good governance

When Good Governance Isn’t “Good Enough”

MRTaccident

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

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

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

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

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

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

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

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

Retracing steps

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

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

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

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

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

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

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

Let us tackle these one-by-one.

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

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

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

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

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

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

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

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

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

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

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

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

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

‘Plan rational’ missing

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

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

Over-processed, under-performing

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

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

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

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

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

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

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

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

Bolder vision, action-oriented focus needed

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

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

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

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

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

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

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

Good (or “good enough”) governance?

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

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

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

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

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

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

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

What Mar Roxas, et al can learn from Jojo Binay

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

What the Philippines Can Learn from Rwanda

How has Rwanda managed to overtake many developing nations in the global race for competitiveness and transparency?

Landlocked, under-endowed, war-ravaged, Rwanda a nation of 10.5 million people has faced a number of challenges, not the least of which was the ethnic strife that led to genocide twenty years ago. And yet it in spite of all this, it has managed to regain stability and posted sustained economic growth averaging 7.4 per cent per annum that has led to improved social well-being over the past decade.

As an indication of its progress, Rwanda has successfully undertaken significant reforms in its regulatory environment. Just consider the following:

So how has a country which suffered many years of war and as much corruption as any other impoverished nation in the past, managed to turn things around?

Well the short answer is they did this through an accommodative political settlement and the help of both conventional and unorthodox institutions and economic strategies.

A troubled past

Rwanda has had a long history of ethnic violence between the two main rival tribes.  From pre-colonial times up to 1959, the pastoralist Tutsis were the ascendant political class over the agriculturalist Hutus. Ethnic differences were exaggerated under colonial rule. In the lead up to independence in 1962, Belgian colonists transferred their support to Hutu elites. This led to mass killings of Tutsis many of whom fled the country.

Two Hutu regimes ruled the country from 1961-94. Having a single-party dominate politics for most of this period did not prevent the nation from succumbing to decentralised rent-seeking and clientelist behaviour. A group known as Akazu was at the apex of this system. It was related to but not controlled by the administration.

Tutsis sought to regain control of the country through an invading Rwanda Patriotic Army. This culminated in the genocide of 1994 by retreating Hutus. After consolidating their hold on the country, the Rwanda Patriotic Front (RPF) established a government of national unity incorporating moderate Hutus, one of whom led the country as its president.

A reformist regime

Although a certain amount of political repression in the guise of preventing a return of “ethnic ideology” has occurred, the coalition governments comprised of all legal parties in parliament being proportionately represented in cabinet (the ruling RPF holds no more than fifty per cent of the portfolios) has succeeded in keeping the nation stable. This inclusiveness along with its program of restorative justice known as gacaca has fostered reconciliation and allowed the country to experience improvements in social and human development not previously seen.

The intrusive intervention of government in everyday life at times borders on social engineering as the government has sought to follow the Singaporean model in both economic and social policy implementation. President Paul Kagame (elected in 2003 and then again in 2010) has been labelled the global elite’s favourite strongman for improvements to public service delivery, particularly in health and education.

Departmental line agencies have been managed through an institution of performance contracts known as imihigo which Tim Kelsall describes as “modern performance agreements supported by a significant component of moral pressure and neo-traditional gloss.” This combination of formal scientific management and homegrown practices has permeated down to the grassroots by roping in local officials and civil servants.

On the economic front, Rwanda has applied a hybrid approach to investment promotion. On the one hand, it has adopted policies and institutional arrangements considered best practice by the World Bank’s Doing Business surveys. Responsibility for managing this has been assigned to the Rwanda Development Board (RDB). But this works in parallel with a more activist approach in industrial policy with the RPF’s holding company, Tri-Star Investments getting involved in joint ventures and start-up companies.

The holding company has initiated many successful ventures with demonstration effects for the rest of the economy. Telecoms is one example. When Tri-Star sold part of its stake in Rwandatel in 2007, it got five to ten times its initial investment in the company.

Because profits from Tri-Star that are not ploughed back into its businesses revert to RPF, the party is financially independent. It uses this to fund its political campaigns without having to resort to political donors. Kelsall explains what this does:

The RPF’s financial solvency obviates the need for party officials to engage in election-related corruption, which in turn allows the party to take a very tough line on corruption among its leading supporters and in the bureaucracy.

Apart from Tri-Star the government has also orchestrated the formation of other funds, the Horizon Group belonging to the army, which undertakes socio-economic projects to produce productive enterprises, and the Rwanda Investment Group, a consortium led by domestic and diasporic elite.

The purpose of the second group is to raise capital other than through foreign borrowings to invest in high impact projects of strategic national importance. Without such an interventionist approach, much of the agricultural and industrial transformations currently underway in different sectors of the economy simply would not be happening.

The case of Rwanda demonstrates many similar traits to that of the Northeast Asian developmental states. The RPF led government faced existential threats from the opposition in exile and from a potentially hostile ethnic majority at home just as the South Korean and Taiwanese states did from North Korea and from mainland China. 

These threats have kept the ruling RPF focused on improving social and economic well-being for its citizens to maintain its legitimacy and hold on power. The regime has exercised a capacity for long-range vision and forward planning contained in its Vision 2020 roadmap, free from the influence of rent-seeking, private interests. It has ruthlessly pursued its policies at times through heavy-handed regulations and enforcement of rules.

The low crime, low corruption, low red-tape environment this has fostered was not enough. The RPF has used its clout to address market failures and encourage the adoption of productivity enhancing new technology. Through its holding company and other private-led investment groups that it has brought into being, jobs have been found for talented managers and skilled workers that might have otherwise gone overseas.

The Rwandan experience demonstrates the capacity of poor nations to bring about a system of governance that is relatively competent and free from corruption within a short span of time using home-grown institutions, resources and talent. The extremely harsh and disadvantageous position it faced did not become a hindrance, but rather provided greater incentive for it to go down the road it has followed. Surely, any emerging economy seeking to do the same should take heed the lessons from Rwanda.

Lessons for the Philippines?

The Philippines may have already attained middle income country status, a milestone that Rwanda is still aiming to achieve by 2020, but there are certain elements in Rwanda’s development experience that it can learn from.

  • Financially autonomous political parties:

We have seen how  gaining financial solvency allowed the RPF to govern without fear or favour. This enabled it to take a long-term view in planning and executing its economic development strategy. It enabled it to rule with moral ascendancy and punish erring, corrupt officials, putting an end to the patrimonial, rent-seeking behaviour of its bureaucratic and business elite.

  • Inclusive, participatory governance:

We have already seen how the RPF has shared power with other political parties. The proportion of cabinet appointments follows the same proportion of parties represented in the parliament. In the 2013 elections, an unprecedented 64 per cent of seats were won by women. This is the highest level of female participation in political office anywhere in the world. With this level of representation, laws that uphold women’s rights and promote women’s health and well-being are being enacted.

  • Home-grown solutions:

Although a certain amount of repression of the press and political opposition has taken place, in the guise of preventing ethnic tensions from flaring up once again, such suppression it can be argued would have taken place anyway, given conditions prevailing in Rwanda. Rather than relying on foreign models of governance and economic development, Rwanda has charted its own path. It uses institutions like gacaca and imihigo to bring about restorative justice and better governance.

  • Robust government role:

In promoting economic development, Rwanda didn’t follow the Washington Consensus that simply limits the role of government to creating a level playing field. It followed the example of East Asia, which meant addressing structural issues in its economy through interventionist industrial policy aimed at catalyzing investment in productive sectors in agriculture, industry and services to raise the standard of living of those residing at the base of the socio-economic pyramid. Ironically this has emboldened the private sector to take risks as well, to invest in the future of the country.

  • Political succession.

Many commentators are wondering whether President Kagame intends to step down at the end of his second term in 2017. A third term is constitutionally prohibited. As early as 2012, the ruling party held a conference to tackle the issue of political succession at Kagame’s request. At this early stage, the RPF has begun to look for ways to bring about an orderly succession, but one that does not put in jeopardy the advances made already. It is seeking ways to institutionalise mechanisms for bringing this about.

It would not be right to recommend that the same set of policies be adopted in the Philippines. The message here is that countries need to chart their own developmental path based on the conditions they face. The universal prescriptions of the Washington Consensus are becoming less influential as the balance of economic power shifts to the East. While that may be true, certain key principles can be gleaned from the success of other countries.

Considering the way the RPF developed its Vision 2020, opened up participation of women, included its political opponents in a cabinet that advises the president, and managed the bureaucracy through formal and informal contracts, what changes could the ruling Liberal Party make that would improve the way it governs under President Aquino? More importantly, how could it ensure that the positive changes it makes continue beyond 2016 when he steps down?

Seeds of undoing

greek-tragedy-and-comedy-masks

An essential element of Greek tragedy according to Aristotle is for protagonists to carry with them the seeds of their own undoing. Often it comes in the form of “hubris”, man’s feeling of invincibility, which makes him tempt fate, or contest the will of the gods.

The same sense of mortality that comes at the end of each plot seemed to creep in last week as results of internal polling commissioned by the administration and leaked by a Palace insider showed the president’s popularity taking a nosedive as a result of his response to the controversy involving the release of impounded government savings without congressional approval.

DAP or the disbursement acceleration program was hatched by budget secretary Butch Abad, the chief ideologue of the Liberal Party to deal with the embarrassingly sluggish pace at which the economy was crawling at the time, dragged down by fiscal contraction. This was the result of the administration’s own deliberate attempts at house cleaning by scrutinising projects and contracts which were entered into by its predecessor.

The irony is that in a bid to rid the government of the ghost of Mrs Arroyo, the Aquino administration wound up committing the very same act that it accused her of, namely re-aligning budget items out of expediency. During Mrs Arroyo’s presidency, the opposition blocked passage of her proposed general appropriations for a number of fiscal cycles forcing a re-enactment of the previous year’s budget. This enabled her to reallocate spending across departments at will for budgeted projects that had already been completed the previous year.

Mr Aquino faced an entirely different situation but ended up with the same outcome. He had no problem getting congressional sign-off on his proposed annual expenditures, which sailed through in record time. His problem was getting the approved amounts spent. Having applied the fiscal brakes too harshly in a bid to present a clean break with the past, he wound up revisiting it.

The Department of Budget and Management explains how much was spent under DAP and for what purpose, as follows

For 2011-2012, a total of P142.23 Billion was released for programs and projects identified through the DAP, of which P83.53 Billion is for 2011 and 58.70 Billion is for 2012. In 2011, the amount was used to provide additional funds for programs/projects such as healthcare, public works, housing and resettlement, and agriculture, among others. While in 2012, these were used to augment tourism road infrastructure, school infrastructure, rehabilitation and extension of light rail transit systems, and sitio electrification, among others. […]
Of the total DAP approved by OP (Office of the President) for 2011-2012 amounting to a total of P142.23 Billion only 9 percent was released to programs and projects identified by legislators. These were not released directly to legislators but to implementing agencies.

The sad thing about DAP is that even though less than a tenth of it was directed at legislators, the whole program has become tainted as a result of the scandal that broke out involving the funneling of some of this money into bogus NGOs identified by them.

Not only that, but its release coincided with the impeachment of the Arroyo-appointed chief justice, which the Palace had openly campaigned for. It carried the hint of political back scratching. Add to that the contestable basis on which one branch of government allocated its savings to another (from executive to legislative), and you have the appearance of a government that disregarded the rules in pursuit of its political agenda.

To top it all off, the president appeared on national television denouncing his critics, denying the label “king of pork” that grated his good government sensibilities, claiming that he was “not a thief” in a fashion reminiscent of US president Richard Nixon who left office in disgrace. It is truly tragic that, after cruising at an astronomically high altitude in opinion polls, stratospheric compared to his predecessors, he should come plummeting back to earth and be forced to distinguish himself from common criminals in this manner.

To think that this all happened when the government seemed to be getting into its stride. The past year has been particularly productive with the enactment of several reform measures like reproductive health, sin taxes, and universal health care. In addition, there was the uplift in the country’s credit ratings and ranking in the Doing Business Survey, the resurgence of manufacturing investments, and the signing of the peace deal with Muslim rebels. The growth figures for the first half of the year seemed appealing to most outside investors, as well.

With legal challenges left, right and centre seeking to undermine its legitimacy, the government now appears besieged. Previously, one would have been forgiven for thinking that with its recent string of successes, the regime may be able to manage an orderly succession to its hand-picked nominee. But with the Liberal Party’s important figures, Senate President Frank Drilon and Budget Secretary Butch Abad, in the hot seat for their involvement in the DAP, the party seems like a spent force, having lost its moral authority.

Elite bargain

When Senator Jinggoy Estrada angrily accused the administration of hypocrisy for what he claimed was an unfair targeting of the opposition, I expressed doubts that his tirade would inflict any serious damage on the teflon presidency of Mr Aquino. With hindsight, it now appears to have been an effective ploy. Estrada’s complaint was that there seemed to be “no honor among thieves”, that cosy symbiotic relationship among complicit individuals.

What he was referring to was the political bargain that occurs in multiparty democracies within developing states, in which power is alternately shared among various groups of elites. Corruption is tacitly tolerated because it is assumed that each group will commit it once it is their turn to rule. Allowing a group of oppositionists to be singled out for prosecution, to ruin their political careers, is in effect, reneging on this grand bargain. Mr Estrada’s retaliatory response did nothing to protect him from prosecution, but it nevertheless inflicted damage on the administration for its “unfair” actions.

Time will tell if the damage inflicted is merely a flesh cut, or a mortal wound, but from the perspective of the reformers within the administration, it is a bad omen. Not only has the focus on PDAF and DAP abuse detracted from its policy agenda, it is going to make it difficult to secure votes for what could be unpopular pieces of legislation, particularly in the lead up to the next election when political turncoats will begin sniffing the political winds in search of their new padrino.

The reform constituency often claims that in order to make our political and economic systems more inclusive, we need to eliminate all forms of rent from society. That is we need to generate a clean, accountable and transparent system of governance, and that there will be no trade-offs between pursuing this agenda and pro-poor economic growth. This is in part the fault of the international donor community that has peddled this idea for over a decade on nations with very different institutional foundations.

Reality runs contrary to this notion, particularly if you look at the development experience of the “tiger” economies of East Asia and the “lion” economies of Africa, which are the fastest growing in the world. The tragedy of Daang Matuwid, the good governance agenda of the Aquino administration was that it failed to acknowledge this. It took the economy for granted while hastily conducting a highly charged political prosecution of its predecessor regime.

When the economy started slipping into second gear, it unlocked the floodgates of spending and applied less stringent controls on congressional pork barrel projects than it enforced on its own administrative agencies. It committed an act of “hubris” in thinking that it had succeeded in transforming the political culture of the country. It now finds itself defending a system of rent distribution that its constituents consider anathema to its own brand of government.

It is for this reason that many honest, reform-minded governments get eaten up by the system they seek to change. They often set goals that are too lofty, such as the elimination of corruption within one term of office, or the removal of patronage in favour of a system that observes the rule of law and democratic accountability. In the pursuit of good governance, the perfect often becomes the adversary of the good.

At the end of such a trail is “reform-fatigue”, with a disillusioned electorate turning to corrupt leaders who are able to distribute rents in ways that cater to their local needs. Such leaders are seen to be more competent and effective. This scenario could eventuate in 2016, with many in the reform constituency distrusting the LP and seeking an alternative candidate with a fresh face. This will split their votes and allow a pragmatic populist to gain power.

The scandals that have bedevilled congress and engulfed the president have served only to discourage certain contenders from the opposition to seek higher office, clearing the way for the vice president to consolidate its forces behind him. This means that their votes are less likely to be split along factional lines. And with the vice president’s popularity remaining intact, his lead will simply be unassailable.

The only way for the ruling LP to avoid electoral defeat is for it to deliver rapid, pro-poor growth within the remainder of its term. That won’t be easy, particularly since its formula for producing it, the good governance agenda (captured in its mantra: kung walang kurap, walang mahirap) has already been discredited in different parts of the world where it has been faithfully applied.

Kurap at mahirap pa rin

Poverty does not seem to be abating, neither is good governance improving much.

This inconvenient truth is the conclusion derived by the National Statistical Coordination Board (NSCB) as of its latest data releases.

Back in April, it found that the change in poverty incidence in the country during the first semester of 2012 (27.9 per cent) was not statistically significant from what it was during the same period in 2009 (28.8 per cent) and 2006 (28.6 per cent).  This rather dismal outcome of the administration’s first two years in office was downplayed by the Palace. It came after the employment report for the April-2013 quarter showed signs that jobs generation was heading south despite the economy’s stellar growth posted in the same period.

Then last week, the NSCB released a set of indicators on Philippine development. When it came to our performance under the global scorecard for good governance, the report said,

The country’s percentile rank based on the World Governance Indicators (WGI) on control of corruption, rule of law, regulatory quality, and voice and accountability had low probabilities of attaining the 2016 targets.

It went on to say that the likelihood of us achieving a better score in terms of government effectiveness under the WGI by 2016 were high. Government effectiveness is different from control of corruption, rule of law, regulatory quality and voice and accountability, though. The former is probably what you would call, “good enough” governance as opposed to “good governance” which is what the latter implies. In the “light v darkness” narrative promoted by the ruling party, “good enough” governance is simply “not good enough”.

The most telling sign that the administration has failed to address the governance issue so far is that the country’s latest ranking in the Ease of Doing Business report slipped two places (from 134th to 136th) and that there was a drop in total investments in 2012. Reducing the cost of doing business is vital to attracting investments. Many say, that in order to open the floodgates to foreign direct investments, all we need to do is change the economic provisions in the charter that limit foreign participation in the local economy.

I personally have a different view, but even if, for argument’s sake that were to happen, if the cost of doing business remained high, it would still discourage investors from investing, as per the current situation in many sectors of the economy that already have been opened up to foreign investment.

It appears when it comes to fulfilling the administration party’s mantra of kung walang kurap, walang mahirap (there will be no poverty if there is no corruption) the government is making little headway, notwithstanding its herculean efforts to impeach the Ombudsman and the Supreme Court Chief Justice and jail the lady president that appointed them. By their own standards, the government seems to be failing in achieving its vision. As a result, income inequality, or the gap between the rich and the poor seems to be widening, as borne out by another NSCB paper released last week.

The government tried to put on a brave face by saying that income among all groups has risen. Unfortunately for the poor, their incomes have risen, but not enough to keep up with the higher cost of living to lift them out of poverty. The conditional cash transfers program which was given a significant boost by this administration was not sufficient. By the NSCB’s calculations, the cost of the government’s welfare program of about Php40 billion for the full year of 2012 was only half the amount required to deal with the problem in the first semester of that year.

The economic management of the nation does not seem to be progressing very well. The Philippine Development Plan talked about promoting inclusive and sustainable growth, but what we seem to be having is none of the sort. Despite all its efforts to improve the efficiency of tax collection and expenditure, to reduce debt and increase social spending and to promote the country as a destination for investment through good governance, these results show that we are just as far away from achieving that goal as we were before.

My advice to the government is not to seek to airbrush these blemishes from its record. It should acknowledge that its efforts thus far have fallen short. The president and his team need to then chart a different way forward. In other words, they need to attend to that “vision thing“, which is what I have been arguing it should have done from the start.

The Philippine Growth Spurt: will it last?

Image credit: NSCB.gov.ph

The latest release of GDP growth figures showed an upward growth spurt for the country. From a growth of 6.8 per cent for 2012 (revised up from initial estimates) to an unexpected year-on-year growth of 7.8 per cent in the first quarter of 2013, the numbers seem to provide both a strong signal to the world that the country now is back in business and a platform for the government to claim that its policy of pursuing clean, honest governance is paying off.

Having outpaced the growth of countries like China (7.7 per cent), Indonesia (6 per cent), Thailand (5.3 per cent) and Vietnam (4.9 per cent), and having done so on the back of an expansion of manufacturing and construction, has led some commentators to claim that the country has turned a corner or reached a “tipping point” from where it would now be on solid footing on a higher growth path.

There are only three things to point out here.

The first is the blindingly obvious: one quarter’s performance does not make up a trend. We cannot make any projections regarding future prospects based on this single observation. I would argue, not even the performance of the last 18 months proves anything. Remember 1997 when we thought we were about to take off? For those who were old enough to recall, remember what happened next? The same thing can be said of today’s situation.

Second is for us not to downplay the effect of the recently concluded elections. Malacañang has stated that this was an unusual GDP growth result for a non-presidential election year. You would expect them to say that, but the problem with their argument is the automation of elections, which makes campaigns more expensive by all accounts as cheating can no longer be achieved centrally at the provincial or municipal levels, as was the case prior to automation, but has to be done at the retail, grass roots level through vote buying.

We cannot discount the fact, particularly in this election which was dominated by entrenched political families, that money might have flowed massively unlike previous midterm elections. This would have meant that provincial and municipal incumbents hit the pork barrel pretty hard in the opening months of the year in a bid to prove to constituents that they were hard at work.

Government spending and construction growth were consistent with this view, along with financial intermediation, which again could have been linked to this. That does not necessarily mean that all this spending went to waste. It just means that a large component of the first quarter growth was seasonal in nature: determined as it was by the political-business cycle.

The third and final point I would make is that the Philippines becoming the fastest growing economy in the region is more about China decelerating than it catching up to China. The two are interlinked though. Let me explain.

During the last decade, China was the workshop of the world. It basically drained the swamp for ASEAN sucking in much of the foreign direct investments in manufacturing. During this time, the Philippines suffered a hollowing out of its industrial base, what little of it that it had.


At some point in this period, China’s income per capita overtook the Philippines’. Demographically, China also started to face the consequences of their one child policy as labour started becoming scarce as investments in China’s interior slowed the migration of workers out to the prosperous coastal regions.

The newly installed Chinese president has also indicated that the government would not sacrifice the environment in pursuing economic growth. Much social unrest now stems from pollution. They are seeking to transition the country away from its dependence on exports and investment. China has basically lost its cost competitiveness and will now have to grapple with the challenges of being a middle income economy.

Early this year, it was reported that inward foreign investments into ASEAN have for the first time equalled that of China. A structural realignment is now taking place. Bangladesh, Vietnam, Myanmar and Cambodia are now the new Chinas. The Philippines could perhaps be benefiting from this trend as well. It probably has less to do with what the government is doing, and more to do with external factors, as I have just mentioned.

All this now puts the onus on government, however, not to “muck things up”. Recall how it inadvertently pulled down growth back in 2011 when it pursued a de facto austerity policy? Let me take the opposing view now and say that this could be the start of a trend, a structural break in economic parlance. In that scenario the one thing that could potentially derail it is the “noise” that we create. Happily for the administration, it won a rare majority in the Senate and kept control of the house (assuming its alliances hold).

The mystery now is what it plans to do with that majority. The ball is in its court. If this sudden growth spurt is to be maintained, then for the next three years, the Aquino government will have to work hard to unclog the investment pipeline in infrastructure, skills and energy that are needed to power its economy through.

Will things like charter change, the proposed Bangsamoro autonomous region, territorial disputes with our neighbours or some completely unexpected Black Swan event throw us off course? That I suppose is the burning question of the day.

Long overdue: Bureau of Customs abolition

So, this morning’s banner story in the Philippine Daily Inquirer reads: Bureau of Customs abolition planned.

Who’s planning it? Malacañang. Who is proposing it? Embattled Customs Commissioner Ruffy Biazon. That’s right, the head of the agency itself who has been under the pump for failing to curb the rampant smuggling activities that are allegedly continuing despite the president’s mantra of Daang Matuwid.

In a face-to-face conference with editors of the PDI, Biazon offered up the possibility of overhauling the agency from the top-down, by replacing it with a new professionally led one. He says resistance to his reform measures from the frontline staff at the bureau has led him to take this view. In public policy parlance, we call this phenomenon the tail wagging the dog or “street-level bureaucrats” distorting the policy decisions made at the top. Here is a quote from the report:

Biazon cited the example of Peru, which, to defeat corruption and smuggling, abolished its custom department, put up a new one, adopted strict qualifications for hiring, and paid higher salaries to the new officers and employees running the new agency. In the case of the Philippines, Biazon said, corruption is deeply entrenched in the customs bureau’s culture and system so firing a few people or catching some smugglers will not solve the problem. [emphasis mine]

Well, well, well, I am happy to see that something I had recommended back in July 2011 in a piece called, the National Development Project, is finally being given some serious consideration although my proposal included not just the Bureau of Customs, but the Bureau of Internal Revenue and all other revenue generating agencies. Despite their best intentions, it has taken the palace nearly two years to catch-up to the policy conclusion I had already made regarding its anti-corruption campaign in the bureau.

Pursuing good governance doesn’t come cheap. I recognised this fact. But the administration of PNoy felt that it needed to wage a moral crusade first to separate “light from darkness”. My proposals at least acknowledge that if we are to address the cost impact of Daang Matuwid, we have to raise additional revenues. And to do that we need to ensure that our revenue generating agencies are professionally run. With respect to the proposal itself, here is a brief quote from my previous post:

Corporatization is the way by which the government has been able to pay its agents salaries commensurate to, if not exceeding that of, their private counterparts. Singapore achieved this for its entire bureaucracy, but it is the sole Confucian state to do so. The others achieved it through a combination of salaries, allowances and benefits.

The newly minted GOCC (Government Owned or Controlled Corporations) law now provides greater safeguards against abuse done by non-performing companies. It will govern the corporatization of the BIR and BoC. In exchange for the higher compensation, transition into the new agencies must be based on merit and not guaranteed for old bureau officials.

The boards of the new revenue agencies should be allowed to appoint people from among the ‘best and brightest’. Tougher qualifying exams, educational attainments, and past performance should all be part of the selection process. Where posts cannot be filled with existing staff, recruiting externally should be the resort.

Biazon supports the idea of the new corporate entity to takeover the Bureau of Customs to retain 3 per cent of the total revenue it produces to allow it to pay its staff according to their performance. This again was something I had broached before with regard to prosecutors of corruption cases.

It was my view that these state prosecutors were not paid well enough to exert best efforts in retrieving ill gotten wealth, and as a result, certain cases have been left languishing for decades, or worse, settled for a pittance through plea bargain arrangements. Here is what I said on the matter:

The Ombudsman and the Office of the Solicitor General (essential generals in the fight) which are given the task of prosecuting graft cases before the Sandiganbayan and Supreme Court respectively need to have more than a kind of altruistic motivation for performing their duties. They need to have protection and financial security.

Paying them higher salaries alone might not be enough to motivate them to exert maximum effort even in very winnable cases. Some sort of sharing in the spoils which would go both to their office and to chief prosecutors and their staff needs to be put on the table.

I know that some will argue that this is the people’s money and that any recovered ill-gotten or plundered wealth needs to be returned 100% to the coffers to fund social programs. This assumes that we are working with incorruptible Confucian super bureaucrats. That is not the case here. We need to live in the real world, not in some ideal fantasy land.

Apart from these two suggestions, I also proposed outsourcing the main functions of the Commission on Audit to private accounting firms, which is the practice in Australia. If we are to truly tread the good governance path, the government has to start taking seriously these recommendations. At least with respect to customs collection, they may finally be doing so.

Is Aquino Just A Popular Version of Arroyo?

In an excellent piece for the Guardian newspaper, Slavoj Žižek makes reference to the work of philosopher Jean-Claude Milner who he says

proposed the notion of the “stabilising class”: not the old ruling class, but all who are committed to the stability and continuity of the existing social, economic and political order – the class of those who, even when they call for a change, do so to ensure that nothing really will change (emphasis mine).

Žižek asserts that the key to electoral success in 2012 was in a party’s ability to win over this class, which is what President Obama did by pitting his stable leadership against the radical changes proposed by the “Republican market and religious fundamentalists”.  Even now, Mitt Romney proves just how disconnected he is when he characterised as providing “gifts” to minorities the policies that Obama took to the electorate.  As for President Obama’s first term, Žižek goes on to say that

(m)any disappointed by his presidency held against him precisely the fact that the core of his much-publicised “hope” proved to be that the system can survive with modest changes (emphasis mine).

The same can be said of President Noynoy Aquino’s election in 2010. As the “hope and change” candidate of that electoral cycle, the people that elected him were merely seeking to restore the Philippines to the state his mother had left it in back in 1992. The purpose of his candidacy was to pull the country back from the brink of destruction and restore dignity and faith in the political system.

The very thesis of Corazon Aquino’s presidency was to prove that the pre-Martial Law, landed gentry could govern with self-restraint. For as long as the ruling class could manage to do so, the system of governance that she put in place would be able to accommodate the demands of the masses. For as long as there remained some modicum of decency (what Filipinos call delicadeza) from elites, any radical overhaul of the system could be avoided.

This is perhaps why President Aquino has so far shied away from pursuing any structural change in his campaign against corruption. This could be why he put off proposing any new revenue measures like the indexation of sin taxes until now. It could also be why despite promising to support reproductive health reforms he initially backed away from supporting it once in office. And it could also be why he signed into law the anti-cybercrime bill that many have derided for restricting freedom of expression, and why he is against tinkering with the constitution.

Instead of introducing change through these measures, Mr Aquino’s administration cranked up the programs and policies pursued by his predecessor, namely the conditional cash transfers program, universal kindergarten education, PhilHealth expansion, the anti-tax cheat program called RATE, business process outsourcing and tourism promotion and the euphemistic “fiscal consolidation” program. These were all begun by Mrs Arroyo whose popularity never seemed to benefit from them.

So, to mimic Žižek who rhetorically asked whether Obama was just “Bush with a human face”, can we also pose the question, “Is PNoy simply a popular version of PGMA?”

In the case of Obama, Žižek gives us reason to disagree with the assertion that he is merely Bush with a human face in that

(a)lthough his healthcare reforms were mired in so many compromises they amounted to almost nothing, the debate triggered was of huge importance. A great art of politics is to insist on a particular demand that, while thoroughly realist, feasible and legitimate, disturbs the core of the hegemonic ideology. The healthcare reforms were a step in this direction – how else to explain the panic and fury they triggered in the Republican camp?

In a previous post on this topic, I likened the debate America was having on healthcare with the one the Philippines is currently engaged in with respect to the reproductive health reform measure in Congress. Both touch on a nerve that is fundamental to the psyche of each nation with respect to the choice being considered and challenge each country’s default position with regard to the role of the state in each case.

Unlike Obama however who chose the issue of healthcare as the transformative one that would define his first term in office, despite the fact that the budget and economy were looming large as potential roadblocks to his re-election, President Aquino hasn’t really staked his presidency on any signature issue, save for impeaching Mr Corona and jailing Mrs Arroyo.

In the case of Mr Aquino, the victories over the former chief justice and ex-president respectively start to ring hollow among his supporters who don’t necessarily see the anti-corruption campaign continuing in the future under Mr Aquino’s likely successors. For them, a set of insurance policies to mitigate against any potential backsliding is required but does not seem to be forthcoming from Mr Aquino’s current leadership (or lack thereof) when it comes to the Freedom of Information bill and other similar measures.

As they see the potential dominance of the Binays, Estradas and Pacquiaos in our national political landscape for years and years to come, many are also beginning to call for the fulfilment of the anti-dynasty provisions in the constitution. Again, it does not seem as though the president will be leading on this issue. For the “will of the people” to be fulfilled, no restriction ought to be placed on their choices, he would probably say.

That so called choice presupposes however that people are indeed free to decide on their own. The framers of our present constitution perhaps knew intuitively that for this to be so, people would need to have a certain level of economic freedom and independence. Until such was achieved, they must have felt certain restrictions needed to be in place. What Milner describes as the stabilising force is nothing but a healthy middle class.

Unlike President Obama who broke with economic orthodoxy by bailing out the auto-industry and giving subsidies to clean tech companies in the hope of saving and creating jobs with living wages, President Aquino and his team feel no need to intervene in the appreciation of the peso to support our manufacturing base which is needed to grow the middle class.

For Mr Aquino, the fact that he can demonstrate the ability of the ruling class to govern with a level of integrity ought to be enough to ensure that things never go back to the way they were under Mrs Arroyo. For his fellow dynasts who supported his candidacy and form part of his ruling coalition, however, the fact that Mr Aquino thinks this way guarantees that things will indeed go back to “business as usual” when they get their turn in the driver’s seat.

The halo effect

image courtesy of listverse.com

The halo effect is a cognitive bias first studied by Edward Thorndike in 1920 whereby the perception of one trait (i.e. a characteristic of a person or object) is influenced by the perception of another trait (or several traits) of that person or object. An example would be judging a good-looking person as more intelligent or believing a politician’s policies are good, just because the person appears good.

In the case of President Aquino and his high public satisfaction ratings, there seems to be a substantial amount of this effect taking place. The general impression of P-Noy is that he is honest. This comes from being who he is, the only son of two national heroes. This has translated into very positive sentiment towards the actions taken by the government under his watch.

Part of this has to do with the anti-GMA sentiment or the reverse halo effect. So pursuing cases against his predecessor is seen to be the legitimate thing to do, and rightly so, given the shenanigans that her administration was accused of. It also ties in with the president’s retraction and review of contracts and projects already approved for fear that they would somehow benefit her proxies within certain departments and sub-contracting firms.

But if you look at the outcome of these actions, it becomes immediately apparent, leaving our cognitive biases aside, that the positive evaluations given to P-Noy by the public are probably unjustified.

First of all, with respect to the way in which his justice department has gone after Mrs Arroyo, certain questionable legal manoeuvres have actually undermined the rule of law rather than upheld it. And secondly, with regards to the handling of the economy, the third quarter GDP figures clearly show that the overly cautious due diligence performed on public contracts undermined economic growth rather than encouraged it.

On the first point, I am referring to the use of a joint panel composed of the Department of Justice and the Commission on Elections that investigated allegations of vote rigging in the 2007 elections. This is said to have been anomalous in that a supposedly independent constitutional body such as the COMELEC is not meant to be seen as partial or collaborating with the administration in any way. Also, when their joint findings were published, it took a judge a few hours to read their eight ring-binder document and issue an indictment on Mrs Arroyo.

The undue haste with which such decisions were reached coming on the back of a temporary restraining order issued by the Supreme Court on the hold departure order issued by the DOJ on Mrs Arroyo that was “in effect” despite the dissenting opinion of some justices makes it highly likely that politics rather than due process was observed. This TRO was issued because the legality of the DOJ’s hold order was questionable to begin with.

Had these actions been undertaken by Mrs Arroyo while she was running the country, the protests from civil society regarding the “creeping authoritarian” nature of her government would have occupied public discourse. But because it was attempted by the meek and mild administration of the “benign one” there does not seem to be the same level of public indignation, although the result is the same—if upheld, it would grant vast powers to the state to curtail individual freedoms.

If we turn to the second point, on economic governance, the promised economic take-off billed as a public-private partnership by the president did not take place. Instead the economic deceleration has been rather remarkable in a region that is seeing quite robust growth despite the downturn in Europe and the US. The government which was prepared to take the credit for positive growth in agricultural output in the first half when early rains produced a bumper crop is now shifting the blame for poor production on storms both natural and man-made.

Public construction continued to show weakness despite the government’s promise to fast-track the roll-out of resources in response to the slump in the first half. Even with the announcement of a “stimulus” to deal with the effects of the EU debt crisis, there still appears to be little traction on this front. All hopes are pinned on the fourth quarter, but as the country’s chief statistician has pointed out, to attain even the lower end of the government’s modest growth target range for the full year, the economy would have to expand at a pace rarely seen.

In attributing the weak economic performance registered this year, there are certain factors that lie outside the government’s control (storms and financial crises overseas) which have to be acknowledged, but a portion of it definitely lies within its sphere of influence (public construction spending). It is clear that external factors did dampen growth, but the government’s action or inactions dampened it even further.

Again, had this occurred under Mrs Arroyo, the government would have been pummelled. Hounded by questions of legitimacy, it was her economic credentials that proved her only saving grace. Now that the government is run by someone whose electoral mandate is unquestioned, his now sullied economic credentials don’t seem to be much of a problem.

To counter the cognitive bias associated with the halo effect on the part of an evaluator, “blind-fold” tests or blind experiments are often administered where the person rates a product based on its actual attributes or performance, not on the subject’s perceived reputation. Respondents are often surprised with the results when they remove their blindfolds. I wonder what would happen if a poll was conducted that used the same principle in evaluating the performance of our presidents.

If faced only with the indicators of success and not the name of the person being rated, what marks would be given this president? What the government under him did this year countered its aims of fostering good government, rule of law and economic growth, but somehow its acts of commission and omission get glossed over and given a positive spin. Not only that, but the public by and large is willing to accept the message given them that all is well. So it seems the halo effect can cover a multitude of sins.

A Dual Track

Two very disappointing sets of figures were released last week.

One: the anemic 3.4% GDP growth experienced by the Philippines in the second quarter of the year. That places growth in the first half at 4%. Economic managers have had to revise downwards their full-year projection to 4% from the targeted 7-8% (it would require growth of 10% in the second half of the year for the target to be reached, and not even the budget department’s assumption of 5% seems likely at this point).

Two: the abysmal jobs market in the US which saw no new net jobs created in August as many private firms became spooked by events in Europe and the US credit downgrade. The fact that high unemployment is expected to persist until 2015-16, perhaps even to 2016-17 (with many states coping with the end of stimulus by laying-off workers) has led many to conclude that the US is teetering on the brink of a double dip recession.

Bracing for the harsh winds from a US downturn, Sen Frank Drilon has called on the government to step up its infrastructure spending. Amando Doronila uses the findings of Credit Suisse which downgraded its growth prospects in the region which is expected to suffer “more than most” and cast doubts on the Philippines because it doubted whether

(T)he planned PPP (public-private partnership) infrastructure projects that many were bullish about were likely to get off the ground in a hurry.

In fact, the first couple of projects are scheduled to be bidded out at the end of the year, 18 months after the SONA in which it was announced. That means actual investments will not flow until well into the next year.

Economist Solita Monsod in her weekend column chastised our economic managers for not heeding the official early warning signs by accelerating public construction expenditure. She likened it to economic sabotage when she concluded

Public construction contracted by 23 percent in the third quarter of 2010 and 14 percent in the fourth quarter. Okay, that’s the price for trying to tighten procedures. But decreasing by 38 percent in the first quarter of 2011? And 51 percent in the second quarter?
Prevent plunder? Maybe. But there is economic sabotage in the process. What a choice Filipinos are faced with: between ill-intentioned plunderers and well-intentioned saboteurs.

Amando Doronila had more harsh words in today’s op-ed piece

The straight path to governance sainthood under the Aquino administration’s mantra, “without corruption there’s no poor,” is littered with the derelicts of pious slogans as well as the detritus of incompetent economic management. These derelicts cannot make up for the big deficit in economic performance.

Much like his American counterpart whose followers have become disenchanted with the meager results of his lofty campaign rhetoric, PNoy could soon find the public’s receptiveness to his slogans waning with each passing day.

After experimenting for a year with his idealistic Daang Matuwid will hard-nosed pragmatism be resurrected? A dual track is needed in which the administration pursues its good governance agenda in a way that does not hamper economic growth and development.

This is perhaps what the purists in his camp failed to consider, that the path to development is not a single lane, and that the two agendas can run side-by-side.