 6.45 to 4.66.

The Aquino administration upon assuming office in 1986 and heavily influenced by the Catholic bishops of the Philippines abolished the population commission set up by Marcos. Over two years, the prevalence of contraception went down to 36%. Since then it has steadily risen to just over 50% where it stood in 2008. The number of births per woman went down to 3.08 (forty years for it to halve!).

During this time, something remarkable happened in Bangladesh. With the adoption of some sensible population and health policies, they have been able to increase contraceptive prevalence from 27% in 1986 (when records were first kept) to 53% in 2008. Similarly, the number of births per woman went down from 5.4 to 2.3 in that same period. It took them just over two decades to halve their fertility rate to roughly equal the replacement rate (meaning that over the coming years their population will remain stable).

This is remarkable given that the per capita GDP (adjusted for purchasing power) in Bangladesh was in 2008 only about a third of the Philippines ($1,350 v $3,690). For those that argue that a change in fertility is affected by income, this might seem puzzling. Of course in general higher income levels lead to smaller families as demonstrated by the fact that fertility rates for both countries have been declining as incomes have risen. But policies aimed at providing options to families also play a determining role.

Continuity and stability of policy framework

Consider the different policies adopted by these two countries. I have already mentioned the almost stop-and-go nature of population planning and policy in the Philippines. In Bangladesh, they have sustained their policy framework close to forty years and have already graduated into second generation policies.

The first phase of their population policy lasted just over twenty years, from 1973 to 1996.  This phase focused on implementing programs aimed at reducing the population growth rate. These programs were centered on providing maternal and child health care services through home visitations, expanding the availability of contraceptives, multi-sectoral collaboration and encouraging the adoption of family planning services.

It took Bangladesh half the time it took the Philippines to halve its fertility rate. This is despite the fact that Bangladeshis are poorer on average than their Filipino counterparts.

The second phase began in 1997 and continues until the present. It has been more focused on integrating family planning services into a broader set of health programs affecting a wider target group.  From just focusing on reproductive and infant health it became concerned with the control of HIV/AIDS and other sexually transmitted diseases. From being home-based, the services concentrated on clinics to deliver a broad range of services.

The results speak for themselves. One area in which such programs have been effective has been in reducing adolescent fertility. In Bangladesh, the number of adolescents giving birth has gone down from 114 (per one thousand women) to just 70.5 in a span of just ten years (from 1998 to 2008).  In contrast the figure for the Philippines has hardly moved in that time moving from 47 down to 44.

This reduction in adolescent fertility might have helped Bangladesh increase the participation of women in school. In 1990, the ratio of girls to boys in primary and secondary education for Bangladesh was at 75%. By 2006, this rose to 105%. It went from 99% to 102% for the Philippines.

As a result of their integration of maternal and child health services, Bangladesh saw a reduction in the cases of infant mortality and a rise in immunization rates of infants. In 1986, infant mortality in Bangladesh was at 111 (per 1,000 live births), more than twice that of the Philippines which was at 50. By 2008, it was down to 43 for the former, while for the latter it had declined to 27. In 1986 immunization of children (between 12 and 23 months) was at a mere 3% in Bangladesh compared to 51% for the Philippines. By 2008, it rose to 89% for the former compared to 92% for the latter.

Lessons and assignments

As Father Joaquin Bernas, SJ wrote in his column for today’s Inquirer, the merits of the current RH bill must be debated on the basis of whether or not the use of state power to influence the behavior of the populace serves the public good and whether it is exercised in a reasonable manner, not coercive or oppressive.

These statistics demonstrate that the adoption of some kind of reproductive health service is defensible from a public benefit point of view. Whether the use of the public purse in providing “safe, effective and legal methods, whether the natural, or artificial that are registered with the Food and Drug Administration (FDA) of the Department of Health (DoH)” (notice how the wording avoids the use of prescriptive terms such as pill, intra-uterine device (IUD), injectables, condoms, ligation, vasectomy) is reasonable depends on the specific measures in the bill.

One of these provisions has to do with the way employers include such services as part of their worker’s entitlements. For Father Bernas, the specifics of the policy are worth debating, but not the policy aims. For him, you don’t “burn down an entire house to make lechon.” In other words, if there are certain objectionable parts to the Reproductive Health Bill, then these provisions should be revised, but that should not alter the need to have this all important bill passed.

The case of Bangladesh clearly demonstrates how a sustained implementation of an integrated health, family planning and population policy has had a massive positive impact on the welfare of its citizens within a generation. It should serve as a reminder to our politicians that a far-sighted policy outlook is needed in dealing with this issue.

For too long, the country has gone without a legal framework for determining its reproductive health policies. It is about time that our leaders and the public at large take a look at the proposals embodied in the reproductive health bill. Above the shrill cries of those who seem to be stuck over worries that this will lead to population control (a hangover from the 1970s’ debate) on the one hand, and on the other hand those who see in the bill a path towards the legalization of abortion, our leaders need to chart a sensible path based on reason and common sense.

* This and all other statistics cited in this article come from the World Development Indicators taken from the World Bank and available on Google’s public data explorer.

Contraception and Catholicism–Posner

Contraception and Catholicism

by Richard Posner

It is always difficult to decide whether a religious tenet of a hierarchical religion, such as Roman Catholicism, reflects religious belief or institutional strategy. The Roman Catholic Church is a huge “corporation,” one that reached its present size, wealth, and influence in a competitive environment, where it had first to confront paganism and Judaism, and later Protestantism and secularism.

The Church has long been hostile to contraception, but the nature of its hostility has changed, and may be changing yet again with the Pope’s recent acknowledgment that the use of condoms may sometimes be justified as a way of preventing the spread of AIDS. I want to consider the institutional as distinct from doctrinal considerations that might explain the history of orthodox Catholic views of contraception.

In the early years of Christianity, the Church had to steer a middle course between Christian extremists who thought sex a form of purely animal behavior that Christians should eschew, and pagans, who had a notably relaxed attitude toward sex, including masturbation, homosexual and other nonmarital sex, and contraception in the form of coitus interruptus and abortion. Rejecting sex altogether was not a viable policy for an ambitious Church (think where rejection of sex got the Shakers), but accepting the pagan view would have resulted in a failure to differentiate Christianity from paganism, and perhaps reduce Christianity’s appeal to women.

The compromise position that the Church adopted was that sex was proper as long as it was oriented toward its proper function, which, the Church held, was procreation within marriage. But it had to qualify this view to avoid condemning sex by married people who turned out to be sterile, for example because the wife had reached menopause. So the Church allowed that a secondary lawful purpose of sex was to reinforce the marital bond.

Many centuries later the “demographic transition”—the tendency for the birthrate to fall when a nation achieves a certain level of prosperity—placed the Catholic condemnation of contraception under pressure. Married couples wanted to have sex, but didn’t want to have the number of children that an active sex life would produce without contraception. And contraceptive methods improved. Eventually the Church achieved a partial accommodation by authorizing the “rhythm” method of contraception, since that was a form of abstinence and abstinence was consistent with Catholic doctrine—indeed it was enjoined on priests and nuns. But few married couples found it satisfactory.

Greatly improved contraception (notably the pill), improved treatments of venereal diseases, increased privacy, relaxation of parental controls, continued declines in family size, and increased divorce rates (in part a consequence of lower birthrates and women’s greater access to the job market)—all factors that reduced procreative relative to nonprocreative sex (in part by increasing the prevalence of nonmarital sex)—put irresistible pressure on the Catholic prohibition of contraception, to the point where today in the United States and most European nations, even such traditionally strongly Catholic nations as Ireland and Italy, Catholics use contraception at the same rate as non-Catholics.

With the Church unable to resist the sexual revolution, efforts to prevent contraception were seen as likely to have perverse consequences. True, if contraception were unavailable, there would be less promiscuity; but there would be some promiscuity, and probably a good deal, and a higher fraction of sex acts would result in unintended pregnancy, and therefore in an increased number of births to unwed teenagers and an increased number of abortions. The net effect would be unclear, but could well be worse from the standpoint of overall Catholic doctrine.

(read the rest of this post on The Becker-Posner Blog)