Episode 17: Otso Diretso, MaBaGoKoTo, Hugpong, atbp.

The countdown to election day begins.

We are now about 30 days away from the 2019 midterms. In this episode we’ll be looking at the senate race, and how that has been unfolding. We compare the competing candidates' platforms, namely Otso Diretso's campaign platform and PDP-Laban's.

When you put the two parties’ positions side-by-side there is a clear contrast between them, both in terms of their overarching philosophies and approach to governance and development. Those who say that this election isn’t about ideas are wrong. There are clear battle lines here, and they are not just personality-driven.

Get the transcripts of the show from here.

Erratum: in counting the number of senators that became VP, I mistakenly included Mar Roxas in the list.

East Asia and LatAm

Image taken from Web Resources Depot.

New graphic tools tell the oft-repeated story behind these two regions in a visually compelling format.

Lately I have been playing around with the online graphing tools of the Legatum Institute; in particular, I have been using the results of the 2009 Prosperity Index which the Institute publishes to compare East Asia and Latin America. This multi-dimensional index is an aggregator of sorts in that it combines various measures of prosperity and well-being and allows users to plot different countries on a “spider web” chart.

It is a well-known fact that East Asian and Latin American countries share many socio-cultural traits as well as development strategies. This is borne out by the Institute’s results for these regions. As shown here, LatAm seems to converge into one distinct pattern, while East Asia does the same here. Note that for purposes of demonstration, I have lumped the Philippines (a Latin country transplanted in Asia) and Chile (the reverse case) with their affinitive counterparts.

The patterns show different models of development. LatAm nations score high on Personal Freedom and Democratic Institutions, but relatively low when it comes to Economic Fundamentals, Entrepreneurship and Innovation, and Social Capital. Despite this, the most well-off nations of Argentina, Uruguay and Costa Rica seem to do well in terms of some social indicators Education, Health, and Safety and Security. There is a general lack of good performance in Governance save for the richer nations.

The opposite seems to be happening with East Asia. Here Personal Freedom seems to have been less prioritized in favor of Economic Fundamentals, Entrepreneurship and Innovation, Health, Education, and Safety and Security. As countries in the region get richer, a gradual improvement in Personal Freedom and Democratic Institutions takes place as evidenced by Japan, South Korea, and Hong Kong. Governance tends to improve as well (with China in the embryonic stage of this development path).

Does this imply that democratic institutions are not good for development or that authoritarian governments promote growth? Not necessarily as this Economics By Invitation feature by The Economist showed. While as Alberto Alesina states, there may be no evidence that democracies promote faster growth, and that as Lant Pritchett suggests authoritarian regimes tend to have a spotty record, as Daron Acemoglu who co-wrote a book on this (shown below) as well as Ricardo Hausmann, Arvind Subramaniam, and Yang Yao suggest, getting the right incentives, institutions and governance arrangements do matter.

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.

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.