Ferdinand Marcos

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

 

Risk and responsibility

While his assassination, questions about which remain open to this day, has transformed him into a martyr of democracy, Benigno “Ninoy” Aquino, Jr., the scion of a prominent clan in Tarlac, was by no means the passive or peaceable figure that the idea of martyrdom tends to conjure up—he was very much the opposite, in fact. As Cory, his own wife, once wryly remarked: “I know he’d die if we led a quiet life.” When he first entered public life as an assistant to President Ramon Magsaysay, he was, as he recounted to National Artist for Literature Nick Joaquin, a “siga-siga“: cocky and tough, believing that offense was the best defense.

Such an attitude would serve him well as he rode his vaulting ambition all the way to the Senate, where he occupied a seat that was initially perilous. On account of his youth—at the time that the 1967 elections were held, he was 17 days short of 35 years, the minimum required age for a Senator—a protest was lodged with the Senate Electoral Tribunal in order to remove him from office. The tribunal eventually decided that the proper reckoning of age ought to begin on the day that the “the expression of the popular will” was ascertained—that is, the day that the final poll results were announced—and allowed him to keep his post. Long before the ruling was handed down, however, Ninoy had already formulated a strategy: attack President Ferdinand Marcos. “If I kept hitting at Marcos, any effort to get me kicked out of the Senate would become political persecution, pure and simple,” he said.

If his fire and his capacity for calculation did not especially distinguish him from his foe—his similarity to Marcos has been remarked on more than once—Ninoy did tread a different path, fighting to make known to the world the excesses of the chief executive from the halls of the Senate, from behind bars, and from the United States, where he lived with his family for three years in self-exile. (Notwithstanding his flamboyance and bombast, he could be eerily prescient: his first speech as Senator, for instance, raised the alarm about the creeping development of a militarized state, five years before Marcos issued the infamous proclamation that placed the entire country under martial law and ushered in the so-called New Society.) And in spite of the very real risks that awaited him at home—no less than the First Lady had warned him against returning to the Philippines—he came back anyway, setting into motion the events that would topple a repressive regime and restore to his people the freedom to dictate their national destiny.

Nearly three decades after he was gunned down as he was being escorted by a contingent of soldiers from his airplane to a van that was supposed to take him to jail, what do we know or recall about Ninoy, whose death anniversary we commemorate on this day? Apart from his smiling visage printed on the 500-peso bill, the yellow-beribboned annual reprieve from the daily grind mandated in his honor since 2004, or the notoriously inefficient international airport that bears his name, what of this man have we managed to hold on to as we move through and make our history?

Very little, one suspects, but then, 29 years is about the span of a generation, and so the gap should probably not be surprising. It is unfortunate, though, that a good number of the people who are routinely credited in our history books with having played significant roles in the formation of the Philippines appear fated to serve no greater purpose than to allow teachers to burden their students with information that is only relevant and actionable within the configuration of space and time defined by the next bit of homework, pop quiz, or periodical exam.

This is not in any way to suggest, of course, that we should pay Ninoy obsequious homage and lavish upon him florid platitudes—however ubiquitous these gestures may become today, they are detrimental to sober and thoughtful reflection. It may be sufficient to remind ourselves on this day that we are the legatees of his sacrifice, and that we must prove ourselves equal to the responsibility of making sure that he was right: that the Filipino was, and is, worth dying for.

Tilting at Windmills

Just then they came in sight of thirty or forty windmills that rise from that plain. And no sooner did Don Quixote see them that he said to his squire, “Fortune is guiding our affairs better than we ourselves could have wished. Do you see over yonder, friend Sancho, thirty or forty hulking giants? I intend to do battle with them and slay them. With their spoils we shall begin to be rich for this is a righteous war and the removal of so foul a brood from off the face of the earth is a service God will bless.”

“What giants?” asked Sancho Panza.

“Those you see over there,” replied his master, “with their long arms. Some of them have arms well nigh two leagues in length.”

“Take care, sir,” cried Sancho. “Those over there are not giants but windmills. Those things that seem to be their arms are sails which, when they are whirled around by the wind, turn the millstone.”

[Excerpt from The Ingenious Knight Don Quixote of La Mancha by Miguel de Cervantes, 1604]

This week, the president’s allies in the House of Representatives numbering 188 voted to impeach Chief Justice Renato Corona. This came after a flurry of attacks against the high court launched by the president himself on numerous occasions. The ‘rap sheet’ or articles of impeachment contains allegations previously laid by him before the chief justice in a legal forum where both were present.

They include his voting record as a member of the Supreme Court that seems to favour the former president and now congresswoman Gloria Arroyo which was claimed to have been responsible for the loss of public trust in the institution he leads as shown by its extremely low rating in the SWS public opinion polls. The prefatory statement issues the charge that

Never has the position of Chief Justice, or the standing of the Supreme Court, as an institution, been so tainted with the perception of bias and partiality, as it is now.

It then proceeds to build a narrative to support its case. Beginning with his close association with the former president prior to his appointment to the Supreme Court, his voting record as member thereof before assuming his present role, followed by his acceptance of Mrs Arroyo’s ‘midnight appointment’ to be its chief, and the numerous incidents in which the court displayed its ‘bias’ towards the Arroyos. It is peppered here and there with allegations of improper use of public funds and nepotism.

On the face of it, there seems to be a strong case to be made against the Chief Justice, but whether it can be proven in such a way that would lead to a conviction is another matter altogether. The articles certainly tell a coherent story, but as any legal expert will tell you, in most matters that involve the high court, there are legal merits on both sides. In defending himself, Corona will simply have to recite the legal underpinnings of the high court’s decisions.

It will then appear that Congress (and the president) can impeach any member of a co-equal branch of government simply for making decisions that they find disagreeable. This means war between the executive and judiciary with each side claiming the other overstepping their boundaries and seeking to establish a dictatorship by one branch.

At the moment, the palace has the moral ascendancy. The high court is already viewed with suspicion by the public. Pursuing this case against Corona and by implication the rest of the court that he leads however could place suspicion on the president’s motives because of the Hacienda Luisita ruling which disadvantaged his clan. P-Noy by taking this bold step has highly discounted the risk of losing the moral high ground.

Secondly, most of the accusations save for the one involving Corona’s failure to file a statement of assets, liabilities and net worth (which might not be an impeachable offense based on previous court resolutions) involve decisions made by the entire bench not the chief justice alone.

The high court’s decision to exempt itself from midnight appointments, the creation of a new congressional district that became the seat for Mrs Arroyo’s son, the injunction against the lower house of Congress in hearing an impeachment complaint (its sole prerogative) against the ombudsman appointed by her, the exoneration of one of the justices for plagiarism by a committee comprised of magistrates, the injunction it issued against the secretary of justice’s hold departure order on Mrs Arroyo which it said was in effect despite the non-fulfilment of certain conditionalities were all made by a majority of the court.

Given the collegial nature of this body, the prosecution will have to prove that Corona exerted some kind of influence akin to a Jedi mind trick that forced other justices to side with him against their free will. Either that or Congress will have to impeach all the members of the majority who voted with him for showing bias. That will take some doing. Even if they (by ‘they’ I not only mean the prosecution, but the president) succeed in this (and there are already plans afoot to impeach two other justices), their side could suffer from what economists call the winner’s curse.

Having spent so much time and effort in this game to the detriment of all else (with the economy sputtering to a halt, which is what a 3.2% GDP growth figure represents), there will be hardly enough space for the government to move on policy matters as the legislative process gets tied up with the trial/s. Investor confidence could dissipate (adopting a wait and see attitude) as the country becomes wrapped up in the unfolding political saga. It seems that winning legitimately as in the case of this lawful and constitutional exercise could come at a heavy economic price for the republic.

Thirdly, while the public mood towards the Corona court is certainly non-supportive, it is quite spurious to lay the grounds for an impeachment complaint based on the fact that the accused garners very low esteem from the respondents to a survey no matter how representative it is. To begin with, let us assume for a moment that this low rating is due to the poor quality of decisions rendered by the court.

The articles of impeachment claim that this is because the court is biased in favour of Mrs Arroyo. An alternative explanation is that the justices sitting on the bench are simply not up to scratch and that their legal credentials were not properly screened. This too was asserted in the complaint. But whose job was it to screen presidential nominees to the high court anyway? Shouldn’t they bear responsibility for this outcome, not the appointees?

Also, the fact that the ‘bias’ explanation fits the narrative that the palace weaves makes it credible in the minds of the public in search of meaning behind events, but it does not necessarily make it true. Impeaching the Chief Justice based on his voting record on cases that affected Mrs Arroyo suffers from the law of small numbers. ‘How many cases does it take to prove that someone is biased?’ you might ask. Well that is precisely the problem. We cannot really use statistics to prove it one way or another. Of course an impeachment trial is more political than legal, which will make the outcome a product of naked power rather than a triumph for the rule of law.

The foregoing analysis lays down the reasons why I believe the impeachment of Renato Corona is more about the administration tilting at windmills than pursuing what it calls ‘reform’. The meaning of that word has become so mangled in its usage by the government that it has been equated to sending Mrs Arroyo to jail.

In the narrative of the palace, the president is the chivalrous knight who has come to rescue the nation, which is the helpless damsel in distress, from the villains of the republic, Mrs Arroyo and her ilk. It makes for wonderful imagery and rhetorical flourishes, and anyone or any institution that strikes a discordant note upsets the psychological balance derived from this plot and deserves to be called an Arroyo sypathiser.

Yesterday, the Chief Justice began to weave a narrative of his own. He spun it as I said above an encroachment by the executive on an independent judiciary, a creeping dictatorship through legal and constitutional means (alluding to the method used by Ferdinand Marcos). It is quite ironic that the son of the twin icons of democracy should be accused of making such an audacious attempt at witling it down.

Our minds naturally seek coherence. This makes us susceptible to several cognitive biases. This is often achieved by creating causal relationships. The entry of P-Noy into the 2010 presidential race after the death of his mother—it was all pre-ordained (based on hindsight bias). His elevation to the highest post in the land was to serve one purpose, and that is to send the villainous Mrs Arroyo to the dungeon beneath his palace (based on confirmation bias). From there, the nation will achieve its destiny of greatness (halo effect).

Unfortunately, reality is not quite as neat. The real world is much more complex and random as our minds would wish it to be. The successful prosecution of Mrs Arroyo and her minions by itself will not move us any closer to the rule of law or to economic deliverance. These things are achieved through actual hard work and good fortune. In fact, the real reforms that could move the country closer to these ideals can be achieved in spite of Mrs Arroyo and the high court.

The fact that many of them will now be delayed due to the impeachment trial means that we are actually farther away from achieving our potential than we were before. The words ‘downgrade’ and ‘catch-up’ are once again on the lips of credit rating agencies. As it turns out, the very windmills that the government seeks to joust with in its anti-corruption drive are the very mechanics of government that help deliver bounty to the nation.

Unfortunately, P-Noy and his allies have made up their minds. This court which has upset them once too often in their ‘quest’ can do no right, just as the knight leading the charge against it can do no wrong. The same goes for Renato Corona and his sympathisers. They believe the president is out to get them, and that this impeachment trial is a vendetta masquerading as a crusade against injustice by the high court.

How much longer will the nation be captivated and spellbound by the romance of these cognitive illusions? How much longer will people ‘dream the impossible dream’ as the country languishes at the bottom of the heap? Someone has to play the role of Sancho Panza and unmask the romanticism woven by both sides for what it really is: a farce.

Occupied

Restoring a meritocratic society is the goal of the 99 movement in America. Establishing it for once in the Philippines should be our national ambition.

The Nobel winning economist, Gary Becker, whose work on human capital I deeply admire wrote a piece called Deserving and Undeserving Inequality in the blog which he shares with Richard Posner. In it he distinguishes between good inequality (deserved) and bad inequality (undeserved) saying

The great majority of people in different cultures do not object to someone who has made lots of money when they have superior abilities and talents, and they work hard at producing what are considered useful goods or services.

The meritocratic society with upward and downward social mobility would be in Becker’s view the most acceptable form. In this just society, the cream always rises to the top. He cites actors like Tom Hanks and Jennifer Anniston, entrepreneurs like Bill Gates and Steve Jobs, and skilled professionals like transplant surgeons who have grown rich by applying their exemplary talents and skills.

In contrast, Becker poses the problem society seems to have with hedge fund managers who make use of arbitrage (momentary bargains unnoticed by the market) to make huge sums of money. He lumps them together with speculators, Russian oligarchs and monopolists who enrich themselves through unfair, uncompetitive means (the latter two through government fiat).

Becker of course uses human capital theory as his framework for addressing this issue. Under its framework, individuals who acquire knowledge and skill through education and training (one cannot gain it any other way as it cannot be inherited or passed on) deservedly earn private returns in the form of higher incomes over the remainder of their working lives.

A meritocratic society should in Becker’s view reward the investments made by individuals in themselves and not rely on some other criteria. Elitism, the polar opposite of meritocracy rewards individuals for investing in other things (political patronage, social standing or being raised on the right side of the tracks, marrying into the right family, etc). It all sounds rational and justified, which is why Becker says “the great majority of people in different cultures” accept the legitimacy of a certain form of inequality (I have some reservations which I expressed here).

The Occupy Wall Street protests that have spread all around the world is comprised of a disparate set of individuals, but at its core, it is a protest against what is seen as an illegitimate form of social structure perpetuated by a weak central government unable to constrain the greed of corporate elites.

The breakdown of social cohesion has occurred because of what is perceived to be the breakdown of a meritocratic society where one rule seems to apply to the rich who are becoming a new aristocracy while another set of rules applies to the rest.

The teapartiers detest the privilege accorded to the global capitalists/Wall Street at the expense of local merchants and tradesmen/main street, while OWS expresses their distaste mathematically by stating they represent the 99% who play by the rules but have to bailout the 1% who don’t.

It is curious to see how the OWS protest that began in NY mutates as it travels to each city throughout the world deriving a local “strain” in each place. In the Philippines, which has witnessed a high level of social inequality, there has not been a similar groundswell of support outside the usual suspects of BAYAN MUNA and other groups who coalesce under anti-American imperialist banners.

The reason being I think that the broad sections of our society by and large aspire towards a meritocracy and see their lack of social mobility as either the result of divine providence or misfortune. The masses have not coalesced around a universal sense of rights and entitlements that has taken hold in the West perhaps because they still depend on ties of patronage from local elites.

The state has had a long history of either colluding with or acceeding to our elites. They have given concessions to the “peasantry” whenever popular movements have challenged their ascendancy but withdrawn them when the threats have passed. Charismatic populist leaders like Ramon Magsaysay and Joseph Estrada sought to appease them, not undertake reforms aimed at genuine social restructuring.

The only time when the state sought to weaken the landed elite by expropriating their assets was under Martial Law. Even then there were limits to what it could do as it sought to make its authority legally and constitutionally binding in the eyes of the world. The problem was that once it had weakened any challenge to its authority, nothing prevented the regime from plundering as well.

The lack of accountability under Martial Law made the state susceptible to a new form of super-sized impunity. This was not inevitable though as in the case of East Asia with their benevolent dictators. Had Mr Marcos fostered a new meritocracy in both the bureaucracy and the wider economy, things might have been different.

His wife Imelda widely reviled for her pompous display of wealth had actually promoted a meritocracy in the arts. Through her sponsorship of young scholars and aspiring artists through competitions and venues for the demonstration of their capabilities, she enabled a flowering of talent that was not based on birth or privilege. This is the one legacy for which she can be rightly credited.

If only the same thing had happened in the technology sector where innovation and risk-taking could have been encouraged, instead of the crony capitalism that created a new elite not based on productive but predatory activity, the Marcos years might have come out smelling a bit better.

Contemporaneous with the Marcos era, during the 1970s and 1980s, Brazil and India embarked on a policy of giving birth to technology firms. The state agencies that were engaged in this “midwifery” role were not perfect, but as discussed by Peter Evans in his book Embedded Autonomy, despite their imperfections, at the end of the 1980s they still had something to show for it.

After seeing efforts at producing local operating systems and PC clones flounder, Brazil’s IT sector survived by specializing in financial automation for their banking sector (emblematic of this were companies like Itautec of the Itau Banking group). In India, state investments in skills produced manpower to work in systems integration services combining hardware and software engineering which became their strength. Today some of these Indian firms have successfully expanded their operations overseas (Mahindra Satyam and Tata Consulting Services are prime examples).

Korea which was most successful in fostering growth of this sector focused on the assembly of computers, consumer electronics and semiconductors through concessionary loans and state sponsored and financed research and development. In 1989 Samsung and IBM signed a co-licensing deal allowing them to tap into each other’s portfolio of patents. Today IBM no longer makes PCs, but Samsung is challenging Apple for the handheld tablet market.

Brazil of course was under a military dictatorship during this period. India was except for a brief period in the 70s a rambunctuous democracy like the Philippines is now. Korea was still being ruled by an autocratic president. In other words, the type of political system did not prevent the sorts of policies needed for promoting a meritocracy from emerging in productive sectors.

This was Pres Marcos’s greatest moral failing: neglecting the national development project and engaging in pure predatory behavior. The “Freedom Constitution” that followed his fall sought to put a system of checks and balances in place to restrain the executive has unfortunately not produced a meritocracy either. It simply revived the old aristocracy to power which has picked up where it left off prior to Martial Law by engaging in booty capitalism.

The weakness of the judicial system has served to deny a system of justice to the dispossessed and the poor. So unlike the Occupy Wall Street protesters who camp outside the headquarters of the global elite, our own version of the downtrodden live in slums outside the gated communities of local elites. They are forced to work in the informal sector without legal entitlements such as social security, healthcare or retirement funds, for the most part having acquired very little in the form of human capital.

The present dispensation is beset with many challenges all around which include fostering good governance and promoting economic growth. These projects will take time to bear fruit. While it is seeking to free the poor from local patron-client relationships through social insurance programs, it eventually needs to buckle down to the difficult task of generating employment through industrial promotion strategies and policies.

Having fostered the emergence of the electronics and business process outsourcing industries in the interim, the government faces the more difficult task of expanding the scope of these industries in the international division of labor (what Evans terms the role of “husbandry”) into more value added activities.

It would be good if aside from producing the domestic equivalents of Tom Hanks and Jennifer Anniston (a legacy of our showbiz, pop mentality from the Imeldific years) we could also foster the development of our own Bill Gates or Steve Jobs (the burgeoning industries out of Silicon Valley of course received tremendous government support through the defense industry).

Globalization was meant to usher in a kind of meritocracy among nations in the division of labor. What the experience of emerging countries has shown is that to rise to the top, state involvement in the development of industries is necessary. The ultimate goal should not be to one day attract a greater share of foreign companies to our shores; the national ambition should be to one day join our brothers in emerging markets in buying out foreign companies within their own shores.

Perhaps it is this vision that should occupy our hearts and minds as we look to the future.

Indonesia Rising, Philippines Waning

What could be the reason for their divergent paths?

The September update of the Asian Development Bank’s Asian Development Outlook 2011 painted a contrast between the two most liberal ASEAN democracies Indonesia and the Philippines. Based on these countries’ first half performance, the Bank gave a slight upgrade to Indonesia and issued a slight downgrade to the Philippines.

Here is what the ADB had to say about Indonesian prospects:

Forecasts for economic growth are edged up from April’s Asian Development Outlook 2011 reflecting a strong performance in the first half of 2011 and a positive outlook through this year and next. Increases in fixed investment, private consumption, and net exports boosted the first-half result [emphasis added].

Meanwhile, its report on the Philippines was summarized as follows:

Growth for the first half of this year was hampered by weaknesses in exports and government spending, though private consumption and private investment remained strong. A better overall performance is projected for July–December, but the GDP growth forecast for the full year is trimmed from April’s Asian Development Outlook 2011 [emphasis added].

The update concludes that Indonesia’s economy is set to grow by 6.6% in 2011 and 6.8% in 2012, meanwhile the Philippines is set to experience a rise of 4.7% in 2011 and 5.1% in 2012. In assessing the risks, the Bank noted the preparedness of Indonesia to manage the impact of any sudden reversal of foreign capital, while it highlighted the weakness of investor sentiment in the Philippines if “no progress is seen on the government’s reform efforts, including public-private partnerships.”

It was not too long ago, that Indonesia was considered a basket case. The pain it suffered after the Asian financial crisis with riots erupting in the streets, the independence of East Timor, the secession in Aceh, a tsunami and the terrorist activities of Jemaah Islamiyah left the growth and stability of the Suharto years in tatters at the start of the third millenium.

The Philippines in contrast experienced a second “peaceful revolution” in 2001 and was for once outperforming until recently its southern neighbor in the pace of its economic uptick (see Figure 1). Ten years later, Indonesia is once again outperforming the Philippines on many fronts. It joined the Group of 20 nations that convened at the height of the Global Financial Crisis and is considered to be the only other country in our region to have considerable clout in economic affairs after China and India.

So what was it that changed the fortunes of Indonesia in the latter half of the previous decade that has allowed it to regain its stature in the world community while the Philippines remains locked into a slower growth trajectory?

Some would say it was the emphasis on anti-corruption and good governance that produced such sterling results. The election of its president Susilo Bambang Yudhoyono back in 2004 (the first directly elected president after ammendments were passed in Indonesia’s constitution) on the back of an anti-corruption platform, many say heralded a new era of clean and honest government, which is credited with restoring Indonesia’s fortunes. If this is true, it would provide some reassurance to the current Philippine president who was given the same mandate in 2010.

To assess the validity of this argument, we would have to turn first to investments in both countries during this period. Figure 2 shows gross capital formation as a percentage of GDP for both nations from 1960 to 2009. What we find is that after falling off a cliff following the 1997 crisis, Indonesian investments were already on an upward V-shaped trajectory even prior to 2004 having gone from 11% in 1999 to 26% in 2003. In 2009, investments were simply restored to their previous levels in the 1990s during the height of Suharto’s crony capitalism.

Investments in the Philippines on the other hand tracked a continuous descent from 1997 onwards. Even during the high growth years of the Arroyo administration, it continued to plumb the depths not seen since the mid-1980s after the Aquino assassination.

While it is true that during SBY’s first term from 2004 to 2009, a very vigorous anti-corruption campaign was launched which successfully prosecuted many high profile figures including a former central bank deputy governor and the president’s son’s father-in-law, corruption continues to persist. In fact since his re-election, some of the powers of the anti-corruption agency have been clipped or put under the supervision of their legislative assembly.

Recent US diplomatic cables uncovered earlier this year by Wikileaks in fact seem to indicate that Yudhoyono’s reputation for cleanliness and good governance may not be as justified as the public thinks (although none of this is substantiated with evidence at this point). Given all these factors, why is it that investor sentiment does not seem deterred?

Mining and Military

The usual suspects in explaining this are the growing demand for minerals and greater political stability. Unlike the Philippines whose electronics sector comprises the bulk of its exports, the Indonesian economy is still heavily dependent on oil and other commodities. Mining projects account for a large bulk of capital formation in the latter, while expansion into higher value sections in the electronics supply chain has been hindered by a highly liberal trade policy and incoherent investment incentives in the former.

The military establishment from where both Suharto and Yudhoyono hailed has served to steady political institutions in the past and provide a measure of coherence in government policy despite the high incidence of corruption. After a spell of political risk and uncertainty following Suharto’s fall, stability has been restored with a strong elected executive. Meanwhile in the Philippines political instability continued to hound the presidency of Mrs Arroyo.

While some regard the period between 1986-1997, the era of “freeing markets” in Indonesia as the peak in investments, it should not be overlooked that it was the period of “reform through planning” from 1965-1986 that improved Indonesia’s position from a poor investment destination in the early 60s to an attractive one in the 90s (see Figure 2).

In other words, a more robust and coherent state successfully steered Indonesia to take advantage of its natural endowments better during the early stages of its development. In fact, Figure 1 clearly demonstrates the superior growth performance of Indonesia prior to 1986 compared to the period after it.

Although a high level of inequality still persists, Indonesia with a population of 230 million has a poverty headcount ratio about half that of the Philippines (13% compared to 26%). It has an average per capita income of $2,300 compared to $1,752 for the Philippines. It is ranked 44 out of 139 in the Global Competitiveness Index compared to 85 for the Philippines.

Long-term Vision

In August the maiden issue of the Strategic Review ran as its cover story a piece by SBY entitled Indonesia in 2045: A Centennial Journey of Progress. It outlined his long-term vision for the country. This is perhaps the non-technical version of the government’s Master Plan for the Acceleration and Expansion of Economic Development 2011-2025. The time frames of these documents indicate just how far-sighted the government is.

In this statement, SBY identifies three basic pillars on which to build a national development project. These pillars are: (1) a strong and just economy (poised to become the world’s fourth largest economy of around $20 trillion by 2045), (2) a stable, strong and mature democracy adhering to the rule of law (achieving “geopolitical maturity” with a strong military), and (3) a thriving civilization and an open society having adopted the world’s major civilizations (Islamic, Oriental, Hindu, Buddhist and Western) and exporting its unique blend of culture.

From reading the document, one senses a quiet confidence of a nation unafraid of the challenges posed by increasing globalization and eager to take on the reins of regional and global influence presented to it. This expansive view contrasts with the very introspective and paranoid one that presently occupies the Philippines. There is no sense of animosity towards the dispensations that preceded it. Although it talks a lot about change and reform, one gets a sense of continuity rather than disjointedness.

Divergent Histories

Of course one could hypothesize that the reason for this divergence of temperament arises from the different colonial experiences of both countries. At the time of the European Renaissance, Java and Sumatra had been the site of Hindu and Buddhist states for over a thousand years. Their conversion into Islam only strengthened the cohesiveness of these states.The Philippines was merely a hinterland of these sultanates at the time of Magellan’s arrival.

The relative weakness and lack of cohesiveness among the tribal chieftains in the Philippines made it much easier to colonize. In contrast, the Portuguese failed to extend their influence across much of Indonesia beyond present day East Timor. Only with improved military technology did the Dutch extend their rule in the 19th century over the Javanese states.

One could argue that in Indonesia a strong state was present all along. After having had such a proud tradition of statehood, Indonesia is only now beginning to introduce reforms that strengthen the rule of law and accountability of government. The Philippines on the other hand is still building a coherent and effective state despite the outward trappings of formal democracy.

Although Suharto was just as corrupt, perhaps even more so than Marcos, governance by the state still led to sustained economic growth because corruption did not prevent the state from implementing coherent plans and policies. In the Philippines, the centralization of authority by Marcos did not produce a similar outcome. So Filipinos tended to scorn the state for failing to provide solid economic growth and sought to increase the rule of law and government accountability without creating solid foundations for the state.

This is perhaps why the Philippines finds itself in its present predicament. Even with all the best intentions in the world at instituting rule of law and good governance, it will still fall short of its dream of delivering a better future for its people because it still lacks what the Indonesians already have, and that is a strong and dependable state.

Where’s the beef? On the missing “spoils” from P-Noy’s second US trip

Does good governance mean good economics?

In an earlier piece last week meant more to mark the 39th anniversary of martial law in the Philippines, I tried to downplay expectations regarding the “spoils” that P-Noy’s US trip would bring describing the situation there as dire and nearly on the boil.

As P-Noy was to deliver a report to the World Bank, Mr Olivier Blanchard, Chief Economist of the IMF gave an uncharacteristically downbeat outlook for the world economy saying that the global recovery had stalled, revising forecasts of growth down to 4 from 5% (a more significant slowdown for advanced economies with growth prospects halved from 3 to 1.6% and less drastic cuts for emerging economies whose growth prospects decline slightly to 6.1 from 6.4%–the Philippines has seen its growth prospects slashed from 6-7% down to 4-5%).

Sure enough, on the day he arrived back from the US, the Dow Jones plunged nearly 400 basis points undoing the Federal Reserve’s measured response to prop up confidence. This was in reaction to what has been going on in Europe where Italy, the third largest economy received a credit downgrade from S&P and where a Greek default on sovereign debt looms. Meanwhile the Washington elite remained at odds over how to keep the government running with a measure to keep the lights on until November 18 passed literally at the eleventh hour.

With that as an unfitting backdrop, the president remained upbeat upon planting his feet back on home soil. Unlike his more recent trip to China which was expected to yield 2-7 billion dollars worth of investment of which 1.3 billion dollars was realized in firm commitments and cost the Filipino taxpayer 25 million pesos (a return of 52 dollars worth of investment for every peso spent), there were no numbers to be quoted this time around.

The president instead spoke of the keen interest and enthusiasm of US investors who were “lining-up” to come to the Philippines. Strange that the president did not even mention the figure of $15 million over the next four years the only firm commitment to come from Pepsi to be invested in developing a coconut juice processing facility.

That after all would be good news for the struggling farmers the intended beneficiaries of the Marcos era’s coco levy fund which was meant to provide them support in exporting their crop, but instead went to a bank which then lent to the fund’s manager, P-Noy’s once estranged uncle, who because of that now owns a controlling stake in San Miguel the food and beverage giant thanks to the high court’s ruling earlier this year.

So why the omission, which is so uncharacteristic of arrival statements; could it be because the spoils of this trip are so meager when compared to the nearly 25 million pesos spent on it? It would depict it as representing less value for money by producing a mere 6o cents for every peso spent.

This should not detract from the overall mission of the trip which according to the president was fulfilled by him reporting to the World Bank the advances of his administration this past year and greeting the Filipino community there. There was also the side trip to credit agencies to try and convince them to boost the ratings of the country. After all, the budget deficit no longer seems to be a problem with a surplus reported in August bringing the cumulative deficit for the year to be 85% below its ceiling, right?

This is what the president trumpeted as a success in his drive to stamp out corruption. In the spirit of transparency and openess, which were the themes of the Open Government Partnership that P-Noy inaugurated at the Waldorf Astoria (which incidentally means more foreign trips in the near future to Brazil, Chile, UK, Tanzania and Latvia), the Palace should have at least acknowledged that perhaps the Americans were in no position given the state of their economy to be exporting their capital and jobs to countries like the Philippines.

Never gonna happen

That transparent recognition of the state of affairs of course was never going to happen, for the simple fact that doing so would expose the president to accusations of junketing which given the nature of his presidency is something his entourage wants to avoid. For if the question were really to be asked, what would be the real urgency of making this trip to the US a second time in a row within the space of a year, what would be the answer?

His remarks at the World Bank was like that of a star pupil performing a didactic exercise of parroting his tutor. His visit to Fordham University was a sentimental journey mirroring his mother’s footsteps (similar to his visiting an ancestral hometown in China). His co-inaugural of the OGP lent legitimacy to an initiative sponsored by the World Bank which has struggled to make itself relevant.

Finally, his trip to the IMF was unnecessary given that the Philippines exited their program right before he entered office. The only point of this trip it seems was to highlight the advances of his young presidency in proving that “good governance is good economics”.

Unfortunately, the jury is still out on that. For one, the US haul was a pittance compared to the Chinese catch. And China has not really been deterred from investing because of perceived corruption or lack of openness. In fact, China’s development spending in emerging countries devoid of any concerns about corruption in the recipient nation is the main reason why western aid agencies have been struggling to maintain their relevance.

That and the fact that their anti-poverty programs have proven to be inconsequential. So much so that they have jumped on the bandwagon in supporting ideas developed independently by their clients. Programs such as Bolsa Familia which is now called “conditional cash transfers”. Yet as shown in an earlier post, the Philippines could have funded its own variant of this scheme without resorting to multilateral financing.

Second, the “interest” from US companies to invest was sparked not because of a greater sense of openness but from the relative advantages the Philippines has in a couple of areas. One is in the form of coconut plantation; and, two is in the form of a call center industry that has grown from strength to strength even during the period in which corruption supposedly reigned.

Now before you start arguing that the austerity exhibited by P-Noy in his travels is in stark contrast to the “impunity” demonstrated by his predecessor, let me say first of all that this habit of constantly bringing up ex-president Gloria Arroyo as the benchmark for this president’s conduct in office is not really very useful (although I am sure her supporters would be happy to have that conversation). I would prefer to think he should set the bar much higher.

The proper benchmark

Before questions of efficiency and effectiveness are raised, it is important to cross the threshold of appropriateness. How appropriate was it to make the trip at all? If as the president says it was important to send a message about the reforms undertaken by his country, then perhaps it would be pertinent to look at Indonesia’s example. The president of Indonesia the only other Asian country in the steering group of the OGP has trodden the path that P-Noy has just embarked on.

After the anti-corruption campaign started under Susilo Bambang Yudhoyono’s first administration, Indonesia has clearly effected a change in its image abroad. It is sometimes accorded “BRIC” status with  gross capital formation as a ratio of GDP about double and foreign direct investments several multiples of that in the Philippines in recent years. This was another successfully home grown program not driven by donors, the main reason it went from being seen as a basket case after the fall of Suharto to joining the Group of 20 nations.

Yet after accomplishing all this, its president felt no compelling reason to preach the virtues of his nearly decade long administration to other world leaders choosing instead to send a “trusted aid” to the event. Our president on the other hand felt so convinced that his administration after just over a year in office was performing sufficiently well that he saw the need to share his country’s “success story” with people abroad.

Unlike the case of Indonesia where the anti-corruption campaign supported growth, the Philippine government’s attempts to rein in corruption seem to have detracted from that growth as the latest four quarters of GDP reporting have shown (ironically it is in the area of growth where the Philippines over the last decade has not performed too badly against its southern neighbor–but never mind that, lest this statement of fact be interpreted as me giving “props” to the previous dispensation).

While it is understandable for the president acting as Salesperson-in-Chief to present a positive image abroad of our country and his administration, it is equally important for that image to be translated into tangible results over a sustained period of time. Only then will the image correspond to reality. Until then, we can only keep asking, “Mr, Presidentwhere’s the beef?*

*Fresh from his US trip, the president rushed off to Japan for four days. The contrast between the East Asian and North Atlantic nations could not be more stark with one billion dollars expected to be signed off with a taxpayer’s bill amounting to 20 million pesos.

Doing Family Planning in a Pluralist World

Sometimes, the discourse surrounding the reproductive health debate in the Philippines sounds more like it was lifted out of the Middle Ages.

Case in point was the exchange recently held in the Senate between Sen Juan Ponce Enrile and both Pia Cayetano and Miriam Santiago, joint authors of the reproductive health bill in the Senate. Enrile, the former defense secretary who served as the chief architect of Martial Law under Pres Marcos which gave rise to the country’s first population management policy in the 1970s and 80s is now casting the proposed bill on responsible parenthood as a sinister plot on the part of the state to dictate to particularly poor households the number of children they are to have. He said,

What reason can we morally advance to justify the idea embedded in the recesses of Senate Bill No. 2865 to accomplish the sustained and deliberate reduction of the size of Filipino families, especially the poor and marginalized, through birth control in the guise of adopting a reproductive health policy for this country?

The Senate President evidently believes that when the law becomes operationalized, the government will engage in interventions over and beyond what is explicitly stated in the bill, which is to provide couples with informed choice and access to different forms of family planning and reproductive health. He likens the intrusiveness of the State under this imagined scenario to the very heavy handed attempts at social engineering by Fascist dictators, when he argued,

If we condemn the idea of euthanasia that renders mercy killing in the guise of (being merciful) to a needy human being, if we condemn eugenics that advocates selective breeding in the guise of improving hereditary qualities, if we condemn the idea behind the act of Adolf Hitler in exterminating Jews in Europe in the guise of preserving the superiority of the Aryan race, if we condemn the idea behind the killing fields of Pol Pot in Cambodia in the guise of reforming the social ills of his country, and if we condemn the mass graves of Saddam Hussein in Iraq where he buried his political enemies in the guise of maintaining law and order in his country—what reason can we morally advance to justify (the bill)?

The claim of a clandestine agenda behind the bill sounds as though it was made by some crackpot, not by one of the highest officials of the land and one of its legal luminaries. One wonders however whether Enrile truly believes in the competency of the State to: (a) hatch such an elaborate plan, and (b) competently carry it out.

I mean, if even under an authoritarian regime, the government with a more restrictive population management and control policy was not able to effectively implement its policy then, why would it be able to hatch such a devious and deliberate plan today and be able to get away with it?

The simple fact of the matter is, the global consensus that formed around population policy since the 1970s has tended to focus on choice and the ability of couples to decide in a well-informed manner how many children they want to have and stick to such a decision. It is no longer about achieving some pre-determined “optimal size” of the household. And this basic tenet is what the current RH bill embodies.

Under such a framework, the State becomes less intrusive and in fact merely acts as a guarantor and facilitator of last resort to a household of its capacity to make such an all-important decision. Under the current situation, the default “choice” of most couples is the natural family planning method, for the simple reason that they do not have the means to choose otherwise.

This in a way creates a bias in favor of the Catholic Church’s position. In a pluralistic world where even Catholics should be allowed to make a conscious decision about such personal and intimate affairs, such a bias is really untenable. What the RH bill would in effect do is shift the default setting to a more neutral position: one where all the safe and reliable methods are made available and where choice is not restricted.

Given the cultural preference already exhibited by Filipinos for larger families (when compared to other countries, while controlling for income and other variables), such a light-handed approach would only influence those who might have exceeded what they deem their (higher) limit for child rearing. This is demonstrated by a number of cases reported by the media where other family planning options are only considered by poor households primarily the womenfolk when they have given birth to upwards of eight children when six was their desired number.

In other words, through early interventions, what the RH bill is most likely to do is help these families achieve their desired family size which is usually in the order of four, five or six members, rather than force them to limit their household to three or four members.

Now in a pluralist world, such an outcome is perfectly acceptable.

Is the Good Governance path a dead end?

Is the “markets plus good governance” formula indeed the enlightened way to economic Nirvana that its adherents say it is?

Warning: I am following Paul Krugman’s tradition of labeling some of my posts ‘a bit wonkish’. Some of the succeeding material might be a bit taxing, but for those who persevere, the results can be quite rewarding.

The Fork in the Road

During his first state of the nation address, President Noynoy Aquino or PNoy told us that the country faced a fork in the road. On the one hand was the destructive path of evil tread by the Inglorious Beast, on the other was the righteous path of good governance that he the Benign One would lead us down.

Nearly one year on and it seems the righteous path is headed nowhere with allegations of BFFism floating around, corruption and smuggling continuing unabated, and a government that cannot seem to spend its own lean budget in a timely manner.

Despite these setbacks, the Palace continues to put up a brave face. PNoy after all has become the new poster boy for Washington’s policy consensus having been endowed with a grant by the US Milennium Challenge Corporation to pursue its Milennium Development Goals to halve poverty.

This follows the Philippines belated exit from the IMF emergency loan program. The ADB for its part turned on the tap by partly financing the expansion of the Conditional Cash Transfers program, the government’s flagship project for ending poverty. Meanwhile private investments were being sought to fund the government’s public infrastructure program.

The present seems to echo the 1950s and 60s when the country was held in such high esteem by international donors during the last “big push” towards development. We can of course see what that era of donor dependency produced when it culiminated with Ferdinand Marcos’s debt driven boom and crash of the 1970s and 80s.

The Righteous Path

The 1990s saw the rise of economic fundamentalism among policy circles the world over. The precepts of this view bordered on religious zeal. The high priests and prophets of this pseudo-religion proclaimed that there was but one model, the Market.

All those on the path to the Promised Land had to be guided by the Invisible Hand of the Market. Thou shalt have no other models before me was the first commandment. The Philippines under the yolk of the IMF had to follow these strictures. We soon found that the Market could be very exacting and vengeful. Many of the vulnerable, “uncompetitive” and at risk sectors would fall by the way-side and suffer from its discipline.

Despite all the pain that followed from swallowing this bitter pill, the economy did not grow sufficiently fast enough to deliver our people from the clutches of poverty. Why our leaders cried, has the Market abandoned us? We found more and more of our countrymen being led into exile, into servitude abroad. Where have we fallen short? they asked.

Then from on high came the answer.

In the 2000’s, a new covenant was sealed. We were now told that we needed an intercessor to mediate on our behalf. That Intercessor was called Institutions. For the magic of the Market to come into our lives, we needed to repent of our evil ways and follow the path of Good Governance. To convince us, the apostles of the new covenant showed us this sign (click to zoom):

From the pages of the IMF’s journal Finance and Development, Kaufmann and Kraay sought to demonstrate that good governance is the path through which all nations need to pass to get to economic salvation. It shows by implication that countries which have adopted Western standards of governance flourish economically, and countries that have shunned them tend to have floundered.

Indeed though it sounds tautological the very simple and coherent nature of this message, a message that puts it all on our ability to be born again to a re-awakened sense of right and wrong, has enamored most of our elders in the political and business community. Even Mrs Arroyo claimed to tread on this path, but she had stumbled along the way. In 2010, Mr Aquino pledged to bring us back on it.

We would soon be joining the rich club with his slogans like Kung walang corrupt, walang mahirap (no corruption, no poverty) and Daang matuwid (the Righteous Path). PNoy was singing from the same hymn book of the new Washington Consensus (Markets + Institutions = Economic Nirvana).

The real Fork in the Road

The development experts, who had once written us off, welcomed us back in the fold like a Prodigal Son. In his first year in office, PNoy relaxed on spending thinking that we had already been saved and that through the grace of the Market we would soon be rolling in the clouds along with our richer ASEAN neighbors who had already passed on to the other side.

Such a seductive world view, with everything tidily falling into place–that is until you consider the Inconvenient Truth from the real world. It turns out that things don’t necessarily follow according to the message. Take a look at this contradicting sign courtesy of Mushtaq Khan from the UNCTAD’s Discussion Papers (the UNCTAD being the IMF’s poorer cousin).

It draws on a similar data set that Kaufmann and Kraay used covering indicators of good governance and economic well-being from the 1990s predominantly. We find that countries can actually be grouped into three: the rich ones (circled in the upper right-hand corner), the poor ones (circled in the bottom left-hand corner), and the ‘convergence club’ countries (circled in the upper left-hand corner).

From the chart we can see that the members of the converging economies (on the upper left-hand corner) advanced economically first before improving institutionally. In fact the convergence club performed on average just as poorly on the corruption scale as the diverging economies (on the lower left-hand corner).

(Update: Although the regression line is upward sloping, indicating a positive correlation between anti-corruption and economic growth, an analysis of the three clusters of countries comprised of rich, poor and convergence club members reveals the direction of causality to flow from growth to control of corruption, not the other way around)

Indeed if we examine the economic histories of the convergence club members, we will find that they did not adhere strictly to the ‘righteous path’ of Markets plus Institutions. Japan, Korea and China developed not by relying on the Invisible Hand of the Market alone, but by wielding the Visible Boot of the State to coordinate, reward and punish industry players in accordance with their rational industrial policies.

Instead of relying on impersonal contracts under the Market framework, they used informal contracting under different guises, the keiretsus, chaebols and guanxi, to create secure property and contract rights to protect investors in strategic sectors within their economies. These institutions did not come from Western capitalism but were home grown. Indeed the alternative of implementing Western-style rule of law throughout the system would have been beyond their reach at the time they were emerging.

Chalmers Johnson who documented the rise of industrial policy in Japan by studying MITI the lead agency of its industrialization, wrote that

(a) part of the MITI perspective is impatience with the Anglo-American doctrine of economic competition. After the war MITI had to reconcile itself to the occupation-fostered market system in Japan, but it has always been hostile to American-style price competition and anti-trust legislation. Sahashi likes to quote Schumpeter to the effect that the competition that really counts in the capitalist system is not measured by profit margins but by the development of new commodities, new technologies, new sources of supply, and new types of organizations.

What this points to is the fact that rather than the fork in the road being a choice between the Righteous Path of good governance versus bad governance, the decision we are faced with is whether we continue down the same old road of the (new) Washington Consensus or change course and move more towards the BeST Consensus (Beijing, Seoul and Tokyo Consensus) bearing in mind that no other country has successfully traveled down the path of the former into the promised land.

A wake-up call

So is the good governance path a dead end? If we are to look at economic history, the answer seems to be a resounding YES. Unfortunately, the tribe of PNoy seems to have fallen head over heels for it. They will not accept any deviation from this course. The eunuchs and high priests surrounding him are all advising their leader to stick to their teachings.

Who can blame them? The gospel they have accepted is a truly seductive one. It does not require us doing our homework, building home grown institutions consistent with channeling resources into more producitive activities. It fits with our fatalistic, religious upbringing to rely on someone or something external to deliver us from evil.

The results of the alternative path trodden by the convergence club are evident for anyone to see. Singapore, Malaysia, Thailand and even Indonesia are heading down that road. The Philippines needs to wake-up to this reality. It needs to gain “a re-awakened sense” alright, not of right and wrong, but of self-empowerment and self-determination. That is the very essence of people power after all.