social equity

That Vision Thing Redux: Wang-Wang Culture

In tackling wang-wang culture, has the president left something big out?

The president in his new found role as Sociologist in Chief spoke at his second State of the Nation Address about his vision for a nation free of what he described as a culture of wang-wang (blaring sirens symbolic of entitlement and abuse of privilege). His use of vernacular terms since his inaugural address in getting his message across has won him praise from even handed critics all around.

Those familiar with the business of vision building tell us that leaders should be adept at crafting a story or narrative that creates a sense of shared meaning and purpose for their followers. In this case, PNoy was delivering the “red meat” to his core constituents, those that saw in him the moral authority to bring about change to the culture of impunity that prevailed under the former dispensation.

Having recommitted his government to that cause, PNoy entreated his listeners to give him and the government he leads a pat on the proverbial back, to acknowledge its endeavors at fulfilling this corporate dream. That already seems to be the case. In fact as Mahar Mangahas points out, PNoy’s administration is the most popular one since public polling began (the distinction to be made is that this applies to his government as opposed to his person which is receiving the same treatment from the public as presidents past).

While the president’s speech was rightly praised by some for its lofty rhetoric, it has by the same token been criticized for being short on actual policy substance or consistency. When I say “some”, I mean respected commentators like economist Solita Monsod, sociologist Randy David and businessman Roberto De Ocampo to name a few.

Monsod criticized PNoy for failing to at least mention in passing his roadmap for delivering his vision, the Philippine Development Plan and for perhaps unwittingly committing intellectual dishonesty with leaps of logic and faulty use of statistics in attributing many positive developments to his good government agenda.

David goes even further and questions the roadmap itself for following the same orthodoxies and applying new buzzwords such as “inclusive growth” as a mantra without even a slight attempt to tweak these orthodoxies given their dismal record. The absence of the PDP in the president’s speech according to Monsod belies a view either on the part of the president or his men that it will have any impact on our development.

Indeed while the PDP projects a growth rate of 7-8% for the country in the next five years, the actual budget planning follows a lower set of growth assumptions of 5-6% in forecasting its revenue and spending plans. This exposes the roadmap as an aspirational one, where the budget figures show the real picture.

The need for tweaking

A strange quarter to find a critique against the business community came from one of its own in the person of De Ocampo who picked up the cudgels for competition policy given the doubling of locals in the Forbes billionaire club and the risk that such powerful business interests could swamp any attempt by this government to create a level playing field, citing the PPP program as one potential fatality.

If you look at why the government is unable to shore up its finances, it is largely because self-employed entrepreneurs and professionals and large dominant family-based corporations have successfully avoided paying their fair share of taxes. In a previous post, I cited the figures of the BIR and a study performed by finance economist Renato Reside that showed that the combined losses from non-tax compliance and abuse of fiscal incentives as well as watered down sin taxes could easily close the budget deficit of 286 billion this year.

Having trained his guns on the wang-wang mentality in government, particularly at his predecessor who according to Mangahas led the most unpopular government since public polling records were kept, the president went a little too easy on the well-heeled classes when he identified a glaring inaccuracy in their collective tax payments.

In fact this follows his performance at the Makati Business Club while he was still running for the highest office when he vowed to avoid raising taxes. The president appealed to them at his SONA however to take his honest attempts at creating public faith in government as an assurance that their tax payments would be used properly which he hoped would lead them to be more forthcoming in declaring their taxable incomes.

The problem may not lie just in appealing to a sense of common values. It might actually require in De Ocampo’s words “structural adjustments” a fancy word for fundamental changes in policy and approach. For example, the businesses that now avail of incentives from the BOI and PEZA while failing to follow-through on their investment commitments need to have their tax privileges stripped from them.

Tighter policies and enforcement means renovating our economic bureaucracy. A lack of teeth in enforcing the terms of fiscal incentives led to the failure of the import-substitution industrial policies of the 1950s and 60s. Just as an aside, my father who was in the banking industry in those days would later recount to me how he would often see the head of one bank bringing in sacks full of money after auctioning the import licenses issued by the Central Bank to supposed importers of capital goods meant for industrial production. It went instead to importers of finished goods who made a killing by avoiding tariffs on those items.

Today, the same sort of things is undermining our export promotion strategy where supposed exporters in our business parks and economic zones are able to avoid paying taxes, customs and duties while at the same time selling up to 50% of their output to the domestic market. This is outrageous because it creates an unfair advantage for them against smaller and medium sized competitors.

The real righteous road

Instead of taking a half measure by targeting abuse of authority in government alone, the president needs to focus as well on rent-seeking by private interests. Indeed if you stacked up all the alleged stolen wealth uncovered in the last twenty years, this would not hold a flame next to the amount of rents the business elite have been able to extract from the state during that time. Both are two sides of the coin, except that the latter form of wang-wang is legal, while the former is illegal.

At the risk of being lumped together with the “move on” crowd, I have to say that if the president wants to eliminate wang-wang culture in its entirety, he needs to broaden his vision and take the full-measure of targeting this culture wherever it may reside, be it in the corridors of power or the board rooms of our country’s business elite.

This is not about being forgetful of the sins of his predecessors; it is about being mindful that there are even larger sins being committed by powerful interests that are going on unnoticed. These same interests are able to switch allegiances with the changing tide of public opinion in the political arena.

It is easy to flog a dead horse. It is harder to go after the more prevalent and persistent forces that are alive and kicking. The president needs to take his carefully crafted vision of a country rid of wang-wang culture and turn it into a more comprehensive strategy. He will obviously need to take a balanced and considered approach as he doesn’t want to spook the horses so to speak.

The very essence of the social contract or grand bargain is to maintain the sources of growth, but to allow the more productive sectors to contribute an increasing portion of the proceeds of that growth to help the underclasses who lose out of the growth for whatever reason.

Walking the walk

Talking the talk is one thing, but if he wants to walk the walk, he might have to start with his own family interests. The Hacienda Luisita case could turn into a powerful device for demonstrating his commitment to the righteous path if the government is successful in fulfilling the true letter and spirit of the CARPeR law which would mean distributing land titles to the tillers of the Cojuangco estate. This would set PNoy apart as a leader who remained true to his word.

What would bolster his case even more is if he gets rid of his style of dealing with his KKK (classmates, friends and cronies) and instituted a true meritocracy in his team. Finally, he needs to strengthen the economic bureaucracy by instituting reforms in the way it is staffed and resourced.

A developmental state requires lead agencies that are engaged with but at the same time insulated from the influence of powerful business interests to prevent them from abusing the system. It is one thing to name and shame a group of delinquent taxpayers or to announce a policy of monitoring investment commitments, but the agencies concerned need to have sufficient resources to go out and conduct thorough audits on their clients.

A change in the wang-wang culture in all its shapes and forms requires not only a revamping of our moral and spiritual furniture as a nation, it will require a fundamental renovation of our economic strategy and bureaucracy. The president can leverage the cult of his personality to push for solid long-lasting reforms in this regard. That is if he would only recognize where the true wang-wang culture resides.

Revisit the original series: That Vision Thing starting here.

Pabaon at Pa-kotse

Two cases involving the military and the Church demonstrate how inefficient the government transfer system is.

Sen Teofisto “TG” Guingoina III has had a busy year. His blue ribbon committee investigated corruption in the military early this year (see my earlier post – The Game of the Generals) that led to the former Secretary of Defense killing himself (see related post – Fallen Angelo), and now at the mid-point of the year it is uncovering “nonbailable” offenses committed in the Philippine Charity Sweepstakes Office (PCSO) involving the former president.

A Can of Worms

Both cases were like opening a can of worms. The probe of the military was originally meant to focus on the plea bargain deal entered into by its former auditor Gen Carlos Garcia and the Ombudsman and led to anomalies involving dodgy financial diversions and procurement practices.

The PCSO hearings originally were meant to cover allegations that certain Catholic bishops were on the receiving end of generous SUV donations. They eventually led to the apparent misuse and misappropriation of intelligence funds approved supposedly by the former president herself.

In both situations public funds intended to provide support or assistance to the lowliest members of society (the foot soldiers and the underprivelleged) somehow found their way into the pockets of the powerful and well-connected. It shows how spending programs and projects aimed at supporting social goals (providing national security and ameliorating the plight of the poor) become “milking cows” for rent-seeking groups and agents.

Again, in these cases, two of the most venerable institutions of our society (the military and the church) have been found wanting and compromised because of actions by its most senior members (see related post – Why is the RH Bill taking so long? to see how highly rated these institutions are).

The Cross and the Sword

These twin investigations demonstrate how risky it is to look under a rock, any rock involving government transactions. One anomaly that catches your attention, when investigated further often leads to a succession of anomalies more deplorable than the first. Such was probably the plight of the Aquino administration as it settled into office.

Indeed, no institution now seems immune from guilt. Previously we had thought that our politicians and the media were in this symbiotic relationship of corruption. Now the military and the church, two institutions which preach honor, duty and morality have been found to be entangled in a web of corruption.

Given their role in our society as guardians of our physical and spiritual safety, it becomes incumbent upon them to seek to repair the damage these scandals have caused. Indeed it was when they stepped out of their traditional roles, for the military their duty to uphold the constitution and for the church to stay out of politics, that they got in entangled in this web.

The Inequitable Transfer System

But these cases merely scratch at the surface of what the real problem is. I am speaking of the inequitable system that is at work in our public tax and transfer system. The Philippines has a very high level of inequality to begin with, so one of the principles behind taxation is to promote a more equitable society. Some level of redistribution is deemed important for maintaining social cohesion and even economic growth.

Our government accounts for roughly one fifth of our overall economy. Yet when you investigate its spending patterns, you will find that a large chunk of that spending actually redistributes resources up the income ladder rather than the reverse…

  • We can look at the Philippine coco levy fund which was set up to benefit the poorest of the poor coconut farmers and how it helped one of the wealthiest members of society amasse large shareholdings in one of the biggest companies in the Philippines. Meanwhile no tangible legacy has been granted to the supposed beneficiaries who contributed a share of their crop sales into the fund.
  • We can look at the manner by which rich and middle class households benefit from the grains subsidy involving billions and billions spent each year. 
  • We can study the way commuters in the city receive public subsidy from the regional taxpayers for their daily transit to and from the city. 
  • We can have a look at our tertiary education and health spending
  • We can look at our infrastructure program. 

Indeed studies that have investigated public spending by the Philippine government have come up with very low coefficients of equity meaning that our public spending tends to favor the well-off rather than the most in need in our society.

Roots to Branch Reform Needed

That is just the spending side. If we look at how we tax our people, then we will find that the same thing probably applies. We in effect provide a lot of tax cuts to the wealthy and impose the tax burden on a very narrow base of low to middle income households.

In a separate post, I have tried to call attention to this problem, the problem of private affluence, public squalor (see a related post, Are Filipinos Over-Taxed?). How much longer can we let this inequitable situation persist?

The corruption in the PCSO and the military are merely symptomatic of a much larger problem in our society. A problem of inequity that even our government perpetuates: if we took a long hard look at the present set-up we cannot avoid but draw the conclusion, that it is time for a root-to-branch reform of our tax and transfer system.

Survey says, 'it's the economy, stupid!'

The latest polling by Pulse Asia on the Performance Rating of the Top 5 Government Officials and Selected Cabinet Members and Other Government Officials shows the administration of PNoy still enjoying tremendous public support. The survey which was conducted from October 20-29, 2010 cemented the impression provided by the SWS national survey which was held from September 24-27, 2010 that PNoy’s ratings have almost returned to their previous highs right after the election.

It is perhaps worthwhile recalling why such trust ratings are important. Trust is a measure of social cohesion, which when it breaks down, makes the business of governing all the more difficult. It is important over the coming years for PNoy’s trust ratings to rub-off on the government itself. When people trust their government, they are more willing to pay their taxes correctly. There is a greater level of civic participation and involvement when trust and social cohesion are present. Without these, gridlock and polarization result as what we witnessed in the aftermath of the US mid-term elections. Read more