industrial policy

There’s too much fun in the Philippines

A certain pizza place we shall now disguise behind the name Norwich Pizza had been acquired by a large food conglomerate we shall call Bumblebee Food Corporation for purposes of discussion. BFC sought to turn Norwich from a simple mom and pop type of operation into a highly profitable nationwide franchise.

It set about doing this by hiring a very prominent ad agency to deliver a strong and appealing message to the public. The firm wisely picked a celebrity, a certain Ms Nonita Flowers, to be in their commercials.

Within months of the launch of the media campaign, sales rose rather well in line with projections made by the company’s bean counters. Unfortunately, after a quarter of stellar performance, revenues started to head south quite dramatically. This puzzled the head honchos at BFC. Everything had been proceeding according to plan until very recently. What had happened?

To investigate and remedy the situation, one of BFC’s vice presidents who successfully steered another major acquisition, the Chun King Express, was brought in. The vice president proceeded to inspect the premises of Norwich. Within a month or two, he had not only arrested the decline in sales, but restored it to its previous trajectory.

So how did he do it?

Well, having cut his teeth in the fast and furious world of Chinese takeaway, the vice president of Chun King knew the importance of maintaining good customer service. This could only be achieved if the stores were equipped with proper equipment particularly in the kitchen. Within the first few weeks of his assignment, the new manager had placed orders for new ovens to replace or augment the standard kit that had been originally installed in Norwich stores, which he deemed highly inadequate.

The capital investment paid off and Bumblebee proceeded to earn a positive return on its acquisition of Norwich, albeit at a lower rate in the first year than previously expected due to the unforeseen expenditures. The vice president was given a fat bonus for his efforts in rescuing the venture. Money well spent from the point of view of BFC’s board and stockholders.

This case study demonstrates the importance of coupling good marketing with good operations. Without a quality product, no amount of spending on ad campaigns could restore or improve the brand’s sinking reputation. In the fast food business, it doesn’t matter how tasty the food might be, if customers have to wait too long, they won’t be coming back.

The same can be said of tourism and travel. The Department of Tourism under Sec Jimenez is looking to increase the flow of visitors into the country with a catchy slogan, “It’s more fun in the Philippines” and the usual slick marketing campaign. It is in talks with Singapore to co-brand the two nations as the “sunshine belt”.

These ideas are brilliant, but the problem is that the Ninoy Aquino International Airport is already operating above its normal capacity with visible signs of wear and tear all too evident. Even with the renovation of Terminal 1 and the recent conclusion of the decade’s long case involving Terminal 3 paving the way for the full use of it for international flights, these developments will not unclog the bottlenecks due to the limited number of runways. No amount of renovations will fix that as there is no more room for expansion. As arrivals are slated to rise from 3.9 million in 2011 to 4.2 million this year, how will the airport cope?

This problem is compounded by the growth in domestic flights. During my recent visit to the Philippines, I spent an hour waiting at the departure lounge of the domestic terminal in Manila for a flight to Kalibo. The reason given for the delay was “heavy congestion”. After boarding the plane, we were grounded for close to another hour waiting to be cleared for take-off. As the plane finally taxied onto the runway, I stared at my watch, then at the frustrated businessman seated next to me.

Only two hours delayed, not bad,” I jokingly uttered. He laughed. That was all we could do to cope with the situation.

The same thing occurred on the way back. As the voice boomed in the speaker stating that our flight was behind schedule, a power outage stopped it in mid-sentence. It was nearing nightfall and the blackout was quite a shock to the passengers.

“It’s more fun in the Philippines!” I heard a man snicker in the darkness.

Meanwhile on a separate road trip up to Northern Luzon, our convoy experienced a very weary trek. Each town we passed through, every ten kilometres or so, caused us to slowdown as their town hall plazas, central markets, public schools and cemeteries were all located along the main artery causing both vehicular and pedestrian traffic.

The road widening still unfinished due to the slow spending rate of public works projects in 2011 delayed our trip in certain sections. We were told that an extension of the Subic-Clark-Tarlac Expressway would provide better access to the North bypassing most of these populous towns from Tarlac to La Union, but our guide said this had been halted by the new administration. It was clear though that such a road project was long overdue.

That’s as far as infrastructure and transport corridors are concerned. We haven’t discussed the problem of environmental degradation. In both Baguio and Boracay where I took my family, the effects of what urban planners call regional agglomeration were quite evident. Tourism was enticing a major “big box” shopping center to expand in Baguio. Such a move could upset the already congested situation, worsening the air quality, not to mention the aesthetic and cultural appeal of the tourist destination.

Meanwhile, I was shocked to see D’Mall in Boracay. It sort of depressed me actually. I ended up skipping lunch because I had lost my appetite after seeing this transplanting of Divisoria or Baclaran to the once pristine island. It made me wonder if there was such a thing as having too much fun in the Philippines.

If tourism was sold to our government planners as an environmentally safer path towards development compared to industry or mining, I say, think again. There are no free lunches as economists are wont to say. We can’t expect rapid development not to have an impact on the natural habitat. It would be dangerous to think so.

I actually prefer having a greater emphasis on industry, because you can at least concentrate the site of industrial projects within a confined area and choose the type of industries (say light industries or agro-industrial ventures with a smaller ecological footprint) or provide incentives and regulations to govern the heavy polluting ones.

The Philippines has a lot of catching up to do in this area. I am not simply speaking of tourism now. Wasn’t inclusive, sustainable growth and development at the heart of PNoy’s social compact though? This administration like its predecessors is fond of catchy slogans beginning with Daang Matuwid (Righteous Path). It’s more fun is just the latest. But apart from having these platitudes, where is the plan? We have yet to see a blue print for developing the infrastructure, the security, the regulations and incentives that would responsibly manage the growth in our economy? The case of Norwich must be heeded; otherwise, the Philippines could remain grounded for a bit longer.

Like a Thief in the Night

image of Michaelangelo's Last Judgement from freepublic.com

That is not how the government acted in seeking to put Mrs Gloria Arroyo behind bars. Rather than keep the former president guessing as to the date when formal charges against her would be laid, President Aquino announced back in September what the timetable for it would be. Here is how he phrased it,

We will start filing the cases before the end of this year and with a little cooperation from the judiciary, maybe we can put some of these people in jail next year.

This signalled to Mrs Arroyo that she had to make travel plans as soon as possible, which then forced Justice Secretary Leila De Lima to take it upon herself to place the congresswoman under a departure watch list to keep her in the country even before preliminary investigations were concluded. This according to one justice meant that De Lima was now “more powerful than the court which can only do the same “after the filing of the information and the issuance of an arrest warrant“.

With a little cooperation from the judiciary”: those words of P-Noy now seem ominously prescient of events as they unfolded because straight after thwarting an attempt by the former president to leave by disregarding an injunction from the high court on the watch list order, the government then turned to a joint panel between the Comelec and the DOJ set up to look into electoral fraud to file a case before a regional trial court against Mrs Arroyo. This timeline shows that within the space of a few hours upon receiving their case files which numbered several thick ring binders, a judge issued an arrest warrant.

Had this judge not been so “cooperative”, Mrs Arroyo might have successfully fled the scene since the Supreme Court had by then thrown out the government’s appeal to have its injunction on their watch list order lifted. And so despite the fact that it had foolishly forewarned the former president of its intended moves, the government somehow managed to keep her in the country long enough for an arrest warrant to be served.

In the process of doing so, however, the government may have committed a few grave mistakes. These might come back to haunt its case. Certainly if it is found that it acted inappropriately, the president needs to own up to it because it was he who set the wheels in motion that eventually landed the government in a whole heap of trouble. Particularly with respect to his campaign promise to uphold the rule of law, P-Noy will be ultimately responsible if it is determined that his government usurped judicial powers or acted in contempt of court.

At the moment, the president is assailing the Supreme Court for the speed in which it issued its injunction on the government’s watch list order as he spoke before his “home court” the Makati Business Club, saying

(O)ur lawyers all know that it takes the Supreme Court 10 days, normally, to attend to motions, and it decides to issue a TRO for Mrs. Arroyo in three, who can avoid wondering what she did to merit such speedy relief?

And yet the president doesn’t see the irony of his position because the government was quite happy to get a lower court judge to issue an arrest warrant on his adversary in a matter of hours, which was a far more difficult decision to make. Certainly, when it comes to fostering the rule of law, what this government has in mind is something quite different from the standard.

Like a thief in the night–that is how the Hacienda Luisita decision was handed down by the high court in the midst of all this. Oral arguments had been heard and the judgement of the court had been pending. No one knew the day or time when it would materialize. Suddenly either by coincidence or by design the justices rendered a unanimous vote in favour of the farm worker beneficiaries to have the Aquino-Cojuangco estate title transferred directly to them.

Having justified its bold and decisive actions against the court’s injunctions because of the ensuing confusion surrounding it, the government through its spokesman immediately informed the public that it would respect this particular decision as public support had been mounting in favour of it. The only caveat was for the determination of ‘just compensation’ for the president’s relatives and other issues that the court still has to settle.

The initial action by the Arroyo government to revoke the stock distribution option taken by the Cojuangcos in complying with the agrarian reform law was suspect according to US officials based on confidential diplomatic cables as a form of retaliation by Mrs Arroyo on the matriarch of the Cojuangco clan for supporting calls for her ouster back in 2005. What the Supreme Court ruling now does is open up the possibility for a counter-retaliatory move on the part of Mr Aquino against the Macapagal-Arroyo clans who also own sugar plantations.

This tantalizing opportunity could reverse the destructive pattern of competition by ruling elite factions to accumulate wealth through landholdings using the weak system of property rights in the country in order to consolidate power. Now in a bid to weaken each other, these same ruling elites might now work to dismantle each other’s landholdings. Given that one faction controls the executive and another holds the sympathies of the judiciary, this feud might actually produce something positive for the country.

Like a thief in the night—that is not how events overtook this government on the economic front. For one, the debt crisis in Europe was unravelling like a train wreck in slow motion for several years now. The seeds of this crisis were actually sown during the last one when governments pumped liquidity into their banking systems and engaged in stimulatory fiscal spending. It was only a matter of time before bond holders began to raise the cost of public debt.

The government had ample time to prepare the nation for this crisis, to bullet proof it by sustaining demand through public construction and investment. The early warning signs that its fiscal consolidation was going too far and actually dampening growth in demand were quite evident during the end of last year. The government had ample opportunity to correct its course and make the necessary adjustments. It may turn out in the end that a transition to a new government may have caused unnecessary disruptions to patron-client networks in the bureaucracy. Reconfiguring these networks took too much time.

Finance officials might have taken this as a welcome blessing as the slow spend rate allowed them to limit the fiscal deficit while sticking to the president’s no new taxes pledge. Meanwhile,with the fiscal space it had from fiscal consolidation, it cut tariffs on certain industries. It balanced this decision by removing power subsidies to exporters in special economic zones. These could threaten the growth of some industries and lead to the closure of others at a time when global demand for our exports is already weakening or restructuring as some economists have noted.

The biblical phrase “like a thief in the night” comes from the parable of the ten virgins found in the canonical gospels of the New Testament. It is also known as the parable of the wise and the foolish virgins. The five virgins who were prepared for the bride-groom came to his wedding feast, while the other five who weren’t were excluded. It has an eschatological message: to be prepared for the day of judgement. The final reckoning.

With the second coming of the Aquino dynasty, will the country be prepared to pass the test? Or will it simply slip into oblivion? The day of judgement is nearly at hand!

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.

Of buses that kill and untrammeled markets

Just as we auction out public utilities, why not apportion bus routes to the most professional and competent bidders?

With the release last week by the LFTRB of the Top 10 Killer bus companies, a very unsavory picture of the road transport sector seems to emerge. A total of 163 accidents were tallied in the course of a year. Topping the list was NOVA Auto Transport, the same bus line that was involved in the road accident which claimed the life of UP Professor Chit Estella-Simbulan.

That particular incident highlighted the public safety risk that buses posed not just in the provincial bus routes but in the metro as well. Upon issuing three lists of top ten offenders (distinguished in terms of number of accidents, number of fatalities and accidents resulting in damage to property), the partylist group 1-UTAK cried fowl declaring that officials from the bureau could be subjected to criminal and administrative prosecution for releasing such information to the public.

After originally announcing that recidivist bus operators would have their franchises cancelled, the LTFRB was put on the back foot defending their release of such lists as not a form of “blacklisting”. Such a feeble response to the overt threats posed on it is quite typical of a government that is not autonomous from private sector interests. Such a hapless state of affairs persists in which the public regulator lacks the teeth to discipline erring providers of public transport.

It is worth retracing our steps to see how we got here.

After 1986, in an averse reaction to the monopolistic crony capitalism fostered under the Marcos dictatorship, the new regime sought to strip any visible vestiges of the former dispensation. This included privatizing the bus routes in Manila which was previously the domain of the Metro Manila Transit Corp under Imelda Marcos’s Metro Manila Commission.

The plying of bus routes was then liberalized and the importation of second hand buses was encouraged through tariff reduction or customs exemption. Echoing the policy consensus en vogue in Washington, Manila’s elite sought to introduce the “magic of the market” in areas that had been dominated by a state owned enterprise.

The role of the government was revised to simply set the rules, lower the cost of entry into the industry, stand back, and let the market rip. Even now, if one visits the LTFRB website, one will find that the cost of entering the market are quite low with a bank balance of 30,000 pesos the only capital requirement needed from a prospective franchisee.

Fast-forward to the present, with the advent of mass transit light rail systems that offer quicker, cheaper trips around the metro, there is now a glut of bus operators vying for a more limited number of bus patrons. With their fares being regulated, the only way for them to maximize profits versus their competitors plying the same route is literally to jostle on the streets of Manila for them.

Under the pre-existing policy, the goals of attaining a free and open competitive market with many small operators unable to distinguish themselves on the basis of product or price and where the customer is king has been achieved. With diminishing profitability, bus operators and their employees have increasingly taken to very risky practices to shore up their market share by snaking through our roads picking up passengers indiscriminately from any particular point on their route.

The response of the government has been to promise a rationalization of bus operators (to reduce the number of buses) through an attrition program scheduled to take effect in the medium term and to rely on stricter traffic monitoring and enforcement by the Metro Manila Development Authority to catch unlicensed and erring bus operators. Meanwhile, life threatening practices and accidents continue to happen on our roads.

Changing Course

With the benefit of hindsight, it is clear what the policy stance of the government should have been. The government should have planned and managed the issuance of licenses to ensure that operators had a reasonable let alone a sustainable level of profit expectation. Instead of leaving it to the market to determine the number of operators, the state should have studied the transport capacity of the city and acted accordingly.

One study by two engineering undergraduate students has shown that the market on EDSA is currently 75% overcapacity or over-serviced compared to the DOTC’s own computation of 60%. This would tend to imply that quite drastic cuts are needed if for every bus that is required, there is another one to two buses competing for the same set of passengers. That would tend to mean a loss for both operators who would be running on less than half their normal capacity, thus leading to slimmer margins.

If correct, the study shows that the reduction through natural attrition cannot be relied on to achieve the required number of buses in the near term. What if the better behaving operators have their franchises cancelled simply because these are due to expire earlier than the worst offenders? There is nothing rational about a natural attrition policy.

What the government should do is simultaneously revoke or cancel all licenses for the same over-supplied routes at some future date and auction them out in the same way it intends to bid out projects under the PPP program for public transport.

This implies that the government needs to intervene in the market. Instead of relying on Adam Smith’s “invisible hand” to intensify competition which creates cut-throat business practices that puts the motoring public at risk, the government needs to show its “visible boot” and kick the industry back into shape.

To do that, it needs to parcel out bus routes and auction them out to the best bidder. This will tend to favor fewer numbers and much larger bus operators resulting in an oligopoly with a credible threat of cancelling and re-auctioning routes for poorly performing ones. Small operators will need to either form consortia or cooperatives to compete with large operators in terms of scale.

Among the criteria used to approve and renew bus licenses should be the safety record of bus liners, their compliance to traffic rules, their capacity for adequate repair and maintenance and their ability to service their routes well. Technocrats should be hired to determine a reasonable auction price range for specific routes that would still allow for an acceptable return to prevent a “rigged” auction.

With monopolies over certain bus routes, the operators will no longer need to engage in dangerous driving practices. Passengers should only be allowed to board and alight from buses at designated stops. Operators would be assured of sustainable passenger volume along their routes and would find it in their interest to schedule the deployment of buses along their routes. Traffic congestion would ease, and enforcement could be made much simpler to monitor and track.

The government should also embark on a training programs to educate drivers on safe driving practices by benchmarking with other jurisdictions. With a greater assurance of profits, bus operators should be made to provide decent work hours as well as comply with occupational health and safety standards.

Transitioning arrangements

With this new arrangement in place, the question remains what to do with the remaining operators and their assets. The cancellation of their franchise would result in lost income and livelihood for them. Wouldn’t the government have to compensate them for this?

On the loss of livelihood, the damage caused the industry may not be as big as one would imagine. To achieve sufficient scale, winning bidders might need to purchase or lease buses from unsuccessful companies. Secondly, the cost of compensating the remaining bus operators could be partially offset with the revenue earned from auctioning bus routes. Thirdly, the government could require metro and provincial operators to maintain excess buses for use during peak periods during the day or peak seasons during the year. A pool of reserve buses could be established to accommodate this. The remaining assets could potentially be used for chartered services to the tourist industry.

If need be, the LTFRB should be given “legal cover” to undertake this drastic policy shift by our legislators. It should be allowed to invoke “public safety” as a criterion for re-structuring the industry. It also needs to be granted the authority to auction out routes under the PPP arrangement found in other mass transit systems.

On the way to market

The chaos on our streets is emblematic of the state’s governance in our country as a whole. The ideology of the free market was adopted as a way to expand service at a time when the public sector was strapped for cash. On our way to achieving that ideal state of open market competition, we allowed the industry to become unwieldy. No forward planning was conducted when the mass rail transit system was constructed to determine whether bus routes would continue to be viable. As a result, the untrammeled market created perverse incentives for operators to put the public’s safety at risk with the burden of monitoring and enforcing traffic safety placed on toothless regulators.

After a period of stepping back and letting markets rip, it is now time for the public sector to govern the market to bring it back to a sustainable level. In a similar fashion, the government needs to identify strategic sectors in the economy that could do with similar industry structural adjustments and develop a plan for deepening and broadening their scope of activity.

It is quite ironic that the economic planner who coined the phrase “narrow, shallow and hollow” as a way to describe the Philippines and its industrial base was the same person at the proverbial wheel when tariffs were being indiscriminately lowered ahead of external commitments under WTO. “Asleep at the wheel” is probably the phrase we can use to describe this strategy.

Like our streets, untrammeled markets could simply foster cut-throat competition or lead to investments in unproductive sectors of the economy and impede investments in more productive ones. This could literally spell life or death for those that rely on them for a living.

The Power of One

Assessing PNoy’s freshman year: the good, the bad and the ugly

In numerology, the number 1 bears singular importance. The first, the start, the origin of anything bears significance and meaning in the sense that it opens up possibilities, it sets the scene, and it leads the way. The level of anticipation and anxiety is always highest at the start.

The mistakes and lessons, the first impressions and achievements all have lingering effects. So it is with the first year of PNoy’s administration: the learning curve, the birthing pains and the wall of public expectation he has had to scale was close to insurmountable.

Comparisons and contrasts

In assessing his first year, the problem of finding an appropriate yardstick has been highlighted before. For those that attempt it by way of contrast, PNoy has done a remarkable job in his first year simply by not being Mrs Arroyo. Some similarities can be drawn with his mother in that she too had to sort out a lot of problems left behind by Mr Marcos and high expectations on the part of the people.

Others like me have drawn some parallels between PNoy and Estrada in the way the president went about managing factions within his cabinet. Some have questioned the president’s work ethic. ‘Do nothing’ was a constant line of attack presented by his detractors.

The question here is, had PNoy not succeeded Mrs Arroyo, how would his first year have been measured? Corollary to this is, had PNoy not been an Aquino, how would we perceive or rate him? The nation treats PNoy almost like an older brother or ‘kuya’. His being the son of ‘Tita’ or Auntie Cory makes an objective assessment difficult because of kindred ties and the ‘halo’ effect.

Factoring out the ‘noise’

Then there is the problem of events outside the evaluatee’s control, or the noise factor. The worsening global economy emanating from the Eurozone, Japan and MENA as well as from the US, have been used to explain the weakening foreign investor confidence in the Philippines.

As Ben Diokno rightly points out, our relative performance to some of our ASEAN neighbors allows us to factor out the ‘noise’ in that our peers in the region all have experienced the same global slowdown, but as the first quarter data shows, they were able to increase their levels of foreign direct investments, while we saw ours shrink.

We need to bear this in mind whenever we hear officials justifying the slowdown in our economy by citing global affairs or cyclical factors like the elections of 2010. We might be maintaining growth in an absolute sense, but in a relative sense, we might fall behind our neighbors in the region. We therefore need to determine whether this poor performance relative to them is due to some of the things the administration is doing or failing to do.

Progress made

Having said that, I would first like to focus on the positive things I believe the administration has done. This would include both its tangible and intangible achievements. I will start with the tangibles.

The introduction of universal kindergarten in public schools which studies show provide long-term learning benefits, the reduction of hunger most recently attributable to the conditional cash transfers program which is really designed to address intergenerational poverty and not fix the unemployment problem in the near term, and the reform of government corporations and debt management which have led to meaningful savings for the government are all worth a positive rating.

With regard to intangibles, the confidence engendered by the government which has led to private domestic firms releasing pent-up demand for capital goods and the greater trust or faith in government leaders are two things that this administration can be congratulated for. If the government can continue to make inroads in these areas it will have done a tremendous service to the Filipino people.

Needs improvement

On the needs improvement column, I would have to cite firstly the government’s handling of its legislative agenda. Both the scope and the pace at which it has been pursuing this have serious flaws. The absence of the FOI and RH bill among its priority measures for instance was a major failing. The fact that it took nine months for it to hammer out its agenda led to meager legislative trophies in the first year.

Secondly, our response to China’s emerging role in the region as a superpower to counterbalance the US our traditional ally has been all over the place. First, we sided with China unnecessarily in not attending the Nobel Prize conferment ceremonies for one of its leading dissidents. Then, in handling the Spratlys issue, we engaged in sabre rattling by sending out a navy vessel into disputed territory, again unnecessarily. A more considered and strategic foreign policy is required.

Thirdly, in prosecuting cases against Mrs Arroyo and her allies, many will assail the efforts of PNoy as unsatisfactory or timid, as several church and citizen’s groups have done. Personally, I would not consider this too much of a problem, but I know that many have that expectation. So what I cite as a failure by this government is its inability to manage such high expectations. More importantly, I would like to see greater safeguards and economic measures put in place to ensure that the Ombudsman and Solicitor General’s office are well resourced to perform their functions.

Sharper focus required

Finally, I would like to cite areas that deserve sharper focus by this administration. These are things that the administration needs to prioritize if it is to make a lasting impact. The first has to do with its development strategies contained in the Philippine Development Plan 2011-2016. As I have stated in a three part series, entitled the National Development Program, there are serious gaps in the Plan that need to be addressed.

Secondly, in its first year, the government has shown serious shortcomings in its budget plans and execution. Having had a head start by way of Congress’s early approval of their budget, the government should have done better at releasing its funds for infrastructure projects. The practice of forced savings due to off-target collections also has to be addressed. This cannot continue as per the ratings agencies reports if the nation is to keep to its growth trajectory.

Thirdly, in generating much needed employment, this government has to start thinking ‘outside the box’ if it is to keep up with the growing workforce. PPP’s or public-private partnerships are an existing tool already wielded by preceding governments. For it to have a successful employment program, the administration will have to develop a robust industrial policy. To do that it needs to reshape the economic bureaucracy as I have pointed out here.

Looking back, moving forward

A periodic performance appraisal is always necessary for any government to benchmark itself against the undertaking it has given to the people, to celebrate successes and take stock of where it needs to improve or devote more attention to.

The first year of any government is always the hardest. Unexpected roadblocks and landmines often litter its path. The ability of any regime to survive its first year relatively unscathed or even stronger than before usually is a good indicator of the caliber of its leaders.

We will have to say that the government despite all the sound and fury has survived relatively intact. The remaining five years will contain many twists and turns. Hopefully, the correct lessons from its first year will help inform these remaining years. For this reason, it is important for citizens to remain as engaged as they have been during this first year as we here at Propinoy are determined to be.