South Korea

Use your coconut: Of investment gaps and how to fill them (conclusion)

The Philippines has been trying to crack open the investment nut by lifting its competitiveness for such a long time but has not been getting very far. Here’s why.

Continuing on from the first part where we looked at the country’s investment gap of over half a trillion pesos a year, we now turn to the problem of how to fill it and bring unemployment down. The imperative to boost competitiveness is based on the notion that low social returns on investment are due to a lack of opportunities to invest due to poor governance, inadequate infrastructure, and bad local finance.

Government failures caused by macro risks like poor fiscal, monetary and financial policies along with micro-risks including corruption, high taxes and weak property rights lead to a lack of incentives for investing in new ideas. These failures block the supply of innovation and investment. While this forms conceivably part of the problem, it does not necessarily explain the entire puzzle.

A missing piece is the demand not forthcoming from entrepreneurs for existing technology and capital even when it is available due to market failures. Dani Rodrik and Ricardo Hausmann talk about how this comes about when there are significant hidden costs associated with information and coordination. I will try to explain these failures using the coconut analogy.

Imagine that several decades after Robinson Crusoe left the island of Despair, a number of coconut plantations were established. The owners of these plantations were competing for a shrinking share of the coconut trade that existed between several islands in the vicinity. To improve their earnings, they each could find different ways of using the coconut. The process of discovering what types of products could be made comes with a cost caused by free-riders.

The evidence shows that low income countries actually develop first by diversifying their exports. The degree of specialization follows a U-shaped curve with income (diversifying more until reaching about the same level of income as Ireland before specializing). They do this by imitating technology already developed in rich countries. Instead of competing by creating new technology, they find cheaper ways of using existing modes of production in diverse sectors.

This process of “self-discovery” as Rodrik termed it often comes at a cost to the first-mover within a country, a cost which imitators do not incur. This creates a market failure because no one is willing to invest in this process since the information generated by it (“which goods can be produced more cheaply at home”) usually cannot be protected by patents.

This random process of discovery is why such countries as Pakistan and Bangladesh with similar levels of development and competitiveness produce very different products (the former produces soccer balls while the other produces hats). Korea and Taiwan also offer the same lesson (one produces microwave ovens and hardly any bicycles unlike the other). For the entrepreneurs who first ventured into these markets and were protected from the free-riding copycats, huge profits were on offer.

Bailey Klinger and Daniel Lederman have shown that their measure of export diversification, the frequency a country introduces new products into its export mix, is directly related to the height of entry barriers. This is a stunning result since it goes against the prevailing consensus on efficient and well-functioning markets.

Rather than the Global Competitiveness Index cited in the first part of this piece, which is based on subjective surveys, Klinger and Lederman used the World Bank’s Doing Business indicators for measuring barriers to entry which are based on objective measures like the number of days for starting and closing a business. They found that the higher the cost, the greater the returns to innovation from self-discovery.

The barriers in effect performed the role of greenhouses, protecting fragile innovative start-ups from the harsh winds of the free market. This counter-intuitive conclusion robustly supported by the evidence is consistent with the market failure argument. It violates the prevailing theory that increased specialization for poor countries and lowering costs of doing business is the way they should attract investments.

This is also borne out by the development experience of Japan which used “administrative guidance” to encourage many players within emerging industries to consolidate into oligopolies, Korea which offered loan guarantees as a way to subsidize the discovery costs of large diversified business conglomerates, India with its licensing raj which allowed a few pioneering software companies to gain economies of scale without the fear of new entrants, and Brazil which sponsored competitions for innovation with significant exclusive licenses going to the winner.

Klinger and Lederman state that this does not imply that there are no negative effects due to protection. What their study shows is that the positive effects swamp them. This means that rather than justifying protectionism, what it does is build a case for state support for emerging industries. I will have more to say regarding this in a moment.

Moving on to the second form of market failure which is due to coordination costs, picture the island once again. To transport various coconut products to other parts of the area, investments in seafaring ships and the training of sailors are necessary. These complementary investments are needed for an expansion of production to occur. Unfortunately, no one is willing to coordinate with the other inhabitants who live near the shore who could profit from such activities, so nothing happens.

Taiwan’s experience with the orchid industry is illustrative. When the world price of sugar declined, the state figured that shifting farm production to this high end product would prove beneficial. This required coordinated investments in things like greenhouses and storage facilities which the state encouraged and subsidized. The same type of intervention was performed by Fundacion Chile a partly state-owned enterprise which gave rise to a new salmon exporting sector.

The faltering seaweed industry located mostly in the Autonomous Region of Muslim Mindanao and the nascent industry of coco juice seem to be suffering a combination of the market failure problems discussed above. Our electronics industry which is highly specialized in “screwdriver” assembly operations as South Korea once was could be expanded likewise to incorporate more value adding steps in the manufacturing process.

The usual ways by which governments address these market failures is by offering subsidies to defray the costs of “self-discovery” (by sponsoring contests which award a prize to the best solutions for example), financing high risk ventures at the pre-commercialization phase and coordinating complementary investments in specific areas such as research and development, infrastructure and general training.

Think of it this way: instead of borrowing from foreign governments to pay their suppliers to develop our infrastructure (think broadband and high-speed rail) we should be licensing their technologies and awarding these to local firms which can prove they can use it cost effectively to build what we need. This should also apply to contracts awarded to private firms partnered with foreign companies. They should be conditioned on meeting certain local content requirements. Defense contracts should increasingly source local producers as well.

The Department of Transportation and Communication is already on the right track by seeking to borrow to pay for the build while privatizing the operations and maintenance of certain projects like light railways. In time we could be exporting some of these products and services if we create local expertise. South Korea did this with its ship building industry in the 1970s with Hyundai Heavy Industries becoming the world’s leading exporter within a decade. It did this even as global demand for ships declined.

Where will the government get the money to do all this? From itself, by using the savings remitted by overseas Filipinos and stored with the central bank in the form of foreign currency reserves–an unorthodox view that even the “humbled” former dean of the UP Economics School holds! If the government were to set aside a third of the currency surplus flowing in each year (see previous posts on this) amounting to around fifteen billion dollars to fund these activities and assuming a one-for-one investment multiplier, a total of four hundred and fifty billion pesos worth of spending could be generated annually (adding 4.5% points to GDP growth!). This would fill up to eighty percent of the investment gap.

The need to diversify our exports is already apparent with an inordinately high specialization in electronics posing a huge risk to future growth in the face of uncertainty of demand from advanced economies. It is also clear that despite very benign inflation and low real interest rates, private firms fail to undertake investments that would lift the productivity of their idle capital. This underinvestment problem is why such a large proportion of our workforce remains unemployed or underutilized.

Stimulating demand for innovation and investment by addressing market failures should be the priority. The biggest barrier for the Philippines to adopting such a strategy will not be an inadequate bureaucracy as many of our top bureaucrats are well-informed and educated; it won’t be for lack of funds as a substantial amount of national savings remain untapped; it won’t be for lack of ideas as there is a wide gap between domestic and foreign technology that can be filled.

The biggest barrier will be attitudinal as it would mean countering the development mindset that has dominated for such a long time which is largely donor-driven. Having drunk the policy “cocktail” put together according to their orthodoxies to no avail, giving us the title of being “the sick man of Asia”, it is about time we developed our own recipes for stimulating economic dynamism in line with local conditions. I now leave you with a song about the coconut which should punctuate this final thought.

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.

Defying Gravity

Faltering growth prospects for the economy and paralysis over how to kick-start big infrastructure projects do not seem to have dampened public support for the president.

Its economic managers remain fixated on ‘fiscal consolidation’ (a euphemism for shrinking public works expenditures to close the fiscal gap) as its roll-out of PPP (public-private partnerships) hits yet another snag with a new ‘review’ announced by the government. The confusion over how to proceed with its centerpiece program demonstrates how that it entered office armed only with platitudes and no real plan.

Yet even as punters from multilateral institutions, ratings agencies and think tanks alike place a down-side risk to the country’s growth prospects, the poll numbers of the president have headed upward. This strange phenomenon needs some explaining. How has P-Noy been able to defy gravity with his public approval ratings?

Some would point to his campaign against corruption as the source of such levitation. Yet, the same reason was given when his poll numbers were slipping early this year. The explanation was that as the public became familiar with so much corruption occuring in high places their faith in government collapsed. So why is the opposite happening now?

Perhaps it is because previously the pursuit of justice seemed to be going nowhere; whereas now, with the help of a few unexpected whistle-blowers, it seems to be heading in the right direction. That is one plausible explanation.

Another comes from the notion that growth and development do not necessarily go together and that despite sinking growth figures, the government has attended to the material needs of the populace through such programs as the CCT or conditional cash transfers.

Indeed one can characterize the government of P-Noy as following the script laid out by the Washington Consensus of promoting macroeconomic stability (to the detriment of growth) while providing social safety nets (to buy-off public support) and pursuing good governance (despite setbacks in providing public infrastructure).

In fact, some are pressing P-Noy to take advantage of his high popularity to pursue charter change and maximize the liberalization agenda by opening up the remaining sectors of the economy reserved for local participation and ownership. No less than the leaders of both the Senate and the House concur in this. As I pointed out in a previous post, the president is right to be a little wary of this move (although his reasons may differ from mine).

Others would have him go the other way and review the existing liberal trade and investment policies that have been in place for the last three decades as the country’s manufacturing and exports base suffers from a strong peso and seems highly concentrated within a few sectors, import dependent, and without much depth.

The PPP conundrum is emblematic of this confusion. P-Noy’s government started out with complete faith in private markets to ‘get prices right’, but it seems to be coming around to Sec Roxas’ belief that the public sector can do better. His proposal for the state to finance and build the projects itself, and then sell them off to the highest bidders to operate and manage would be a complete turnaround from the president’s previous position.

The idea behind Mr Roxas’ plan is that to get the ‘right price’ the government should use its access to cheap capital that is not available to private firms. That makes perfectly good sense, but the problem with his proposal is that government has not been known to be an efficient producer of public works projects. This could wind-up making the government penny-wise, pound foolish in the end.

A third way was actually proposed by me in another earlier post. The idea would be for the government to access cheap capital and create a fund that would either partner or loan these out to projects for either infrastructure or regional development needs. This would allow the cost of financing and construction to be lowered by leveraging the advantages of both public and private institutions achieving the best of both worlds.

This approach I must admit is hardly original. It was applied by South Korea in promoting industrial development through partnering with the private sector during its fast growth phase of development (see Alice Amsden’s book Asia’s Next Giant). The emergence of light and heavy import substituting industries which supplied export-oriented manufactures owed much to this strategy.

The economic bureaucracy there was a master at engaging in entrepreneurial self-discovery by importing licenses to operate foreign technology and then auctioning them off to private firms while at the same time providing them with sovereign guarantees and cheap project financing (I recommended a similar approach through an innovation fund which the government could create by borrowing some of the excess dollar reserves of the Bangko Sentral).

Indeed the government cannot live on macroeconomic stability and social insurance alone. For its growth trajectory to shift upwards, it will need to have a credible employment and industry strategy. Its PPP program was touted in P-Noy’s first state of the nation address as the vehicle for achieving this. In addition, the government will need to foster innovation and investment.

Let us hope that the administation finally gets to find a set of workable arrangements to get its pipeline of projects off the ground. Defying gravity with its poll numbers is one thing the government can do at the moment, but keeping developmental projects suspended in the air is something the nation simply cannot afford.

UPDATE:

DOTC Sec Roxas’ recent announcement of a five year plan involving 380 or 426 billion pesos (depending on which paper you read, the PDI or Business Mirror respectively) sheds more light on the new policy direction.

Essentially, a couple of things came out of the press release. The first is that aside from the PPP vehicle the government will be entertaining other conventional ways of financing infrastructure projects including overseas development assistance, foreign loans and items in the national budget. The second is that the Chinese contract to construct the NAIA to Pampanga rail line has now been superseded by a fast-rail project which will extend to Clark instead of Mabalacat.

These two moves by Mr Roxas clearly indicate a stronger more interventionist role for the state on offer from the one originally envisioned by the president. While P-Noy was only interested in handing infrastructure projects to the private sector, standing back and watching it work its magic, the DOTC secretary is willing to roll-up his sleeves and seek a better bargain or boot out in this case a poorly performing contractor to deliver a much better outcome.

His promise of a scorecard for his 5-year plan underscores the managerialist aspect of his approach to strategic projects in contrast to the laissez faire attitude of the president. The 90 billion a year average spend represents almost 1% of annual GDP. If he is able to roll this out on time, it will help provide a much needed stimulus to the economy at a time when the global economy goes through an adjustment to slower growth.

It makes me wonder what his rival Vice Pres Jojo Binay will now seek to do in order to outshine Mr Roxas. Will he adopt the proposal of Councilor Lagman of Quezon City and push for a 1% real property national tax as proposed by some fiscal experts to fund a national social housing program? Will he push for the creation of a housing department? Time will tell.

Activists denied entry to SoKor

Here’s a case of deportees without a case.

    Another Filipino activist deported from S. Korea
    abs-cbnNEWS.com

    MANILA, Philippines – Yet another Filipino activist planning to attend a forum protesting the G-20 summit in Seoul, South Korea was prevented from entering the country over the weekend.

    Activist Bernice Coronacion of the Alliance of Progressive Labor was deported from Seoul on Sunday, making her the 7th Filipino activist to be deported from the country this week.

    “I felt so sad, pinagtitinginan ako. Actually umiyak nga ako. I’m really scared,” Coronacion said in a text message. She added that she was told to wait for almost 2 hours without telling her why she will be sent back to the Philippines.

    Other activists who were blacklisted by South Korea and deported from the country were:

    Maria Lorena Macabuag of Migrant Forum Asia
    Joshua Mata of trade union group Alliance of Progressive Labor
    Joseph Purugganan of development policy group Focus on the Global South
    Jess Santiago, an artist
    Rogelio Soluta of labor group Kilusang Mayo Uno
    Paul Quintos of research group Ibon.

    In an interview, Mata said it was the first time that he had been barred from entering a country despite having a visa.

    “I’ve attended many other conferences before but this is the first time this has happened. We were carried bodily to the detention center. Every time we asked for an explanation why we were blacklisted, all they said was ‘We don’t know,’” he told ABS-CBN’s “Umagang Kay Ganda.”

    Mata said he and the other activists were invited by labor groups in South Korea to attend the G-20 protest actions “since the collective of nations would be deciding on issues that would affect underdeveloped nations.” The G-20 is made up of the finance ministers and central bank governors of 19 countries.

    He said he specifically wrote in his visa application that he would be attending a forum that would protest the G-20 summit.

    “It’s not right. They shouldn’t have approved our visa applications if they had no plans to let us enter the country.”

    For his part, Bureau of Immigration officer-in-charge Ronaldo Ledesma said there had been instances when foreigners were given visas but disallowed from entering the country.

    “The visa is a privilege. Even if you are issued a visa, it can be taken back by the country. When foreigners come here although they have no case, sometimes we get advice from agencies that these foreigners could become a threat so we don’t allow them to enter the country,” he said.

    Mata said their group plans to hold a rally in front of the South Korean embassy to protest their deportation.

I had a similar experience many years ago. I was living in the US and went to Mexico on an extended vacation. At the end of my vacation, I was invited by some American friends to go with them to Austin, Texas.

“Austin is a party town,” they said. “We’ll take the train from central Mexico all the way to Texas. It’s going to be fun, the train looks like the ones you see cowboy movies.” So I said, “Let’s do it.”

At the border, the immigration officer denied me entry, even if I had a valid US passport and Americans vouching for me.

Basically, the immigration officer did not like my face and no amount of pleading from me or my American friends could make him change his mind. I had to walk across the bridge back to Nuevo Laredo and wait for the next train back to the Mexican capital.

Upon reaching Mexico City, I took a plane for Los Angeles. At immigration, I told the friendly immigration officer about my ordeal in Texas. He laughed and said, “That’s Texas for you.”

And so the moral of the story for the deported activists is : “That’s South Korea for you. They don’t like your kind, go somewhere else where you are welcome.”

UPDATE

The activists now claim the rights of all Filipinos were violated and they want the government to file a protest.

Privelege nga, eh!.

Anyway, from now on and for the benefit of idiots, every country in the world should have a warning printed on their visas: “Warning! A visa is no guarantee of entry. Travel at your own risk!”

The activists are disappointed that the government did not respond to their deportation in the way they hoped it would so now they suspect it was the government that asked the SoKors not to grant them entry.

Ayun, kasalanan ng gobyerno na hindi sila pinayagan pumasok ng SoKor para sumali sa mga sa mga anti-G20 rally.

They are planning a protest rally at the SoKor embassy.

That’s their right although I’m not sure letting off steam in front of the embassy is going to do them any good.

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Transcript of BSAIII's answers during the Makati Business Club open forum

Transcript of Sen. Benigno S. “Noynoy” Aquino’s answers during the Makati Business Club (MBC) open forum, following his delivery of “A Philippines That Works: Economic Vision and Platform“, January 21, 2010

Four-part video of the open forum, courtesy of NoyTV on YouTube:

[youtube]http://www.youtube.com/watch?v=TE3cdLk_JEo[/youtube]

[youtube]http://www.youtube.com/watch?v=2R94-wr_4c0[/youtube]

[youtube]http://www.youtube.com/watch?v=a6nJ8OnI-jo[/youtube]

[youtube]http://www.youtube.com/watch?v=_f7xhhZKEzs[/youtube]

Transcript of Responses at the Makati Business Club Forum

Question: In governing you will need the cooperation of Congress, what’s your strategy for getting their cooperation particularly in a situation where you do not control either or both of the houses?

Sen. Noynoy Aquino: Well sir I think you will agree with me that the tradition for the past congresses has been that the dominant party becomes the party to which the President belongs to. If I’m elected president, we already have our Liberal Party, we have our allies in other aggregations and party-list groups but more importantly, the vast majority will always want to be siding with the administration, whoever it is, so cooperation with congress doesn’t seem to be a problem at this point in time as we foresee.

Question: South Africa, after apartheid, formed a Truth Commission. De Klerk, Mandela, wound up winning the Nobel Prize. In South Korea, a similar search for the truth landed … in jail. Given the sustained unpopularity and perceived excesses of the present leadership, will there be priority given by your administration if you win, to ferret out truths about the GMA years? You talk about Garcillano, you talk about Pidal, Peter Wallace and his Wallace 11, ZTE and the like of transactions. What is your administration going to do in this regard?

Sen. Noynoy Aquino: The job of the Chief Executive is to enforce all of the laws; recovery of ill-gotten wealth, if it exists, is not a proscribed activity, meaning there are no time limits to it but it has to be a priority. I’ve already made a public statement that I want closure on all of these issues if elected president. That means that one of the four platforms, the top four in the agenda is judicial reform. There has to be certainty of conviction and punishment if you do commit crimes in this country.

A sad fact is that all of the cases that are filed by the prosecutors, only about 18% wind up as convictions. As you know our system says that a prosecutor, before he introduces a case, should be convinced about the validity of the case, the preponderance of evidence at present. But after having undergone that process, it only results in 18% and those are official statistics. 33% are dismissed; we lose all of these cases. Therefore, adherence to the rule of law seems to be honored more in the breach. Now so, in direct answer to your question, there have never been answers to all of the issues that you have mentioned, be it Hello Garci, be it ZTE. For instance in ZTE, there was a board meeting by the NEDA, there were clear-cut instructions on sovereign guarantees on a BOT basis. This was reversed. Those were orders of the head of NEDA and also who happens concurrently to be the head of republic. Who can supersede the orders of the president of this republic? That has to be settled. What are the loopholes that were exploited so that the NBN-ZTE deal almost became the nightmare? But fortunately the people rose up to oppose.

Again, let me reiterate, it will be one of the priorities that will happen within the first 6 months; I guess within the first month we will already be tackling all of these issues under the Department of Justice and to ferret out and move the investigation, and if so warranted, to file the necessary charges.

Question: Will you or will you not form a Truth Commission?

Sen. Noynoy Aquino: In the Truth Commission, was something I’ve always been studying ever since I became a congressman the first time in 1998. I thought that the model and the idea of closure for a lot of things. One question that I wasn’t able to answer then was, as you know, in South Africa, a necessary component of availing of the privileges was to reveal everything you knew about crimes that you had committed during the apartheid regime, by both sides, which included very vivid descriptions of various tortures employed. I was asking myself, in the Philippine context, if a father were to revisit a crime committed to a child, who was tortured by government forces in the martial law years, will that not in turn, foster a new cycle of violence? I’ve never really been able to answer that question. But in terms of reviewing this past decade and the lost opportunities in what are the systemic loopholes that were exploited that got us to this point, yes, but in terms of filing charges against those who are guilty of committing crimes that I think should be left to the Department of Justice, in the very capable hands of a very active and proactive Secretary of Justice, who I will not name at this point in time lest he be persecuted for that.

Question: Over the last decade or so the Philippine economy has not done well in manufacturing, it has not come out competitive in the world, and agriculture has not developed as you mentioned the way it should, and the country has moved more and more toward being a service industry, very successfully in some cases, call centers, BPO, tourism beginning to pick up, this is an area which I think there is a great potential for the Philippines. But it requires one thing that the two other sectors don’t require, education. And the educational system in the Philippines has deteriorated dramatically and alarmingly. We only have a ten-year primary/secondary school system where everywhere else in the world has 12. as you mentioned only 14% graduate from college level. We don’t have enough classrooms, books full or errors, all the things you know. What specific things will you do to correct the situation? And where and how will you get the funds?

Sen. Noynoy Aquino: There are various solutions to the problem, and first of all let me agree with you Mr. Juarez with all the things you’ve said previously. What are solutions? How much will it cost to…there is an estimated twenty to forty thousand classroom need in this country. If our main focus will be to pump prime the economy and generate employment, then we will build the schools.

Our experts tell us within a year, maximum of two years we can complete the twenty to forty thousand, even at the cost of a million per classroom, although at this point in time the average is at about 500,000, and where will we get the money? As I’ve mentioned earlier, there are so much leakages in our revenue collection efforts. The 150 billion, we can allocate a portion of the 150 billion towards meeting at least part of the 40 billion necessary, if pump-priming was the necessary goal.

On the other hand we want a more effective use of the resource, we can contract private schools. I’m made to understand that middle-tier schools have a tuition in the 5,000 to 8,000 bracket. What does that mean? For a class size of 50, that translates into Php400,000 cost per classroom of 50. When we build classrooms, the shell, the basic shell lacking, the chairs, the blackboard, electricity, the books, the teachers, etc., just the basic shell is already on average nation-wide Php500,000. So if we are to send these children, there’s an existing program using a voucher system called “Gasbi.” If we send these children to private schools but in a direct contracting basis so that there are no abuses in the system, we can save about Php100,000 per classroom. That translates into, or we can utilize that resource into supplemental feeding programs, into a better book development program, into a scholarships for college, into scholarships for teachers, benefits, so on and so forth.

So, the plan is, transform it from 10 to 12, there is a bridge program, it’s already in the books, that’s why my theme is always “there are no secrets.” The plan is a good plan, it’s already there, it’s really just a question of implementing the same. Now, I think it is unfair for our students to, to expect rather, our students to be able to absorb 12 years’ worth of education in a 10-year program, further compounded by the desire to be solving the problems by saying we have no more classroom shortages, and this was done basically by shifting. Shifting is making 2 or 3 classes utilize 1 classroom. And I would just like to emphasize because that really angers me every time I think about it. You’re a Grade 1 student, which is the entry level, in our public school system, you have a class supposedly for English, to which Science and Health have been included. So, the child who probably doesn’t understand English, is tasked to understand scientific concepts taught in English and together with health. To further compound it, as if he didn’t have enough problems, he’s given a textbook that has errors known only to the teacher, who is in possession of teacher’s notes. The Grade 1 student, I think no, by the DepEd is expected to be able to discern what is right and what is wrong at Grade 1, in a language he doesn’t understand.

Therefore the investment is a guarantee of problems down the line. People who cannot be employed think, limitations as to what we can do given the talent that is there before us. So we want to get to the 12-year program, we want to have a pre-school level where they are taught or conditioned to be able to study. And of course those textbooks will really have to be corrected and people who accepted the same and contracted for the same should be liable.

Question: Could we encourage Congress to spend its pork barrel on education?

Sen. Noynoy Aquino: Pork barrel will be limited to national priority programs, and of course one of them will be school-building programs.

Question: Mr. Senator, there are a couple of questions that deal with governance issues, particularly corruption, and I’d like to read them and maybe you can answer them as a whole. How will you handle the Lucio Tan cases of tax evasion and the Marcos wealth? Second, you talk about how different you will be from the present administration, what exactly will you do to make GMA, FG and all pay for their crimes? What will you do with the tong of all congressmen? There’s another one that has to do with encouraging whistle-blowers. So maybe your strategy with dealing with corruption?

Sen. Noynoy Aquino: Can I start with how do I deal with whistle-blowers? It’s a sad fact no, I learned this close to about 3 decades ago, if you catch somebody smuggling, you’re supposed to entitled to, I’m talking about at this point in time, to a reward of 20% when you give information to catch the smugglers. If you facilitate smuggling, I was told by my informants, you get a 10% fee. So I asked this person, why will you participate in something illegal to get 10% when you can go legal? And point the authorities towards the commission of this crime and get a double reward? And the simple answer was: the 10% is kaliwaan, I get it right away, the 20% I will get when I retire and probably 5 years after that. The explanation is you go through so many processes, the seizing, the goods, for instance, of smuggling, the appeals process, auctioning, etc., I don’t think it’s that difficult point for government to advance this reward system to make it an effective reward system, point one.

Point 2, as I keep saying, the judicial reform is so essential. We cannot have a situation where a criminal is not deterred from committing a crime basically because even if he gets to trial, he doesn’t even have a 1 in 5 chance of being convicted. It seems you are the most unlucky individual to be convicted in this country. Now we have so many leads with regards to the first family, statements of assets and liabilities are there, there are dramatic changes in the statements of various members, and obviously, there are various provisions already with our laws, unexplained wealth, is presumed to be ill-gotten. And in that situation, they are tasked to answer for that.

And at the same time, my father was a very…one of my father’s most important advocacies was human rights. Therefore I will ensure that their rights are also protected. Because again, from my father, the true test of a democracy is not your ability to defend the rights of your friends, but more importantly those of your enemies. Because if you allow one group to be oppressed, you are setting up the situation for your group to be oppressed at some point in time. So they will be afforded all of the rights, they will be given all of the opportunities to answer the charges, and like any other citizen, they will be presumed to be innocent until proven guilty.

Now with regards to the Marcos and Lucio Tan cases, and these are subjudice, I will be entering the situation, what, at the second or third decade of litigation? One would hope that there is closure to all, even to those issues. When you go into this country, you can expect adjudication of cases to happen in a timely manner. One of the sad facts, and that’s why judicial reform, again, our stake, has to be improved, is that on average we understand that it takes 6 years to adjudicate a case. Again, it leads to, a condition where it moves everybody not to follow the laws, and that has to stop.

Question: 2 quick questions, Senator. the heart of the Cory Constitution is social justice. The phrase is not anywhere in your platform, as advertised. What are the specifics of your social justice program? And related, that is the question of what will you do June 30, 2010, we do not have a president or vice president who can be proclaimed and we wake up on July 1, 2010, GMA is still the ruler of this country in one form or another?

Sen. Noynoy Aquino: I take exception to the fact that social justice is not in the platform, it is actually embodied in practically all of the 16 points of the platform that we have published on the site. For instance, we want to have the provision of opportunities for everybody to improve themselves, that’s why job generation is first in the list of priorities. What does that mean? I think a father wants best, provide me the job and I’ll take care of my children’s education and health. Education is the second factor, again empowerment, again, opportunities. If you are not educated enough, there are you know, what jobs actually can, what skills do you have, and what jobs can you acquire? Therefore, to have meaningful job generation, the educational support should be there, hence our drive for the 12-year program and even the inclusion of a nursery stage prior to the formal education program.

The ecology, the platform on ecology is very, very simple. We want to translate it so that there’s no confusion among anyone. If there are no forests, there are no watersheds. No watersheds, no water. No water, no food, no food, no people. Are you aware that we have an 8% remaining primary forest cover? But what is more criminal, is up to today, we have not delineated the forestry lines. So when you talk about preserving forests, you don’t even define what the forests is obviously, we are not preserving anything, and that is there also. I’m sorry, I’m missing the second question.

Question: The second questions asks what you will do come June 30, 2010 when we have no elected president and vice president…

Sen. Noynoy Aquino: Number one, the laws on succession are very clear. But can I just tell you, instead of telling all of you our plans, people, let’s not be naive, no? There are talks that certain quarters want to exploit that situation. There are talks of failure of elections or non-proclamation, no-el, so on and so forth. Now, does it behoove me to reveal publicly the plans that we are contemplating at this point in time, and to make our job of preserving this democracy harder by telling our enemies precisely what we will do. I think I will leave my plans close guarded at this point in time and we assure you we are not babes in the woods, and we are ready, as much as possible, we are getting all the necessary info, intelligence and alliances in place, to forestall the grabbing of power by people with purely vested self-interest.

Can I just add, sorry, this has to be really laid in the minds of everybody. We in the Liberal Party say that we are espousing platform-based, issue-based politics. And I am very, very confident that even if I were not in the seat, this occupation is fraught with dangers. I have in the person of my partner, Mar Roxas, somebody who is exactly of like mind, somebody who will pick up if I am unable to finish the job. Therefore, we can assure everybody that will join us, there is a continuity of expectations that are realistic. This is not person-based.

Question: That highlights a weakness in the political system in the Philippines. When we elect you, we don’t automatically elect Sen. Roxas because you’re voted for independently—so it has to be as a team. In the papers recently there was a two-page ad put in by the government claiming all kinds of things: that this president has achieved. It has numerous faults in it. One of the things is that they are very proud of the fact that this economy had been stimulated and helped by the OFWs and their remittances to the Philippines. Those OFWs are Filipinos who have had to leave their families. So society has been hurt badly by it. It’s in fact an economic failure. A failure of government to provide the jobs that they should have had here. What would you do to reverse the situation, to be able to provide the jobs here for Filipinos instead of overseas?

Sen. Noynoy Aquino:: Well, number one, I think I will be lying if I told you that we will have comparable jobs within six years. That I think is an impossibility. But there is I think an obtainable objective of having compensation for people who have skills that have been improved. We can get it to a certain level whereby the increase in wages—although not the same as working abroad—together with the family being in tact, and together with the idea of being a first-class citizen in your own country will be enough to win people away from seeking the greener pasture elsewhere. We believe that the people who have left and who are opting to leave, primarily have no choice. They are political refugees, they are being forced, not for improvement—where it was 20 years ago—but rather even just for survival. And again you’re right. The opportunities have to exist here. Now, when I go around the country, when I go around Metro Manila, the opportunities are so abundant, and all it takes is to do the right thing. For instance, in Surigao City, the table you’re using right now was about the length of this fish—I don’t know what breed of fish that was. But that particular stall in the public market in Surigao City had three of it. The next stall had five of the same size. And the Media asked me in that point in time—this was the senatorial campaign—”Can you raise it up for a photo op?” And of course I’m very macho, and I proceeded to raise it by the head. And the only thing I raised was the head. It was that heavy. And I was saying: “How much would it cost to set up a blast freezing facility here? How much would it cost to turn these things into steaks, train the people to marinate it into that, and export it to countries like Japan or elsewhere, where they’d be thanking us for sharing the bounty … ” Mar Roxas’s home province of Capiz, you go to the beach at low tide, you have a rake, you rake the sand, you get clams. In Metro Manila you get [the fry] of the clams. Why can’t we even get it from Capiz to Metro Manila?

I’m sorry, sometimes I can’t stop, because really, the absurdity, the simplicity of the solutions that are not being implemented really gets to me. The fertilizer scam: The greatest sin is 723 million pesos at least could have started a chain of improving productivity. And for those of you who are not aware, when you plant rice in irrigated lands—and that was the hybrid rice program, that was the fertilizer input program —you can double to quadruple your income for our farmers, especially if it’s irrigated. You can have five harvests in two years. But this current government made the program in 2004 and really turned it into a disaster. We had ten cropping cycles that we lost an opportunity in. But the biggest sin is that even in investigating this alleged crime took four years. That’s why I said ten harvests were lost. So, again, from Masagana ’99 we had a hundred kabans per hectare. Commercially we are already now growing 240 to 320 kabans per hectare. I am told, but I’m still validating this, that UPLB and IRRI are even working further than that. And again: a true fertilizer input program, adequate monitoring, serious credit facilities, can undoubtedly at least make us self-sufficient in rice. We teach agriculturists worldwide. At the end of the day, we import food. That has to stop also.

Question: I think you will welcome this next question. It says: do you already have enough money for the campaign?

Sen. Noynoy Aquino: I will be lying if I tell you we have enough money. But, there is adequate … but of course, it makes the process that much simpler. Can I just share with you this bit of information that was given to me yesterday? I understand there was a tsinoy who went to our headquarters in EDSA the other day. He proceeds to donate a certain amount of money, I was not told how much, but he had a simple request. I’ll say it Tagalog cause it really was… I really made my day that day. He said: “Ito yung pera, bumili kayo ng commercial niyo. Naiinis na ko dito sa isang ‘to.” That by the way is not a joke. It really did happen. At some point in time we will have to report that contribution to Comelec. We’ll have all the details then. But it really made my day.

Question: Two quick questions again, Mr Senator. What will be the roles of your sister Kris and your uncle Peping if you become president? Can you give us a specifically categorical answer on your stand on the Reproductive Health Bill?

Sen. Noynoy Aquino: Kris I think will still be my fashion adviser, which means if she does not like what I’m wearing, she will not keep quiet. I think she even had this barong made. So if she complains I’ll tell her you’re the one who designed it. And that will be the extent. Most of my sisters, and Kris included—Kris is a very busy individual … Anything I ask her, I ask her to attend some ribbon-cutting thing if I become president, that will be an imposition on her time. The three are eagerly looking forward to regaining their anonymity. In fact I’m not even sure if I celebrate my birthday, in the period of incumbency, that they will be present, since it will be a Media event. The role of my Tito Peping: I would be foolish not to seek his wisdom, because of his experience; but at the same time, I will be the one holding the fort. The buck really has to stop with me. I am responsible ultimately for all my actions. Therefore any or all of my decisions will be based on discussion with all the stakeholders as much as possible, but in the end of the day it will be something I can live with in conscience, in what I believe is right regardless on who propounded it.

On reproductive health: Of course, somehow, the secretariat at the senate made it appear that I was an author of the Reproductive Heath Bill. Unfortunately I never authored such a bill. And I intend to interpolate the proposed version before us. The portion that I want to interpolate on is: In government when you have a budget, you don’t use it, you lose it. And there will be provisions of the reproductive health for artificial means of family control. And I want provisions that will ensure that if government hospitals—by cunning, by deceit, by misinformation, etc, are able to expend these budgetary items so that they are replenished, then there’d be penal sanctions for the same.

My position is more properly called Responsible Parenthood; and basically it says, “The state has an obligation to remind parents each child you bring into this world carries with it a certain set of responsibilities: to clothe, to shelter, to educate, etc. That is the extent of what the state should do. So there will be educational programs, campaigns, seminars, symposia, to which we will invite all of the churches to put in their two-cents worth. At the end of the day, the state, in preserving the family, mandated by the constitution has to remind everybody that they will and that they should have these set of responsibilities. The state cannot force as to size, the state cannot force as to method. Now, in fact we will oppose any attempt to do so, because a democratic state has to proceed from individual freedoms.

Question: President Arroyo has intervened in a number of industries: power, oil, cement, pharmaceuticals, food—particularly, sensitively, rice. In state of belief, it was necessary to give people relief from otherwise excessive prices. What would be your policy and action?

Sen. Noynoy Aquino: Mrs Arroyo when she was my professor said that there should be minimal government intervention (Questioner: “She’s got a poor memory …”), because distortions are created in the marketplace. But then again, given that … you know, it proceeds from a governance of survival there’s no logic used except “will it help me retain power or not?” Therefore every decision is faulted from the onset because of that perception. We are hoping that we will get our mandate clear: clear and clearly won, therefore we will have the confidence to embark and ask our people. At this point in time we will have to sacrifice by X amount to get to this level. We want to be transparent in all of the dealings. At the end of the day I assume, god willing we have an intervention for instance in agriculture. You had that 723 million debt really bought fertilizers that were correct. That were delivered at a timely manner at an appropriate price. And perhaps even the, as I mentioned, the purchasing aspect of it be reformed. Things will work out on themselves because we made the right decisions on every aspect. When I pass EDSA, and I guess everybody who passes … can I just a question? When was the last time you remember EDSA as being a smoothly paved road? And this is the premiere road of our National Capital Region. I think most of you will say Highway 54, those who are honest. But when we export our construction companies, our engineers, our designers elsewhere, hindi ba world class? How many of you are aware that in this recent tragedy in Haiti, there were so many Filipinos in a professional basis. And I was surprised that even in Bermuda, the same situation holds: Accountants, lawyers, etc. I always assumed that Bermuda, beneficiary of the British Civil Service System, would have a very efficient bureaucracy, and an efficient professional corps. But it turns out it is again it’s again another area for Filipino expertise to shine. So again, they can do it there, undoubtably they can do it better here, so long as the milieu is present that opportunities for everybody are extant. Nobody is excluded, hence our phrase is “Walang iwanan at walang maiiwan.”

Question: I was told that we have to wind this up after two final questions, that I’d like to read. One is: “How will you handle the issue of pagbabago the Filipino people dreamt and longed for” and “as a transformational president, what key qualities would you bring to this task?”

Sen. Noynoy Aquino: Well, number one, you will have to lead by example. I think in fairness to my mother, at the onset of her term she inherited a government that was corrupt top to bottom, for the most part because the top set the example. Something as cop on the street who was being bribed for a minor traffic violation: he used to demand for his bribe. At the onset of my mom’s term, the phrase was, “Teka, hindi ko hinihingi yan a. Binibigay mo yan, pinipilit mo.” There was a recognition that that was wrong. And after that, something as simple as … I complain about traffic, and Mar in I already have an agreement. If we win, and if traffic isn’t solved, we’ll participate in the traffic. We will not ask of anybody that which we are not ready to do ourselves first. Hopefully we will not talk as much, because we are trying to put a spin on something that is indefensible. And siguro the biggest ambition is in the fourth year, it will just be Mar and I talking because everything is working and it’s boring.

Sana po ay hindi na naming kailangan tutukan minut-minuto, dahil nga maayos na ang systema. E ngayon palang ho nagiipon na kami ng mga kwento just in case magkatotoo po yan. Diba? Lahat naman ng magulo sa mundo nating to ay dahil nga yung systema, hinayaan na kung saan interes ng isang tao, isang grupo lang ang importante. Yun ang gusto naming baguhin.

[Archived from the official campaign web site of President Benigno S. “Noynoy” Aquino III]