Category: economy

new year wish 2011

clinton’s campaign strategist carville was right, “it’s the economy, stupid” that won clinton the presidency in 1992, trumping bush senior’s foreign policy high from the “successful” gulf war.

here at home it would seem that the president and his men know it too, that it’s the economy that truly and urgently needs working on.

“We are conscious of the fact that we are in a debt hole. We can only begin to climb out if we strictly implement austerity measures and cut down on unnecessary spending,” said Malacañang aide Paquito Ochoa.

but is there a plan? asks business world‘s amelia h.c. ylagan:

The national budget in 1986 was P250 billion and 70% of that went to servicing the US$26-billion debt that Cory’s predecessor, Ferdinand Marcos, grew from the $465-million 1965 level, in his 20-year reign. The 50 million Filipinos (in Cory’s time) had to live on the remaining 30% of budget. And then there were the many military coups d’état from the misguided military who wanted to take advantage of the weakness of the country at that time. Cory could not have worked a miracle in six years, many now allow in judgment of her. Some may also say that in comparison, her successor, President Fidel Ramos, probably benefitted from the six-year cycle of painful adjustment and realignment before him, and he successfully augmented what would have been economic deficits with significant one-time proceeds of the privatization of some big government-owned and -controlled corporations.

Survival and growth might be more difficult in Noynoy’s presidency. There are 92.2 million Filipinos (84% more than 1986 population), owing about P47,000 per head for about P4.3-trillion debt (US$ 95 billion approx.) The Asian Development Bank (ADB) warns of extreme debt stress as the country holds the highest debt-to-GDP ratio at 56.5%, the highest among Asian countries. This key measure shows how a country can manage its obligations from its annual economic output, with a declining ratio viewed favorable as this means the country would allot a smaller amount to pay off its debt. But based on the ADB’s projections, the Philippines’ debt-to-gross domestic product (GDP) ratio may rise by 15% by 2015 in a scenario of higher primary deficit to GDP; by 5.1% amid lower nominal GDP growth rate; by 3% on higher nominal interest rates on public debt; and by 12.7% on a combination of the three negative scenarios.

So, is there a plan to address these scenarios of where we, as a country might be going, how we are going to get there, and when we will get there.

grabe, we are deeply in debt to the tune of Php 4.3 trillion, that’s $ 95 billion.   ylagan rightly asks if there’s a plan, what’s the plan, considering that the president vetoed the debt cap provision inserted by senator joker arroyo in the P1.645-trillion 2011 national budget, which would have limited government’s borrowing to 55 % of gross domestic product.

Malacanang has defended President Benigno “Noynoy” Aquino III’s decision to veto the debt cap in the 2011 General Appropriations Act.

Presidential spokesperson Edwin Lacierda said this is a good time to borrow given the favorable market conditions like the strong peso and the appetite for peso bonds.

so that’s the plan?   since creditors are willing to lend, we will just borrow and borrow, ganoon, bahala na si batman.   but, as senator joker points out:

The US is, in many ways, our model. There is a debt ceiling in the US President’s power to borrow money, but the US Congress would invariably increase the ceiling whenever it is justified by necessity,” he said.

“For the cause of fiscal prudence and transparency, why can’t we adopt the same?” he asked.x

why not indeed?   i wonder if it has anything to do with what former senator orly mercado said, when he was the new president erap’s secretary of national defense, that when you’re in the driver’s seat na pala, the view, the perspective, changes and campaign promises prove unrealistic.   or something to that effect.

could it be the same for president aquino?   but who exactly is holding him hostage to the old rotten system, making real CHANGE impossible?   what exactly are these forces beyond his control?   i wish he’d tell us so we can all grow up and face the unpleasant consequences of our past actions and/or inactions.

and then, again, the president could just be in over his head?   sana hindi.   and that’s my happy new year wish for us all ;))

g-20, apec, aquino, and the peso

MANILA, Philippines—Six Filipino activists who had planned to take part in alternative meetings that are set to run parallel to the G20 summit in South Korea have been deported from Seoul, their colleagues said on Sunday.

… The activists were put on a flight back to Manila late Saturday after being told by South Korean authorities that they were blacklisted and could not enter the country, the activists said…. One of those deported, Maria Lorena Macabuag of the group Migrant Forum Asia, said they were only attending a peaceful parallel forum and had not broken any law.

Her companions were identified as Josua Mata of the Alliance of Progressive Labor, Joseph Purugganan of Focus on the Global South, musician-poet and Asian Public Intellectual fellow Jess Santiago, Rogelio Soluta of the Kilusang Mayo Uno and Paul Quinto of Ibon Philippines.

… “We were granted visas and it was clear that we were invited by KCTU. It was all disclosed and it was clear that we are not a threat to them,” Purugganan said.

make that 7 activists, the 7th being Bernice Coronacion of the Alliance of Progressive Labor.   hmm.   heard ibon’s sonny africa saying on ANC that only filipino activists have been denied entry.   and so there is wondering whether this is with the collusion of the philippine government, which would explain why the aquino admin is not offended?   but if true, why so?   why would we not want filipino activists represented, having been invited to participate, in the parallel forum organized by the Korean Confederation of Trade Unions?   baka kasi mag-ingay masyado this “noisy minority” that the aquinos think very little of?

and then, again, isn’t it just as possible that this is a kind of backlash vis a vis the aug 23 bloodbath and the vietnam tweets, a kind of curveball from a good friend of hong kong and vietnam?   okay okay it may be a stretch but after reading this…

What is the Philippine interest in this event? At first glance, there is not much to indicate that the Philippines is represented, much less invited. The president of neighboring Indonesia regularly sits at the summit. Korea as the host country exercised its privilege of inviting Singapore, as well as Vietnam which is this year’s head of the ASEAN. With these three ASEAN countries sitting in G20, could it be safely said that Philippine interests are well represented? The presence of at least three ASEAN leaders both have advantages and risks, due to the diverse characteristics of small, free market leader Singapore, socialist Vietnam, and big Indonesia.

… it’s like we’re being snubbed?   and then, again, it could be simply that aquino’s presence would be of no consequence anyway, given the philippines’ reputation of being america’s lackey, no more no less, especially when it comes to the economy?

The G20 leaders will be expected to affirm agreements drafted less than a month ago by their finance chiefs. They promised to avoid a damaging round of competitive currency depreciations. China accuses the United States, however, of already violating the spirit of the pledge by printing excess dollars, which Beijing says contributes to Chinese inflation. Washington accuses Beijing of keeping its currency artificially weak.

[G-20 economies represent about 90 percent of the gross domestic product globally, nearly 80 percent of world trade, and two-thirds of the world’s population. G8 members — Great Britain, Canada, France, Germany, Italy, Japan, Russia and the United States — plus Argentina, Australia, Brazil, China, India, Indonesia, Mexico, Saudi Arabia, South Africa, South Korea, Turkey and the European Union (EU).]

mabuti’t nag-iingay ang brazil:

… Brazilian President Luiz Inacio Lula da Silva blames both China and the US for keeping their currencies artificially low — causing the Brazilian real to rise and making his country’s exports less competitive — and could stir things up.

“We believe the United States and China are creating a currency war,” Silva told reporters Wednesday. “So, I am going to the G-20 to put up a fight.”

He didn’t specify what steps he intends to propose.

so the summit should be interesting, america vs. china, and everyone else vs. america and china?   even more interesting, our very own dr. bernardo m. villegas, who is usually so pro-america and pro-imf-worldbank, is predicting that the peso will depreciate post-G20.

In an economic forum sponsored by Security Bank for its clients last October 22, I had the temerity to make the fearless forecast that the peso-dollar exchange rate at the end of this year will be closer to P45 to 46 than to P40 to 41.

…The bleak outlook for the results of the G-20 in Seoul is in stark contrast with the upbeat mood in 2008 when the G-20 met for the first time to help stabilize the global financial system at the beginning of the Great Recession. Two years ago, there was an admirable cohesiveness among the leaders. Today, there is a “clash of interests and a clash of perceptions” that could result in a stalemate at the summit that would impede progress toward recovery. Mr. Mervyn King, the governor of the Bank of England, is more specific in his warnings. He is afraid that tensions over exchange rates could degenerate into trade protectionism: “That could, as it did in the 1930s, lead to a disastrous collapse in activity around the world.”

… The Filipino overseas workers, the biggest source of foreign exchange for the country (estimated to reach $20 billion in 2010), are getting more sophisticated in their understanding of foreign exchange rate fluctuations, especially with the advice of our leading banks and remittance companies. It is very probable that a good number of them will postpone remitting their dollars to the Philippines in the hope of a peso depreciation late this year or early next year. For this reason, I do not expect the usual larger inflow of dollars for the Christmas holidays. The more important expenditures for the families of these OFWs have to do with education, which usually peak in June of each year. There is, therefore, reason for the OFWs to wait and see how the exchange war will work out and keep their dollars in the meantime.

Furthermore, there is reason to expect that portfolio investments in the Philippine capital market could slow down as many more countries follow the lead of China that raised interest rates for the first time in nearly three years because of concerns about increasing inflationary pressures in the economy. As more countries raise interest rates, they would attract more “hot money” into their respective economies. With inflation at low levels in the Philippines, I do not foresee our Central Bank raising interest rates in the near future. If this scenario of higher interest rates among our trading partners should be fulfilled, I am issuing a word of caution to those who are overly excited about our booming stock market today. Easy come, easy go.

These are my reasons for expecting the peso to depreciate closer to P45 to 46 by the end of this year. At the risk of immodesty, let me remind my readers that at the beginning of 2010, I was ridiculed by my fellow economists (including those working for the former administration) when I forecasted that the GDP would grow at 7 percent. The consensus forecast then was between 3 to 5 percent. As everyone knows, GDP grew by 7.9 percent in the first semester and is mostly likely to grow at 7 percent for the whole year. I rest my case.

samantala right after the G-20 summit in south korea on nov 11-12, there’s the APEC summit in japan nov 13-14 that aquino is attending (minus ms.lang of course) along with many of the G-20 leaders, including obama.

[APEC member economies are Australia, Brunei Darussalam, Canada, Chile, China, Hong Kong, Indonesia, Japan, South Korea, Malaysia, Mexico, New Zealand, Papua New Guinea, Peru, the Philippines, Russia, Singapore, Taiwan, Thailand, the United States and Vietnam. They account for 40.5 percent 1 of the world’s population, 54.2 percent of world GDP and 43.7 percent of world trade.]

aquino daw is set to propose that a framework be developed to deal with the volatile global financial markets.

“The idea lang, basically, is let us learn from the lessons of the Great Depression where each individual state decided to act on their own interests,” the President said.

sounds good.   if he can swing it.   if not, well, it’s also the same weekend that pacquiao will be fighting margarito in texas, let’s hope pacquiao wins.   consuelo de bobo.

Why Fighting Corruption Is Not Enough

By Walden Bello

After nine years of witnessing increasing poverty among the masses and spiraling corruption in high places, it is understandable that Filipinos see a strong correlation between corruption and poverty. And the judgment of many is probably correct that the candidates that are free of the taint of corruption stand the best chance of turning this country around. Moral leadership may not be a sufficient condition for successful leadership but it certainly has become a necessary condition in a country that has been so deprived of exemplary public figures like the Philippines.

Corruption, however, has become the explanation for all our ills, and this brings with it the danger that, after the elections, campaign rhetoric might substitute for hard analysis on the causes of poverty, leading to wrong, ineffectual prescriptions for dealing with the country’s number one problem.

Let me be more explicit: Corruption must be condemned and corrupt officials must be prosecuted because being a violation of public trust, corruption undermines faith in government and leads to an erosion of the moral bonds among citizens that serve as the foundation of good governance. Corruption, however, is unlikely to be the main cause of poverty. Wrongheaded policies are, and clean-cut technocrats have been responsible for more poverty than corrupt politicians.

The complex of policies that have pushed the Philippines into the economic quagmire over the last 30 years might be summed up in that formidable term: structural adjustment. Also known as neoliberal restructuring, it involved prioritization of debt repayment; conservative macroeconomic management that involving huge cutbacks in government spending; trade and financial liberalization; privatization and deregulation; and export-oriented production. Structural adjustment came to the Philippines courtesy of the World Bank, International Monetary Fund, and the World Trade Organization, but it was internalized and disseminated as doctrine by local technocrats and economists.

Prioritizing Debt Repayment

Corazon Aquino was personally honest and her contribution to the reestablishment of democracy was indispensable, but her submitting to the International Monetary Fund’s demand to prioritize debt repayment over development brought about a decade of stagnation and continuing poverty. Interest payments as a percentage of total government expenditures went from 7 percent in 1980 to 28 percent in 1994. Capital expenditures, on the other hand, plunged from 26 percent to 16 percent. Since government is the biggest investor in the Philippines—indeed in any economy—the radical stripping away of capital expenditures goes a long way toward explaining the stagnant one percent average yearly growth in gross domestic product in the 1980’s and the 2.3 per cent rate in the first half of the 1990’s.

In contrast, our Southeast Asian neighbors ignored the IMF’s prescriptions. They limited debt servicing while ramping up government capital expenditures in support of growth. Not surprisingly, they grew by 6 to 10 percent from 1985 to 1995, attracting massive Japanese investment while the Philippines barely grew and gained the reputation of a depressed market that repelled investors.

Trade and Financial Liberalization

When Fidel Ramos came to power in 1992, the main agenda of his technocrats was to bring down all tariffs to 0 to 5 percent and bring the Philippines into the World Trade Organization and the ASEAN Free Trade Area (AFTA), moves that were intended to make trade liberalization irreversible. A pick-up in the growth rate in the early years of Ramos sparked hope, but the green shoots were more apparent than real, and they were, at any rate, crushed as a result of another neoliberal policy: financial liberalization. The elimination of foreign exchange controls and restrictions of speculative investment attracted billions of dollars in the period 1993-1997. But this also meant that when panic hit the ranks of foreign investors in Asia in the summer of 1997, the same lack of capital controls facilitated the stampede of billions of dollars from the country in a few short weeks in mid-1997. This pushed the economy into recession and stagnation in the next few years.

The Estrada administration did not reverse course, and under the presidency of President Gloria Macapagal-Arroyo, neoliberal policies continued to reign. New liberalization initiatives in the next few years were initiated on the trade front, with the government negotiating free trade agreements with Japan and China. These pacts were entered into despite clear evidence that trade liberalization was destroying the two pillars of the economy, industry and agriculture.

Radical unilateral trade liberalization severely destabilized our manufacturing sector, with textile and garments firms, for instance, being drastically reduced from 200 in 1970 to 10 in recent years. As one of Arroyo’s finance secretaries admitted, “there’s an uneven implementation of trade liberalization, which was to our disadvantage.” While he speculated that consumers might have benefited from the tariff liberalization, he acknowledged that “it has killed so many local industries.”

As for agriculture, the liberalization of our agricultural trade after we joined the World Trade Organization in 1995 transformed the Philippines from a net food exporting country and consolidated it into a net food importing country after the mid-1990’s. The year 2010 is the year that the China ASEAN Trade Agreement (CAFTA) negotiated by the Arroyo administration goes into effect, and the prospect of cheap Chinese produce flooding our markets has made our vegetable farmers fatalistic about their survival.

Depressive Fiscal Policy

What likewise became clear during the long Arroyo reign were the stifling effects of the debt repayment-oriented macroeconomic management policy that came with structural adjustment. With 20-25 percent of the national budget reserved for debt service payments owing to the draconian Automatic Appropriations Law, government finances were in a state of permanent and widening deficit, which the administration tried to solve by contracting more loans. Indeed, the Arroyo administration contracted more loans than the previous three administrations combined.

When the deficit reached gargantuan proportions, the government refused to take the necessary steps to contain the key factor acting as the main drain on expenditures; that is, it refused to declare a debt moratorium or at least renegotiate the terms of debt repayment to make them less punitive. At the same time, the administration did not have the political will to force the rich to take the brunt of bridging the deficit by increasing taxes on their income and improving their collection. Under pressure from the IMF, the government levied this burden on the poor and the middle class via the adoption of the expanded value added tax (EVAT) of 12 percent on purchases. The tax was passed on to poor and middle class consumers by commercial establishments, forcing them to cut back on consumption, which then boomeranged back on small merchants and entrepreneurs in the form of reduced profits, forcing many out of business.

Facing the Policy Challenge

The straitjacket of conservative macroeconomic management, trade and financial liberalization, and a subservient debt policy kept the economy from expanding significantly, resulting in the percentage of the population living in poverty, according to the World Bank, increasing from 30 to 33 percent between 2003 and 2006. By 2006, there were more poor people in the Philippines than at any other time in the country’s history.

The country’s plight under the lash of wrong policies over the last four administrations becomes even clearer in a comparative perspective. According to the United Nations Development Program Human Development Report, the Philippines registered the second lowest average yearly growth rate, 1.6 percent, in Southeast Asia in the period 1990 to 2005 —lower than that of Vietnam (5.9 percent), Cambodia (5.5 percent), and Burma (6.6 percent). The only country registering average growth below that of the Philippines was Brunei, which, being an oil-rich high-income country, could afford not to grow.

So yes, we must wage an unrelenting campaign against corruption because it destroys faith in government and weakens the moral fiber of the country. And yes, let us by all means punish corrupt officials and elect morally unquestionable people to power. But let us not mistake corruption as the principal cause of poverty and believe that anti-corruption crusades provide the main response to the country’s economic ills. The main source of our lack of economic dynamism is a wrong policy paradigm that we have allowed ourselves to be straitjacketed into.

It is disturbing that the policy errors that have led to our present state are hardly mentioned in the presidential debates. It is unfortunate that we are not taking advantage of the current international economic crisis that has dragged down our local economy to debate the wisdom of the policies of globalization and liberalization that have brought us to this impasse. Yes, the issues of corruption, management experience, and bureaucratic reform that dominate these debates are vital, but unless the winning team has the courage to reverse 30 years of failed neoliberal economic policies, the country will remain in the economic doldrums, unable to take off, with poverty possibly rising to the point of no return.

the irresponsible filipino elite

i’ve been fretting over, and collecting columns about, the yawning gap between the few filipino rich and the manymanymany filipino poor for some time now, wondering why other southeast asian countries are able to bridge lessen / shrink the gap, but not the philippines.   here are three online essays that explain why, the latest by business world‘s jemy gatdula, which he writes in relation to the 2010 elections.   the two others are by editorial consultant juan c. gatbonton and political economist calixto v. chikiamco, both of the manila times.

TAMA NA, SOBRA NA, PALITAN NA
Jemy Gatdula

… the statistic that around 10% of the population owns around 80% of the nation’s wealth remains roughly true. What is even more disturbing, save for the huge immigration influx that was done during the Marcos years (particularly in the 1970s), the families that make up that wealthy 10% have not changed through the years. This accounts for a profoundly stagnant social mobility, thus making it more bizarre for our voting population to actually be giving somebody, who has nothing to credit him but his parents’ names, an indecent shot at the presidency. By adding to this the fact that somewhere around 30-40% of the country’s 80 million citizens are under the poverty line, then one can see how obscene a 10% wealthy figure is. Indeed, the attitude of the elite seems to be: it’s all right to help the poor so long as they know their place — and stay there.

Joe Studwell, in his Asian Godfathers, made an analysis on the Philippines that is particularly relevant:

“The old political elite, restored by godfather progeny Corazon Aquino after Marcos’ departure in 1986, appears as entrenched as ever. The current president, Gloria Macapagal-Arroyo — herself the daughter of a former president — spends much of her time fending off congressional attempts to impeach her because of the possibly unconstitutional manner in which she ousted her predecessor, Joseph Estrada, 2001, and allegations of vote-rigging in her own election victory in 2004. x x x Faith in the political process is falling, communist insurgency is present in most provinces, and the local elite remains the most selfish and self-serving in the region. The Philippines’ best known living author, Francisco Sionil Jose, lamented in the Far Eastern Economic Review in December 2004: ’We are poor because our elites have no sense of nation. They collaborate with whoever rules — the Spaniards, the Japanese, the Americans and, in recent times, Marcos. Our elites imbibed the values of the colonizer.’ The Philippines, in short, has never moved on from the colonial era and the patterns of amoral elite dominance that it created.” (Asian Godfathers, 2007, pp.180-181)

A reading of Sandra Burton’s Impossible Dream shows how those in power are so related or linked to each other that our history is seemingly like one long sequence political rigodon. If Burton’s account is accurate: it was a Laurel who acquitted Ferdinand Marcos of murder, a Roxas who liberated him from a US army brig, a Quezon who urged him to be in public life, a Macapagal who awarded him half of his war medals, and a Magsaysay who served as godfather to his wedding. Marcos had Ninoy Aquino as a fraternity brother. And before Aquino married Cory, he was actually dating, guess who? Imelda Romualdez.

Obviously, every country has an elite. Nevertheless, developed countries’ healthy economy and social conditions would indicate a more fluid social mobility rate than that being demonstrated by the Philippines. A cursory look at our history would show the same families, the same surnames, continuously lording it over Philippine affairs. History would also show, however, that they consistently failed the country. In the end, while a country indeed gets the leaders it deserves, it must also be considered that in our case the electorate has had a history of poor quality to choose from. This, then, in sum is our nation’s problem: the monopolization of political and economic power by a narrow minded and incompetent oligarchy.

Interestingly, most of the political class (which, it must be remembered, also constitutes the wealthy end of our social spectrum) would point to corruption as the problem. No, it’s not. It’s the elite who are the problem. Commentators from apparently different ends of the globalization debate converge on this point: from Walden Bello (in his The Anti-development State) to Federico Macaranas and Scott Thompson (in their great Democracy and Discipline), to other books by different authors (The Rulemakers, Booty Capitalism, Sugar and the Origins of Modern Philippine Society, Malolos: The Crisis of the Republic, and Anarchy of Families).

Let us encourage the Filipino voter to not vote for anybody coming from the old political families, no matter how good their branding or packaging may be. They’re all part of the group that created the problems of our country. They’ve had their chance. And they sucked big time.

Tama na, sobra na, palitan na iyang mga lumang pamilya.

WHO ARE THE ELITE
They get the most of what there is to get
Juan T. Gatbonton

Our elite of power and wealth are extremely diverse. Their members range from the genteel remnants of the colonial hacendero families to the grossest political-warlord clans such as the Ampatuans of Maguindanao, who are accused of slaughtering 57 people in just one morning.

In between are the political kingmakers who “bet” on a likely candidate and then collect on their investment in business favors once the candidate wins an influential office. Their paragon is the Chinese-Filipino entrepreneur Lucio Tan, who apparently put up 70 percent of presidential candidate Joseph Estrada’s campaign funds in 1998.

The only thing our elite families have in common is that they still get the most of what there is to get. The Ampatuan godfather is reputed to have kept a nest egg of P400 million in an industrial-strength vault in one of his mansions.

Noblesse oblige

The time is long gone when the rich and powerful took fatherly care of their serfs and tenants, in return for their submission and respect. And the decay of this traditional consensus has made the lives of our poorest families less and less secure.

The social contract that had morally obliged the rich to protect the poor’s right to subsistence has been repealed. Whenever this right to live was threatened, as in Central Luzon beginning in the 1930s, the peasants took up arms, but “less often to destroy elites than to compel them to meet their moral obligations.”

Such unrest has widened, as the spread of the cash economy compelled patrons to turn their backs on their customary rights and duties. Besides, people no longer believe inequality to be divinely ordained, or that power is put to the service of society and its values.

Even the usual markers of elite status have been erased, among them the inferred responsibility of privileged people to act with generosity and nobility toward those less privileged.

Landowning, or “not having to buy the rice you eat,” no longer brings social prestige. In Central Luzon, two successive insurgencies have driven away the sugar and rice hacenderos.

Meanwhile, many of the landowning families who have switched to manufacturing have lost out to Filipino-Chinese arrivistes. Having lost their power to monopolize markets, they proved too greedy, too nepotistic, too authoritarian, to survive global competition.

Rich and poor are separating, as in Disraeli’s England in the 1850s, into “two nations, between whom there is no intercourse and no sympathy . . . ”

The Jesuit sociologist John J. Carroll believes that coercion has become the “operating theory” of our social relationships. Naked power has become the main mediator between rich and poor and power is used heedlessly to accumulate wealth and prestige for the power holders.

Gross inequality

One result is that income inequality has been rising, and at the expense of the lower-income groups. The historian Carlos Quirino estimated that in the 1970s, the country was “in the grip of about 50 leading families.” Even now, family ownership of the Philippine corporate sector is the most highly concentrated in East Asia.

The economist Arsenio Balisacan, whose field is poverty studies, notes that things have got really worse in the last six to seven years.

Academics from the University of the Philippines estimate that 35 percent of Filipinos live below the official poverty line. Our middle class has been shrinking. In 2006, the National Statistics Office placed it at 19.1 percent of all our people, down from 22.7 percent in 2000.

Gross inequality seems to be distorting even the conventional economic outcomes. In East Asia, because of egalitarian public policies, a percentage increase in GDP growth typically reduces poverty incidence by 2 percent. (Globally, a percentage increase in GDP reduces poverty by 1.6 percent.) GDP is the total value of goods and services produced in a country in a year.

But in the Philippines, a 1-percent increase in economic growth may in fact be accompanied by a 0.3-percent increase in the number of the poor. This is because economic growth is so highly concentrated: 65 percent of GDP is generated in Metro Manila and its satellite regions, Central Luzon and Southern Tagalog.

Power to the excluded

Inequality is notable not only in people’s incomes and status. What is worse, inequality is built into social and political structures that, in Father Carroll’s view, enable “certain groups or classes of people systematically [to] enjoy more than others the benefits which society can provide.”

Unequal institutions and legal systems affect the entire structure of national society and the way it apportions wealth and power. Systematic inequality pervades public policy, starting from a tax structure that falls on the poor more heavily than on the rich; to regulatory agencies unable to protect people against monopolies and cartels; through the steady decline in the budget share of social services; and public investments that favor the rich regions against the poor ones.

In the end, these elitist social structures can be moved only by some exertion of power from those excluded from them. Hence, the easing of inequality must await the time the Filipino poor are able to develop forms of autonomous organizations that will give them some leverage in dealing with people in authority.

OUR IRRESPONSIBLE ELITE
Calixto V. Chikiamco

I think it was Gen. (ret) Jose Almonte, former national security chief during the presidency of former President Fidel Ramos, who said that the Philippines had the most irresponsible elite in Asia.

Indeed, “Jo-al” has not been the first and only one who has made this observation. American political scientist Paul Hutchcroft calls the Philippine elite as “booty capitalists” who prey on the weak state for its rent-extraction.

The sorry history of the Philippines since independence is a reflection of the record of our irresponsible political and economic elite.

Compared to its neighbors, the Philippines is still mired in a
“development bog” and unable to reduce its widespread poverty. The Philippines has earned the moniker of “sick man of Asia”-thanks to its irresponsible elite.

And it’s not the Marcos dictatorship alone that’s to blame. Nearly 20 years after Marcos fell, the elite cannot show substantial progress:the country’s institutions are weak, if not weaker; the foreign debt is ballooning and the country is falling into another debt trap;unemployment and poverty rates remain high; and the country is still racked with rebellion with one of the world’s longest-running communist insurgencies.

Why is the Philippine elite so irresponsible?

Well, compared to its Asian neighbors, the Philippine elite never felt really threatened by communism. South Korea, Taiwan, Japan, Malaysia, Singapore, Thailand and Indonesia at one time or another faced “life and death” crisis fostered by the communist threat.

South Korea, which started out more backward than the industrialized North Korea, had no choice. Its military essentially told the business elite to behave, or else all of them would be overrun by the North Korean communists.

Fleeing the communists, the Kuomintang-led Chinese government settled in Taiwan. As outsiders to the island, the Kuomintang-led government could institute land reform and the ever-present threat of a Communist invasion forced its elite to become responsible.

Singapore was a tiny island with few resources and which faced a communist insurgency. Lee Kwan Yew and Singapore’s political elite battled back by building a strong bureaucracy and adopting many socialist elements (state ownership of key enterprises, socialized housing, etc.) while embracing foreign investments and free markets.

The same story was replicated in other countries like Malaysia,
Thailand and Indonesia. Their respective elites rose to the occasion and led their respective countries to wipe out poverty, strengthen public institutions and develop economically.

On the other hand, the Philippine elite became an anomaly and seemed to follow the Latin American model, unable and unwilling to lift the country out of its quagmire. Rather than acting as leaders, the Philippine elite, true to the rules of booty capitalism, acts more like pirates, preying on the state and the people.

One reason for this is that the Philippine elite felt secure under the protective umbrella of the United States. With the US bases, the Philippine elite could always count on the US military, or so it thought, to rescue it from the communist marauders.

The Laurel-Langley Agreement, which allowed US citizens to operate businesses in the Philippines as a foreign monopoly under high tariff walls, further cemented the symbiotic relationship between the US business elite and the local rent-seeking elite. The US and the Philippines became joined at the hip in weakening the state and promoting “booty capitalism.”

The need for the US to maintain its vital bases here during the Cold War made it also imperative that the Philippine elite be kept divided and unable to assert itself.

Why is it that years after the removal of the US bases and the end of the Cold War, the Philippine elite has retained its irresponsible ways? In fact, the Philippines seems to be replaying its history, with 2004 substituting for 1969. Like in 1969, right after the presidential election, the country is sitting on the edge of civil war, its public institutions are politicized, and its treasury nearly bankrupt.

One reason is what economists call the “economics of increasing returns.” Once a country is on a given path, positive feedback and increasing returns keep a country on the same path. If it’s necessary, for example, for an oligarch to bribe justices, it would be also necessary for the other oligarchs to engage in the same practice to compete, and a sort of an arms race to corrupt institutions develops.

As Hutchcroft puts it, “There has been little incentive for oligarchs themselves to press for a more predictable political order, because their major preoccupation is the need to gain or maintain favorable proximity to the political machinery. Even those oligarchs temporarily on the outs with of the regime exert far more effort in trying to get back into favor than in demanding profound structural change.”

Another reason why our elite is so irresponsible is that many of them shifted to regulated, service industries-banking, telecommunications, power, shipping, airline, etc.-in reaction to globalization. Thus, there was great incentive to the further weakening of the state and for “regulatory capture.”

The archipelagic nature of the country further insulates its elite and makes it oblivious of external threats. The communist threat from the North and competition with its old arch-rival, Japan, tempers the possible misbehavior and abuses of the South Korean elite. As for India, competition and rivalry with its neighbor Pakistan represents a motive force to develop the country.

No such rivalry or threat moderates the Philippine elite’s behavior.

Is there any hope then for the Philippines? Will the Philippine elite ever shape up?