PH economic problems are politically related

This is an unusual article (Business World 24 October 2011) written by an economist on his views the solutions to most of the Philippines’ economic problems are political. Interesting concept.
Thinking politically

To solve our economic problems, we have to think politically. Yes, you read that right. We need political solutions to economic problems. We don’t lack capital. Our savings rate exceeds the investment rate. There are 1.5 trillion pesos in Special Deposit Accounts in Bangko Sentral that banks are unwilling or unable to use for lending. With interest rates in the US and most developed countries near zero, there are trillions in capital that can be tapped for investment projects here.

We don’t lack technology. Technology can be imported especially in an age of globalization in markets, finance, and transportation. Singapore, for example, has powered its industries with imported technology in such areas as biotech, medicine, and IT. We can do the same.

We don’t lack skilled human resources. We have the scientists, engineers, doctors, and accountants, not to mention the craftsmen, plumbers, and electricians who can provide the soft capital for growth. We even have a surplus of human resources relative to jobs here. This is why we are exporting them.

We don’t lack natural resources. In fact, we have plentiful natural resources, compared to a country like Singapore or Taiwan.

What we lack is in the political realm — in the realm of institutions, governance, accountability, and rule of law. People normally ascribe their parlous material condition to “corruption.” However, “Corruption” is a catchall phrase because what we confront are problems of collective action, regulatory capture, rent-seeking, and patrimonialism.

The recent floods in Bulacan and Pampanga illustrate the political dimension of economic problems. Because of the floods, investors now hesitate to put up factories and generate jobs in those flood-stricken areas for fear of a repeat of the disaster. However, is climate change to blame for the floods or is it government failure?

Scientists have pinpointed fish pens impeding the flow of water to Manila Bay as a cause but nothing was done in the past to dismantle them. The state is too weak to assert public interest at the expense of narrow vested interests.

Furthermore, disaster prevention, response, recovery, and rehabilitation are public goods that the state must provide. However, the state has failed miserably to fulfill a major function, partly due to lack of resources: lack of money for dams, drainage canals, communications equipment, rescue boats, medicines, etc.

And why does the state perennially lack resources? Again, because it cannot assert the public interest at the expense of narrow, private interests. It gives away valuable communications spectrum instead of selling them. It gives away tax revenues in the forms of tax and duty-free incentives to economically and politically powerful groups, such as mining companies, renewable energy developers, cooperatives, etc.

How do we go about thinking politically to strengthen the state?

1. We need to separate the political class from the economic class. Only a political class that’s accountable to the people via credible elections can provide the power balance to the economic oligarchy.

To do this, most feasible idea at this point is the public financing of political parties, and possibly of electoral campaigns. Without public financing, the political class would be totally financially dependent on the economic oligarchy to fund increasingly expensive campaigns and its own political activities. The other alternative for the political class is to self-finance campaigns through its own corrupt money-making schemes, which undermines its will and capacity to do good governance. We have seen how the corrupt schemes in the Erap and GMA administrations can be very destabilizing.

2. We need to solve the collective action problem of the political class. Because of the absence of genuine political parties, the political class is simply outmaneuvered, outmanaged, and outclassed by the economic oligarchy. The economic oligarchy has its conglomerates and legions of agents who can do collective, unified action on its behalf. The political class, however, is dependent on kaklasekabarkadakabarilankanayonkumparekapamilya or other fragile ties cemented by personal relationships to do its unified, collective action. Because the political class lacks the organizational ability to act on behalf of the public interest, it’s too weak to confront the maneuvers and machinations of the economic oligarchy.

The vacuum of collective action in the public sphere is sometimes filled by religion (hence, the outsized influence of the Catholic Church in Philippine politics), an unhealthy characteristic for a supposedly secular society.

3. We need to strengthen the bureaucracy. The political class alone cannot act to balance the power of the economic oligarchy. By its nature, the political class has a very short-term orientation since it’s fixated on the next election. It also must raise money, somewhere, somehow, perhaps illegally or from donations given by the economic oligarchy, to be able to get elected again and remain in power.

We must strengthen the bureaucracy because it can complement and provide a balance to the political class: it can have a longer-term orientation than simply the next election, it can be professionalized so that merit rather than politics can be the basis for positions, and it can provide stability to policies since the bureaucracy will be there, irrespective of who gets elected.

Will mining companies invest in the country if the government can’t provide basic security? Will manufacturers invest if distributors of fake imported goods cannot be caught? Will farmers plant if their produce rots because the roads are too bad to transport goods on? The answer is obviously No, and not because interest rates are too high or the yield curve is too steep.

The path to economic progress doesn’t lie in economic reforms alone. We need to think politically. Making that connection — between politics and economics — is the real meaning of “kung walang korupt, walang mahirap.”

Calixto V. Chikiamco is a board member of the Institute for Development and Econometric Analysis.

For comments and inquiries, please e-mail us at idea.introspective@gmail.com.

Article location : http://www.bworldonline.com/content.php?Section=Opinion&title=Thinking politically&id=40369

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