A post-pandemic primer on the Philippines

 I recently "sat down" with Cecile from Toronto, the host of a Youtube channel known as CeCe Tee Vee and "The Closet Economist" a former official of the Bangko Sentral who is completing her doctoral studies in Barcelona. 

We discussed the state of the world following Covid-19 and the complex challenges facing the nation as it seeks to rebound from its ill effects. We assessed the capacity of the incoming government of Ferdinand Bongbong Marcos, Jr to address it, and the missed opportunity of electing Isko Moreno whose human-centered economic plans were aimed squarely at our complex challenges.

We concluded with reflections on how to promote transformational thinking and keep the flame of the Iskommunity alive.

This episode streamed live on Philippine Independence Day June 12, 2022. The language spoken is mainly Taglish (a combination of English and Tagalog).

Can the Opposition win in 2022?

 

The EDSA narrative provides its adherents a meaningful way of making sense of the world based on a valorizing worldview. In this narrative, the Philippines is like the chosen people of Israel who were delivered from the bondage of dictatorship and ushered into the promised land of freedom.

The past five years under Duterte, would have felt like an exile to Babylon for the opposition. Their defeat in the midterm election of 2019 signaled the prolonging of this exile from power. The recent death of Noynoy Aquino has been used to revive their fortunes in time for next year’s polls. So, can they return to power in 2022?

In opposition, the Liberals and their allies have had time to reflect. Why have they fallen so out of favor with voters? Just like the exilic Jews who pondered their fate in Babylon and the meaning of it. The temptation, and in fact the norm would be to adopt the gods of their conquerors and lose their religion. Should the political opposition do the same and bow to their fate?

Of course, for the faithful the answer to that would be ‘no’. If so, then a plausible, credible explanation would have to be found for why they have fallen so far from political grace.

The worshipping of false gods by the Israelites was the reason given by the Jews to explain why the Lord had allowed them to be conquered. This historical narrative allowed them to hold on to their cultural and religious beliefs despite being in a strange land. And by remaining true to their religion, they found a way back from exile with their identity intact. So, is there a parallel here for the children of EDSA, and if so, then what? How can they credibly explain their fall from power and find their way back from political oblivion?

Ninoy had espoused a belief in Christian Socialism, which traced its roots to the attempts of an enlightened monarch in Denmark to liberate his people from serfdom through mass education. It was a human centered form of capitalism aimed at affording the full blossoming of ordinary citizens to reach their fullest potential. The success of this model is demonstrated today by Scandinavia being one of the wealthiest, least corrupt, and happiest places on earth.

The adoption of a neoliberal worldview by the EDSA regime with its idolatry of the Market, espoused by Washington and mediated through market-enhancing institutions of governance promoted by the WB and IMF, was in effect what had caused the children of EDSA to go astray. This is what invited populist backlashes from the left, in the form of Erap Estrada in 1998, from within, with the apostasy of Gloria Arroyo in 2004, and from the right, with the ascendancy of Rody Duterte in 2016.

Vice Pres. Robredo for her part has emphasized the dynamism of the private sector for collective action by brokering donations between corporate foundations and needy communities. She has not lasted long in any of the public roles assigned to her, first as housing czar then as co-chair of the Inter-agency Committee on Anti-Illegal Drugs, preferring instead to become a maverick policy entrepreneur.

Her support for marginalized communities through her ‘Angat Buhay program’ is still consistent with a neoliberal view that public investment merely crowds out charitable spending. It is consistent with a minimalist role for the state, relying on the magic of markets to broker the needs of society through voluntary, altruistic donations by moneyed elite: trickle-down economics, in effect. Government by NGO.

Duterte didn’t mind breaking with this tradition. He didn’t kowtow to the international rules-based order when dealing with the West Philippine Sea or human rights issue. He in effect defiled the sacred cows before which the EDSA forces fall prostrate.

He offered instead a kind of tough love for the development of the Filipino by focusing on the social ills that have come about because of the aimless accumulation of wealth in the pursuit of materialist, consumerist culture. This tyranny of freedom, of unconstrained choice fostered by free markets, has only led to alienation, apathy and addictive forms of behavior.

Duterte, in acting like a strict father establishing boundaries and disciplining his children has stepped into the breach because while the EDSA narrative structured our political and economic ways of life, it had nothing to offer us from a social standpoint. Neither did the post-EDSA regime engage in the necessary work of political and electoral reforms needed to truly democratize participation in our society.

With the recent passing of Noynoy Aquino, his former confidante Rep. Joey Salceda offered an assessment of his legacy. He praised him for accomplishing many noble things, but also said that PNoy suffered from a lack of ambition due to his ‘worldview’. He had the most favorable macroeconomic conditions, but failed to seize the opportunities these presented. This lack of ambition was his cardinal policy failing.

This is what obscured the original agapic vision of Noynoy’s father for a human centered form of development. This idolatry of the market is the folly that has led to their political exile, so it behooves the children of EDSA to return to The Source for inspiration.

If Duterte represents a consumptive love of country - a form of governance that destroys human life to preserve it, that breaks the law to uphold it; and, if the EDSA regime represents a reciprocal kind of love - a form of governance that relies on transactional markets and padrino-based politics, then the agapic love of country, of actualizing individuals by investing in their human capacities is what the successor to the EDSA regime must work towards.

Only by rediscovering this forgotten vision can the children of EDSA rescue themselves from irrelevance. Acknowledging where they went wrong would go a long way towards healing the partisan divide with those who were once in their broad coalition but no longer see themselves as part of it.

The question is, who among their leaders today would be so humble as to do that? Dare I say none;  and so, for the true believers in Ninoy’s Impossible Dream, they may have to go outside the fold to find a leader who can re-imagine the promise of EDSA and bring its children back from exile into the Promised Land.

Episode 25: Yellow Alert! Is the Opposition drawing the wrong lessons from recent elections?

Is the opposition drawing the wrong lessons from recent elections?

Are they committing the same mistakes now, which could potentially make them obsolete in the future?

What lessons have the opposition taken away from the elections of 2016 & ‘19? Are they the right ones? What lessons could they have drawn, but are refusing to because it would mean admitting some painful truths to themselves? What are the implications for the future?

In response to Rappler’s charge of dishonesty

It has recently come to my attention that a post I made on Twitter became the subject of a mini-controversy between Malou Tiquia, a notable columnist at the Manila Times, and Rappler, the designated third party arbiter or fact checker on that platform (see original tweet below).

Significant laws passed by the mid-point of @noynoyaquino's and @PangulongDigong's presidential terms #sidebyside #legislation #midterm #Congress pic.twitter.com/LLehstcYrm

— Emmanuel Doy Santos (@cusp_ph) February 21, 2019

What was it all about?

As Rappler claimed in their “Fact Check” article:

Two versions of a meme or graphic compared the "midterm legislative achievements" (laws signed in the first 3 years) of presidents Benigno Aquino III and Rodrigo Duterte.

One version has a screenshot of a spreadsheet showing that in Aquino's first 3 years, he signed 7 laws, while Duterte approved 28 laws. This came from a tweet by Emmanuel Doy Santos on February 21, with the caption, "Significant laws passed by the mid-point of @noynoyaquino's and @PangulongDigong's presidential terms #sidebyside #legislation #midterm #Congress".

This version was reposted by some netizens, including political analyst Malou Tiquia on her Facebook account on February 22, with the caption, "After 3 years...7 viz 28 and needle is still moving." ...

Citing Tiquia's post and a video by Facebook page VOVph about Duterte's signed laws as her sources, former communications assistant secretary Mocha Uson posted on her Facebook page on February 23 another version of the list of laws. Uson attributed 32 laws to Duterte.

Uson's post got more than 27,000 reactions, 42,000 shares, and 3,300 comments.

Rappler decided to tag my table as “Misleading” because, as it said,

The memes left out significant laws that were approved halfway through both the Aquino and Duterte administrations. The original posts also did not have a more definite criteria for the inclusion of laws in the list.

According to the Philippine House of Representatives website, Aquino approved a total of 460 laws from June 30, 2010 to June 30, 2013, while Duterte approved at least 314 laws (including 4 joint resolutions of Congress) from June 30, 2016 to date.

Counting only landmark laws and laws of national significance, both presidents have an almost equal number: at least 57 for Duterte and 58 for Aquino.

Let me set the record straight.

I never claimed that my table represented a comprehensive list of “laws signed in the first 3 years” of both presidents. Neither did I claim that PNoy only signed 7 laws compared to 28 for Duterte. The title clearly says “Mid-term Legislative Achievements”. My tweet specifically said these were “Significant laws passed by the midpoint” of both presidents’ terms.

Rappler rightly says that my post “did not have a more definite criteria for the inclusion of laws”. BUT, if they had done some digging, a netizen by the name of Adrian Cuenca did interrogate me for my methodology and sources. All one has to do is drill down the thread from the original post. But it bears repeating here.

For the ordinary citizen, there is a massive difference between a law that creates a new Regional Trial Court in Tacloban, for example, or renames a street or a high school in Pangasinan, from enacting universal health care, or reforms the tax system. Even if you limit yourself to “Laws of national significance”, as they might be called. These include the “Red Cross and Other Emblems Act”, for instance. That is of no significance to most people. So that was the filter that I applied, in distinguishing the laws I cited as “significant”.

As Ms Tiquia so deftly put it in a subsequent Facebook post,

The truth is the list is long and if you go by numbers, Aquino had more. But if you look at the significance and importance, whether in terms of social, economic, political, governance, reform legislation, Duterte had better quality since what was deemed hard to get under Aquino were signed into law in the first half of Duterte’s term.

In other words, I made a critical analysis of the laws passed, based on their impact on the lives of ordinary Filipinos. I didn’t simply count the laws! Any spreadsheet monkey can crunch the numbers. It takes an appreciation of the substance that lies behind the laws to be able to come up with what I had.

Is that misleading? The fact that I missed some of Aquino’s laws like cyber security, for instance? Well, I missed a few that Duterte had belatedly signed, as well, like the creation of the human settlement department. Does that change the overall picture, or make it inaccurate, dishonest or “misleading”? No, and here’s why.

For the benefit of Rappler’s fact checkers, let me tell you what policy analysts do. We examine proposed or existing policies and figure out how to make them better (or at least less bad). That’s what I was doing. I’ve been doing this professionally for more than 12 years. I have a Masters in Public Policy from a reputable institution in Australia and the US and a Master in Development Economics from UP.

Journalists are considered the 4th estate. They provide an important role in reporting facts. Policy analysts are the lesser known 5th estate. We also perform a crucial role in society. To introduce critical thinking into substantive public debates. We base our analysis on evidence and stakeholder engagement.

To the readers of Rappler who requested this Fact Check, please use your own critical judgement. Don’t simply rely on somebody else to tell you how you should think. Form your own conclusions, now that you have heard both sides of the argument.

And finally, what Ms Tiquia said was right. Why couldn’t Rappler contact me to find out what my “definite criteria” was for including laws in my table? I would have told them. After all, I have been contributing articles to Rappler since 2014. Professional courtesy of getting in touch, let alone hearing both sides of the issue,  would have been nice.

Instead, I was accused, tried and convicted, in absentia, without an opportunity to defend myself. Is this what journalism in the 21st century has become? Inaccurately portraying the claims of an individual and then rendering judgement based on that? With no recourse for an appeal or way to check the fact checkers.

Public debate can be silenced this way. Critical thinking removed from the equation. This form of mind control is even more pernicious than outright censorship! If this is what we have come to, then what difference is there between China’s state screened media and our own local thought police?

Nadenggoy sa Dengvaxia

There are four strains of the dengue virus or serotypes. A person who has been infected by at least one of these strains (seropositive) stands a better chance of benefiting from vaccination compared to one who has never been infected (seronegative). That is why prior to any mass vaccination program, seroprevalence studies need to be conducted.

The World Health Organization (WHO) recommends that for a program to be impactful and cost-effective, “the prevalence of prior infection with dengue virus of any serotype, as measured by seroprevalence, should be approximately 70% or greater in the age group targeted for vaccination.”

It stated in a paper dated March 2016 that “there is a theoretical possibility that vaccination may be ineffective or may even increase that risk (of hospitalization due to dengue) in those who are seronegative at the time of first vaccination.”

WHO recommended, “Targeted studies, in parallel to vaccine implementation, are needed to address these questions, otherwise it will remain a controversial issue and could compromise public confidence in the vaccine program.”

The Philippine government in 2016 may have glossed over this in its haste to treat the scourge of dengue. More than 800,000 school children were immunized with dengvaxia, the world’s first dengue vaccine produced by Sanofi.

As foreshadowed by that WHO paper, the theoretical risk of hospitalization may have materialized with close to 3,300 individuals hospitalised and 62 child casualties, after receiving a dose of dengvaxia.

Khunsha Fatima and Najah Syed in the Journal of Global Health say that given dengue infection rates reach up to 90% in the Philippines, “at least 10% or around 80 000 of those children who do not have a prior history of dengue infection are now at an increased risk of developing severe dengue.”

I made a Freedom of Information (FOI) request back in December 2017 to see whether the government had performed seroprevalence studies in schools where it had conducted mass vaccination.

I asked whether such surveys were performed by, or on behalf of, the health department, and where. I also asked if government could provide the results of any surveys conducted, on the levels of seroprevalence of dengue recorded.

I got a response in September 2018 from Dr. Kenneth Ronquillo of the Department of Health. He said, “Your FOI request has been approved, however…as of the moment, this office can only provide you the data on our dengue morbidity monthly report from 2013 to 2018.”

I waited six months to see whether they could provide me with the data requested, to no avail. My sense is that if the government had done seroprevalence mapping, it would be able to release the results. The fact that they haven’t, shows that it probably wasn’t done.

Procurement documents I obtained from the DOH under a separate FOI request reveal that as part of the purchase of Php3 billion worth of dengue vaccines, Sanofi was meant to "conduct relevant training/orientation of health workers and teachers on the Dengue Vaccination Program" as well as "conduct orientation for parents, caregivers and students participating in the program".

When asked whether this was conducted, no reply was forthcoming.

The sad part is, people are still dying from dengue. The same morbidity reports, to which I was referred, state that in 2018 there were over 216,000 cases of dengue reported. This was 42% above the previous year, and higher than the five-year average. There were close to 1,100 deaths resulting from these cases.

Had the government taken the necessary steps in implementing a proper vaccination program, it could have determined which age groups and areas to involve. It could have properly informed parents of seronegative children of the increased risks of participating, in gaining their consent.

It is much harder to do that now, given the public panic following reported deaths due to dengvaxia. Fatima and Syed refer to this as “vaccine hesitancy” or a “delay in acceptance or refusal of safe vaccines despite the availability of vaccination services.”

In his public statements, former president Benigno “Noynoy” Aquino said he saw the risks of inaction outweighing the risks of action. Unfortunately, by acting in haste, without the proper precautions, he may have set us back a few years, at the very least, in the fight against dengue.

What I learned from taking the MRT and LRT

A year into Pres. Duterte's term, I decided to take a trip from Makati to Marikina using the MRT and LRT to see how well, or how badly it still is. Here is what I discovered.

Saturday, 22 July

6:30 am: I boarded the MRT at the Ayala Station to take the northbound train heading for Cubao. The fare was Php20 for a single trip, one way. There were not too many people yet, although I had to stand for the entire duration of my trip.

The Development Trap

In his weekly column Cielito Habito has been following the jobless growth phenomenon that plagues a number of developing states like the Philippines. This was evident in the first quarter figures for 2010 which showed that just as the economy expanded by 7.3%, unemployment rose by 300 thousand. The country's growth did not translate into a lower unemployment rate. Habito rhetorically poses the question

Where did the impressive first-quarter growth come from? (...M)oslty from petroleum refining, electronics and processed food (...P)etroleum refining is (...) an industry not particularly known to be job-rich (...) Electronics (...) is an industry with almost zero linkages elsewhere in the economy. 

(...) The message is clear: We need economic growth that widely involves and benefits more industries, more geographical areas and more sectors of society—not the narrow, shallow and hollow growth ... in recent years (emphasis added).

This paints the picture of a dual economy where growth and opportunity are restricted to a few enclaves to the exclusion of the vast majority of participants. In recent years, the Philippine macro economy has been on solid footing. Just as some beleaguered European nations were applying for IMF assistance, the Philippines was exiting from its supervision after a thorough process of market liberalization, privatization and deregulation.

Having finally weened itself off the assistance of the DC-based institution, the country can now begin to chart its own development path without the policy impositions of the Washington Consensus. One silver lining  from the recent North Atlantic crisis according to Robert Wade is the opportunity to re-examine strategies for promoting industrial development, a recognition that other paths, for instance the BeST consensus (from Beijing, Seoul and Tokyo), are equally if not more viable. He explains that

(o)n the face of it, raising the state's capacity to coordinate a selected set of economic agents is a more feasible task than across-the-board formalization and enforcement of the rules - a task which requires high fixed costs and many decades, and which often provokes fierce resistance, especially from those already in the elite.

(...) Concrete manifestations of this kind of institutionalized coordination include Japan's MITI, Taiwan's Economic Planning Council and its Industrial Development Bureau, South Korea's Economic Planning Board, Singapore's Economic Development Board; and also numerous industry associations.

In contrast to "developmental state" forged by its East Asian neighbors, the Philippine state in its post-independence, pre-martial law incarnation was corrupted from the bottom-up as

the big landed families (...) used personalized rules of the game to obtain political protection in order to oppose industrial transformation, and used corruption to protect their existing sources of rents.

(...D)emocratization has somewhat restrained a state which under Marcos plundered from the top down, and has moved the nation a little way in the direction of a joint state-business project of a developmental state.

A typical developmental state would not score highly against the World Bank governance indicators based on the experience of East Asia. This is because in a bid to foster more inclusionary growth, state officials may have to actively steer the value stream of investors who might otherwise not source from local firms. This might require gentle nudging and incentives to begin with to strong arm tactics to get their message across as in the case of Taiwan, where

(t)he Industrial Development Bureau (IDB) officials in charge of ... specialised glass considered that at least two Taiwan glass makers could meet the price and quality of the glass imported by the Philips TV factory if given a long-term supply contract and some technical help.

(...) Philips (...) refused to consider the idea, saying it was happy with its existing arrangement to import from a Philips factory elsewhere. But then Philips began to experience delays in authorization to import the glass, which previously had been granted without delay. Philips protested. The delays lengthened. The IDB officials reminded Philips of the advantages of switching to domestic suppliers ... eventually Philips got the message, entered into a long-term supply contract with a domestic producer and in so doing built up goodwill in the IDB.

This example demonstrates that while generous tax concessions and free trade areas might foster foreign direct investments in specific industry sectors, they do not inevitably lead to greater industrial diversification. Pro-active and sometimes robust engagement with industry is required in order to accomplish that.

Among the organizational features of a developmental state observed by Wade are the targeted improvement of state agencies in charge of industrial policy, the fostering of a public service mindset among its officials, the bifurcation of political patronage channels and economic bureaucracy so that the former do not affect the latter and an industrial extension service with tight limits on the use of discretionary resources.

With the weak fiscal position awaiting the incoming government of Benigno Aquino, the immediate task of shoring up the budget situation is imperative. But in order to simultaneously pursue his vision of good governance and the rule of law, a more targeted approach than would otherwise be recommended by the good governance (GG) adherents of the Washington Consensus is required. One which would make more judicious use of limited public resources in building up state capacity towards more inclusive development.

A New Social Contract for the Philippines

At the start of his campaign for president, Benigno Aquino stated in an advertisement that he was not a thief and that he would not steal using a play on the filipino word "magnanakaw" which means both "thief" and "to steal". A similar statement was issued by his late mother, ex-president Corazon Aquino twenty five years earlier when she ran against Ferdinand Marcos.

So ingrained and apparent was the greed that motivated candidates to pursue public office that it had been assumed to be the case among all of them. With the installation of president-elect Aquino at 12 noon on June 30 2010, there are a few assumptions regarding the state and its role in society that also need to be challenged.

In a paternalistic society such as the Philippines, it is the role of the state to dole out benefits to the connected, by that I mean both the wealthy and the needy. The state is captured from both above by the wealthy who seek regulations that favor their commercial interests and from below by the incessant demands of constituents whose need for support drives their elected representatives to capture "rents" from government transactions to provide personal help and thus perpetuate their electability.

This it would seem is the existing social contract as it stands - it is one based on personal dealings between (1) Big Business and the power brokers of the state and (2) the disenfranchised and their political bosses. A society based on personal kinship and relations does not reward individuals who want to strike out on their own, away from the established networks. It is one where one cannot get ahead simply by working hard and relying on fair play. That is why so many have sought to pursue their fortunes outside the country.

Many commentators have seized on the potential for transformation under a new Aquino presidency based on its reputation for probity. In order for it to be transformational, it would have to restructure the "rules of the game" or negotiate a new social contract between the state and its stakeholders. The new arrangement will have to resource the state appropriately to lessen the need for its constituents to rely on personal interventions by their representatives.

It will have to ensure that the wealthy contribute a fairer share of their profits to the state. The productive sectors in turn would expect a predictable regulatory environment and a skilled laborforce enabling them to take advantage of new opportunities. For this to happen, a series of reforms are needed in areas such as social welfare, human capital, regulation and taxation which are discussed here.

1. Social Welfare Reform. This includes the re-alignment of poorly targeted, improperly designed and ineffective programs towards those with greater impact. The rice subsidy program is one example of a program which has suffered a leakage of 71%, whose coverage of intended recipients is a mere 18%, and is costly to administer. It cost the government about Php40 billion in 2008 alone. Other similar programs that provided rebates on electricity suffered similar flaws, but were hurriedly engineered during the height of the global financial crisis and are non-recurring. The grains program on the other hand represents a recurring expense for the government. Manasan of the government think tank PIDS suggests that the same expenditure if it were spent on the more effective conditional cash transfer program or 4Ps targeting public school children would have a greater impact in terms of alleviating poverty by providing support to poorer households while improving school participation and completion rates (see her slideshow below). They are also proven to be less costly to administer and have a reduced level of leakage. At the same time preventive programs like child immunization and maternal health connected with the 4P's program would help reduce the cost burden of treating diseases and supporting larger families. 
Social Welfare Programs and Social Safety Nets in the Philippines: In Times of Crisis and Beyond
2. Education and Skills Reform. The next step would be to undertake reforms that would improve the stock of human capital through educational and health reform. As school children improve their participation and completion rates, it becomes necessary to strengthen the content of their education to ensure they are equipped with necessary skills and knowledge needed in the workplace both here and abroad.  Part of the solution lies in extending the years of schooling from 10 to 12 years with the option of leaving school after year 10. The senior years of high school should offer students the option of either college preparation or vocational education and training (VET). There is a need to address the imbalance between college and VET that is leading to the strange anomaly of skills shortages alongside high unemployment. Work-based apprenticeships and traineeships in partnership with industry can also be introduced. The "adopt a school" program can be leveraged in order to provide such a partnership. Metropolitan and provincial polytechnics could also be tapped to provide instructors and facilities for such training. A voucher or entitlement system that would allow public school students to take up a place in a technical college can be designed to allow the funding to move with the student to any local technical college or institution to complete the equivalent of years 11 and 12. It is also important for such VET courses to feed into the higher education system in a seamless manner. The lack of vertical integration currently is a disincentive to pursue technical training.
3. Health and social insurance reform. The Philippines has a health system akin to the US, where a mixture of public and private hospitals abound and the state funds them through what amounts to a health insurance program called PhilHealth, the key challenge here as it is in the US would be to increase the coverage of the program. This cannot be done without mandates and concurrent subsidies to firms that employ people to increase contributions. Part of the reform process also involves looking at the funding rate of various treatments. Chronic diseases are on the rise in developing countries. While the Philippines does not have an ageing population, there is a high dependency ratio. This means the problem confronted by households at-risk of slipping into poverty due to lost income of primary breadwinners has to be addressed through a combination of social and health insurance improvements.
4. Regulatory Reform. The cost of doing business in the country has to be lowered through regulatory reform. This entails opening up many sectors including aviation, ports, power and transportation to greater competition. It also involves red-tape reduction and strengthening the property rights of investors. A comprehensive review and consultation process needs to take place to give direction to many of the reforms in these areas. A mix of policy tools could potentially solve many of the bottlenecks in the process of business registration and licensing. Stakeholder consultation would shed light on which tools to use.
5. Tax Reform. From the mid-90s to the mid-noughties the tax collection effort measured in terms of collection to GDP ratio deteriorated from 17 percent to 12 percent. It recovered slightly with the hike of the VAT rate from 10-12%, but leakages such as the granting of fiscal incentives for the country's freeports and special economic zones and the non-indexation of sin taxes have offset much of the improvements in tax collection. The redundancy and inefficacy of many fiscal incentives have been extensively documented (see for instance the article by Dr Reside below). Meanwhile corporate and personal income taxes in the country remain higher than elsewhere in the region. The current deficit amounting to 4% of GDP or roughly Php300B has to be brought down to a sustainable level, say 1-2%. A mixture of improved collection efficiency, fiscal rationalization, indexation of sin taxes along with budget neutral adjustments to the tax system to lessen distortions and improve the country's competitiveness are all justifiable and in keeping with the spirit of Mr Aquino's campaign pledge of no immediate new taxes.
Fiscal Incentives and Investment in the Philippines

The first step of any reform process is for the leader to be honest and committed to it. Mr Aquino satisfies this  condition with his probity and policy seriousness. During this period of transition, his first task involves assembling a competent team to help him in this effort. They should focus on assembling a coherent package of reforms with the help of partners and stakeholders in the community aimed at restructuring incentives in the Philippines that would transform the current set of assumptions about the state and its role in it.

Moving from a padrino society that depends on personal transactions based on kinship and wardship to one where citizens are empowered with greater access to improved services requires a new social contract between the state, market and society. It will be necessary to move towards the new mold in the next six years. 

The state needs to be equipped with the resources necessary to improve the incentives towards human capital acquisition and productive activities. It requires reforms in social welfare, education, health as well as regulation and taxation. At the end of his six year term, if Mr Aquino is able to say that he brought the country forward in these areas, he would have done it a great service worthy of the term transformational.

Institutionalising People Power through an Ideas Summit

The challenge for him (Mr Aquino) will be to consolidate the movement ... "to ensure that the pattern of his mother’s administration – a non-corrupt president surrounded by a host of sometimes dodgy relatives and advisers – is not repeated."

For the soon to be proclaimed presidential frontrunner Sen Benigno "Noynoy" Aquino III of the Philippines whose ambition only began 9 months ago with the passing away of his mother, democracy icon Corazon C Aquino, the problem now is consolidating the different messages of his campaign into a coherent narrative to govern his administration over the coming six years.

Many political analysts including Paul D Hutchcroft of the Australian National University have said that the election of Mr Aquino was a "vote for change". Manolo Quezon blogs in the Daily Dose that "The Philippines is OK" after its successfully held elections. With the settling of the political environment, the prospects for future economic growth seem sound. The country posted a 7.3% growth in the first quarter, leading many analysts to believe a recovery from the global recession is on its way.

It is under such auspicious conditions that Senator Aquino is poised to take charge of a country of 90 million filipinos. The challenge for him will be to consolidate the movement that ushered him into the "limelight" as Hutchcroft calls it "to ensure that the pattern of his mother’s administration – a non-corrupt president surrounded by a host of sometimes dodgy relatives and advisers – is not repeated."

It will be quite easy for Mr Aquino to slip into the malaise of incumbency where the true voice of the people that he promised to champion seldon gets passed through the cordon of protocol.

Already there are numerous rumours circulating of infighting within his inner circle. Several unofficial cabinet line ups have been leaked. Amando Doronilla opines that rather than change, the supposed appointments signal more of the same and "bode ill" for the incoming administration. Alongside these developments are the midnight appointments of the outgoing president Gloria Arroyo which include the Chief Justice and Ombudsman. Her coalition also retains the largest number of seats in the lower house of Congress. These represent serious obstacles to Mr Aquino's pledge of prosecuting her for the many scandals that plagued her administration and to run an anti-corruption drive.

Pieces of unsolicited advice keep hugging the headlines which include everything from fulfilling his promise to quit smoking to imposing a permanent gun ban, to surrendering the lands of the Cojuangco-Aquino sugar estate to land distribution. Having had only 90 days to prepare his platform of government which was conducted by an inner circle of seasoned policy advisors behind closed doors, Aquino runs the risk of overinterpreting his mandate for change. The media driven campaign and the numerous debates with eight different candidates did not provide a proper platform for the discussion of serious policy challenges in detail.

In the Philippines, such a tradition of participative consultative coalition building is vigorously espoused by non-governmental sector organisations that have comprised the "parliament of the streets" since the days of the Marcos dictatorship.

It will be quite easy for Mr Aquino to slip into the malaise of incumbency where the true voice of the people that he promised to champion seldon gets passed through the cordon of protocol. In order to arrest such a slide, as a way of institutionalising "people power" that brand of democracy his family legacy made famous, it might serve his administration well to call for a people's summit to consult with various stakeholders and create a bottom-up approach to his governance style.

Such an attempt to frame a policy agenda for an incoming administration was made in Australia by the Federal Labor government of PM Kevin Rudd back in 2008. It drew from the ideas of 1 000 participants hailing from different sectors of society. Participants to the 2020 Summit as it was dubbed were selected by a 10 man steering committee. The summit was co-chaired by the prime minister and a leading policy expert from Melbourne University.

In the Philippines, such a tradition of participative consultative coalition building is vigorously espoused by non-governmental sector organisations that have comprised the "parliament of the streets" since the days of the Marcos dictatorship. Such a summit early in his administration could help keep Mr Aquino's change credentials healthy and provide a more rational systematic approach to dealing with the disparate ideas that are floating around.

The Market for Rules

A recent straw poll among the business elite in the Philippines showed that an overwhelming proportion of them support the candidacy of Benigno Aquino III, the son of former president Corazon Aquino who is campaigning based on a platform of rule of law and good governance.

The demand for the “rule of law” in the Philippines coming from the oligopolistic business community is quite puzzling considering that the literature points to reasons why this demand would normally be absent in such a context.

The argument goes that the elite often prefer a system in which they can bend the rules to suit their needs. They would have a comparative advantage in capturing a weak state since they command more resources compared to the owners of small and medium enterprises. They would in fact continue to see returns from their investments in capturing rules and regulations long after such investments have been made.

The founder of Transparency International’s Corruption Perception Index, Johann Lambsdorff has in fact found that investors prefer “grand” corruption compared to petty corruption for the simple reason that under the former they feel part of an elite group that is able to influence laws and regulations.

So why are Aquino’s supporters pushing for the “rule of law”?

There are two possibilities: (a) they could be merely capitalising on public anger against corruption in government aimed at the present administration, or (b) they have seen how the absence of rule of law affects their interests and have learnt to compete on their own terms.

The first reason would cast the elite in their traditional role as opportunistic predators positioning themselves behind the leader that captures the zeitgeist during an election in order to exploit opportunities after the wave of public euphoria has passed. The second reason is a bit more interesting since it would suggest that a genuine market for rules is beginning to take shape.

Is there proof for either position?

History certainly favours the former. Studies comparing the Philippine state with that of its East Asian counterparts have categorised it as a weak incoherent state controlled by dominant business interests. The ability of the economic elite to capture state banking institutions and monetary authorities since their inception has been well documented by Prof Paul D Hutchcroft of the Australian National University.

The country’s failed attempts at implementing a genuine land reform program since the 1950s despite the backing of American aid missions and its susceptibility to protectionist crony capitalism under authoritarian rule in the 1970s to mid-80s despite the doting guidance of the IMF are proof that the legal-administrative system in the country has been under the tight control of landed and later industrial elites.

More recent history may be on the side of the latter. It was in the mid-80s after a major banking crisis and the assassination of the exiled leader of the opposition, Benigno Aquino Jr, that the business community withdrew its support to the autocratic regime of Ferdinand Marcos. This is when the yellow confetti rained down in the central business district of Manila during the height of the protest movement to depose him.

According to Emmanuel De Dios of the University of the Philippines the severe recession experienced in the 1980s led to a weakening of the import substituting industries that were standing in the way of reforms to open up the Philippine economy. Under the presidencies of Corazon Aquino and Fidel Ramos, the country began a process of liberalisation in its tradable goods and non-tradable sector (namely in telecommunications) as subsidies and protection were done away with.

As restrictions to foreign investments were gradually eliminated in all but a few sectors of the economy, a new set of economic elite comprised of small and medium sized exporters began to prosper according to De Dios. Industrialists began to see the opportunities of foreign markets as part of the benefits of increasing globalisation.

Then the Asian Crisis hit. A new populist president in the person of Joseph Estrada took office. While the country had initially outperformed its ASEAN neighbours at the height of the crisis, self-manufactured home-grown crises including insider trading and shady deals involving government pension funds in the takeover of prominent business interests were slowly unravelling the country’s image abroad.

It is in light of these events that the current actions of the business community should be assessed. The second people power revolt that unseated Mr Estrada because of his involvement in illegal racketeering was largely backed and funded by the business community. Seeing how such shenanigans connected to his maladministration affected their wealth via the stock market and how the unfair takeover of their businesses could take place under such a regime, they have begun to see the value of Western style rule of law.

The critics of “civil society” (a local euphemism for the business elite) point to the very methods used by them in unseating the former president as a violation of democratic principles and rule of law. This is where economic and political definitions of rule of law clash. The legalities of the extra-constitutional process as affirmed by the Supreme Court notwithstanding, the opponents of Mr Aquino see his support from the business community that stood with his mother since the mid-80s as a sign of his capture by vested interests.

Partly for this reason perhaps, a recent survey shows the trust rating of Aquino lagging behind the man who may win the election, property tycoon Manuel Villar, who styles himself as a champion of the poor from whose ranks he claims to come. The association of Aquino with a family owned sugar estate that has been mired in controversy ever since his mother made land reform the centrepiece program of her government does not help his case either.

Not that Mr Villar is free from criticisms himself. A censure motion was put forth by his colleagues in the Senate for a conflict of interest involving his properties that benefited from road works proposed by him as chair of the powerful finance committee. The manner by which he flouted the rules in the Senate to avoid bringing the motion to a vote bespeaks of the manipulative way in which he could govern the country. For this reason, enthusiasm for his candidacy from his counterparts in the business world appears to be dismal.

The Romanticism of Elections

As the election season officially commenced in the Philippines this week, it has become quite fashionable among prominent local commentators to romanticise the current Philippine presidential race of 2010 painting it in the epic proportions of a contest between the forces of good and evil. An example of this is a recent column by Mr Manolo Quezon, a former speechwriter for Pres Gloria Arroyo in which he traces the political genealogy of all presidential contenders to the traditions belonging to one of two leading protagonsists in the 1986 people power uprising, former presidents Ferdinand Marcos and Corazon Aquino.

It becomes apparent that Mr Quezon regards only one candidate, Benigno Aquino III, the only son of Corazon, worthy of claiming the mantle of democracy represented by his late great mother. All others it would seem belong to “the wrong side of history” as Pres Marcos had been in 1986. A win by any of these candidates would be “impermissible” from Mr Quezon’s perspective. The dark and ominous undertones of such a statement are evident. Either election officials conclude with an outcome consistent with History (with a capital H), or the forces under the Aquino banner might or should enforce their own will on the situation and produce the right outcome from their perspective.

I don't think it is accurate to paint this race using such a broad brush. It would be an oversimplification of what the candidates, Mr Aquino and everyone else, truly represent. I don't think for instance it is fair to associate any one candidate with the repressive authoritarian regime of Mr Marcos for instance. Not one of them is espousing a return to dictatorial rule, but anyone including Mr Aquino could be capable given the right circumstances of taking the country down a path of greater repression of civil liberties and weakening of property rights as the embattled rule of Mrs Arroyo so aptly demonstrated through her flirtations with emergency powers.

A more balanced approach would produce a nuanced view of the two leading contenders, Messrs Aquino and Manuel Villar, a self-made Fortune 500 tycoon with a rags-to-riches story. It would show the evolution of two previously flawed attempts at addressing the problem of underdevelopment in the Philippines which they, on the face of it, represent and hope to redeem.

One strand, implicitly espoused by Mr Villar, has sought to deal with the rent-seeking nature of a weak state by centralising rule-making with the chief executive and by so doing reduce the potential for petty corruption elsewhere. This is a situation which makes the office he would occupy prone to intensive lobbying, but by the same token, present an improvement on the current situation of chaotic decentralised plunder. With a more disciplined bureaucracy and a coherent strategy, rapid development as illustrated by the East Asian economies becomes possible.

This assumes of course that the chief executive himself is disciplined and capable of resisting intense pressure to collude with powerful interest groups. But even if he succumbs to such pressure, the founder of the Corruption Perception Index (transparency.org) Johann Lambsdorff has found that investors actually prefer grand corruption over petty corruption (!) presumably because of the greater predictability that the former affords.

The problem though with this strand is that in some cases corruption does serve a purpose in enabling productive sectors of society to overcome stifling regulatory hurdles in the pursuit of greater value and output within the economy. By centralising rule-making, the executive also centralises deal-making, which means that only a select group of associates and hangers-on can take advantage of the unique opportunities that abound under a crafty and entrepreneurial president as demonstrated by the past administrations of Messrs Marcos and Joseph Estrada (ousted and convicted for plunder but later pardoned by Mrs Arroyo and now placed third by many pollsters in the race to succeed her).

This lessens the amount of investments made by other players due to fears of expropriation by those closely linked with the administration, a point that is exemplified by a scandal involving Mr Villar’s commercial property ventures and two nearly identical road projects. One was publicly funded, thanks to Mr Villar’s intervention as the head of a powerful Senate finance committee, the other privately financed under a fee for use basis. The private venture eventually backed down due to competition from Mr Villar's free access road that conveniently wound through his commercial neighborhood projects.

The other strand promoted by Mr Aquino seeks to maintain the current system of decentralised rule-making and with it the petty corruption that prevails, but what it seeks to introduce is greater transparency and participation in the system. By all accounts, this is arguably the only legitimate means of prying the state loose from the clutches of special interest groups.

The challenge of course is achieving this goal with the meager resources that a third world nation can ill afford to waste given the multitude of development programs it needs to fund. If even the well resourced governments of advanced economies find it troublesome if not costly to enforce such institutions. (An eminent economist in the field, Douglas North, puts the price tag at 35-40% of GDP. What hope is there then for a cash-strapped government that can only raise a mere 14-7% at best?)

Ironically, pursuing “good government” through a costly enforcement system might in the long-run lead to greater corruption. This is a view endorsed by some leading institutional economists. And in the Philippines, it could be argued, the confiscation and sale of assets acquired illegitimately by public officials that begun under Mrs Aquino has itself become a source of corruption.

So in the end what we are left with are permutations of previously failed or flawed experiments espoused by members of the ruling elite in the hope of vindicating the competing hypotheses adopted by their predecessors in addressing the underdevelopment problem of the country. It is not that one candidate is on the right side of history and the other is not. What each party is seeking at this point is a way to carve out a place in history that would suit their own personal narratives.

Aquino on Countering the Calculus of Corruption

At the press conference following his announced bid for the presidency in 2010, Benigno "Noynoy" Aquino III revealed what could be a guiding principle in his approach to good governance.

(Right: Senator Benigno "Noynoy" Aquino III announced back in September his intention to seek the presidency of the Philippines in the election of May 2010.)

When asked about his solution to widespread corruption, he said firstly that he would emulate his mother, former President Corazon Aquino, whose reputation for simple living engendered greater honesty among public servants. Secondly, beyond appeals to a concern for the greater good, he would vigorously uphold an enforcement of the rules which would not only entail swift justice in prosecuting those who break the code, but incentives to those who abide by it. He called this his “carrot and stick” approach.

The test of this hypothesis will come no less from his office should he be elected which now seems very likely given his astronomic lead in the polls. In the past, winning and occupying the highest post in the land has been subject to what economists call an “incentive incompatible” problem, namely, a misalignment of incentives that ensured a reneging on the promise to uphold and defend the constitution and the laws of the land.

Given weaknesses in institutions, it has been all too easy to “take” rather than “make” while in office. The so-called checks on the excesses have been ineffective under the structure of rent-seeking incentives at play.

But now Filipinos could be witnessing the birth of public stewardship motivated by a true sense of noblesse oblige. Self-restraint might be the only effective means to check executive greed. In the past every contender and pretender to higher office has feigned a sense of noble intentions. The purifying trials of the Aquino family under the repressive Marcos regime may provide the most authentic case of altruism at work.

Turning their backs on the honest democratic legacy of their parents would prove too costly for the Aquino children because it would mean nullifying the sacrifices made by their parents all throughout their formative years.

The late Senator Benigno Aquino Jr set off a virtuous cycle of willling self-sacrifice that was “gifted” to the Filipino people. They reciprocated first by expressing public grief and outrage over his assassination, and then by endowing the presidency to his wife, Corazon, who in turn renewed the cycle of giving back by restoring democratic freedoms curtailed under the dictatorial regime of her predecessor.

(Right: The assassination of former Senator Benigno "Ninoy" Aquino, Jr on 21 August 1983 shortly after being escorted by airport security off his plane at the Manila International Airport triggered widespread public outrage against the Marcos regime.)

Now it seems the people in honour of her own personal sacrifice following her untimely demise due to colon cancer are about to reciprocate the Aquinos once over by entrusting the presidency to the only son of the family, Benigno III.

This politics of exchange is not the debased form of transactional politics that is common among the ruling elites and their constituents, a practice that has left the Philippines languishing at the bottom of Transparency International's corruption league table for the Asia Pacific.

Rather, the calculus of exchange that seems to have been initiated by the Aquinos follows the pattern of “gift-giving” in close-knit cultures where the commodities exchanged cannot be valued and where renewing ties by re-investing in social capital is the key.

This new and ongoing dynamic that has sparked a sense of altruistic behaviour among those engaged in the "political game” is set to counter the vicious cycle of corruption and rent-seeking that has been entrenched in the governance arrangements of political institutions operating at the moment.