OUR CURRENT situation seems hopeless. Our economic oligarchy is powerful, rich beyond imagination. It controls conglomerates that reach into almost every aspect of Filipinos’ lives, its unassailable position protected by law or other barriers to entry. More importantly, its rent-seeking power provides self-reinforcing means for enrichment and impregnable authority: it can penetrate, influence, and manipulate the weak state and its institutions almost at will. In other words, it can buy off or influence politicians, judges, bureaucrats, and media organizations to thwart change, prevent competition, and extract more economic favors or rent through the weak state.
The state of our politics also provides reasons for hopelessness. Whereas the political class is supposed to be distinct from the economic oligarchy in that the former must at least answer to the people through democratic elections, that has not been so. Cheating, vote buying, and voter intimidation through private armies have undermined the true expression of the people’s will. Also, an almost non-existent party system with politicians changing parties and positions at the drop of a hat undermines democratic accountability.
Moreover, with the amount of money needed now to run for elections, running for office is a rich man’s (or woman’s) game or a corrupt man’s game. Therefore, either the politician must be rich himself and is part of the economic oligarchy or has sold himself to vested interests. Politics has also become a family business. Dynasties rule our political landscape. The interests of the state are subsumed to the interests of the family.
Much hope had been placed that President Aquino’s Daang Matuwid will bring about change. While his moral style has been a marked contrast to the blatant corruption under former President Arroyo, President Aquino has proven himself to be a reactionary, unable and unwilling to make changes to the system of which he’s a product. He was, after all, a congressman then a senator, before becoming president. Political reforms are absent from his agenda. There’s no talk of campaign finance reform, dismantling private armies, eradicating jueteng, banning party turncoatism, or reducing the role of political dynasties.
Forget about revolution. The Left already missed its opportunity with its disastrous boycott of the 1986 elections. Furthermore, the Philippine Left has proven to be a tool of the Right, equating nationalism to keeping out foreign competition and promoting laws like CARP that only enrich the rent seekers in the government.
So, how will change happen then? Is the Philippines doomed to a thousand-year rule by an irresponsible political and economic oligarchy which will resist any reform of its privileges and rent-seeking power?
Change can still happen, although very slowly. Change can happen under the following scenarios.
The threat to the state. This is the circumstance by which almost all countries in Asia got its act together and started their remarkable rise. External and internal threats often spur the state to positive change: South Korea with the threat of invasion from the North, Taiwan from the threat of invasion by communist China, Singapore vulnerable as a tiny nation surrounded by big countries and formerly threatened internally by Communist subversion (read Lee Kwan Yew’s biography), Indonesia threatened by the Communist coup de e’tat in 1965 and where a million people died in the aftermath. Japan, as a thousand year old civilization, embarked on the Meiji Restoration, a revolution that modernized Japan after its feudal backwardness and vulnerability was exposed by US Commodore Perry’s black ships in 1853.
Therefore, the threat of China bullying the country may similarly spur changes internally as well. Narrow vested interests may have to be subsumed as the state tries to strengthen itself in a possible confrontation. For example, the country may be forced to finally amend the Constitution to lift the restrictions on foreign ownership if it’s to join the US-sponsored Transpacific Partnership (TPP). Joining the TPP and moving closer to the US may be needed to get the US as counterweight to China. Japan is already doing so, and has indicated its willingness to sacrifice its powerful rice farmers and automotive lobby in order to join the US-sponsored TPP.
Tail wagging the dog. This is the Shenzhen scenario. Deng, faced with powerful opposition from conservative interests in Beijing, created a capitalist experiment in Shenzhen, then a tiny, undeveloped fishing outpost in the far south. The experiment proved so successful that the rest of the country had no choice but to follow, and opposition melted away.
Can the country have its own Shenzhen? That was supposed to have been Subic with its free port status, but Subic and other free port zones just became havens for smuggling. The ARMM with its economic and political autonomy, could have been a Shenzhen but it failed because Misuari built it on the same corrupt political patronage system as the rest of the country. Will the new Bangsamoro Region be our Shenzhen or will it be another failed experiment? It remains to be seen whether the MILF leadership can use its autonomy to build a region with a political and economic model different from the rest of the country.
A change in political economy. The political economy may change if the local oligarchy or at least parts of it, is forced to become more outward-looking. Why? Because the need to compete in the world market would temper its abuses and the elite would see the need to have a strong bureaucracy, efficient infrastructure, and vibrant domestic industries to compete in the global markets.
For the economic oligarchy to become more outward-looking, it would have to find exporting more profitable than extracting rent from regulated, non-tradable industries (power, telecommunications, ports, shipping, banking, etc.). The key to this is to undervalue the exchange rate, as it had been in other countries like Taiwan, China, and South Korea and to open up protected service sectors to foreign competition.
Change from below. It’s still possible to defeat powerful vested interests in a democracy. Coalition-building, voting, organizing, and protesting through social media or in the streets, legal challenges, and other forms of democratic collective action, given the right historical moment, can force positive change even if these are opposed by powerful vested interests.
Social security, the Sherman Anti-Trust Act, civil rights legislation, the Glass-Steagal Act and other progressive legislation got passed in the United States despite opposition from powerful vested interests. Recently, the sin tax got passed because a broad coalition pushed for it and won despite the power of the tobacco monopolist. Therefore, the way forward is not, as some suggest, to revert to a dictatorship, but to strengthen democracy. Change in the Philippines will be forced from below and not initiated by an enlightened leadership.
Will change happen? If we don’t hope, we die.
Category: rent seeking
What’s wrong with Philippine society is that its economic system is primarily characterized by rent seeking. So, what’s rent seeking? It’s the non-market extraction of surplus or profit. It means the profit is generated from licenses, quotas, monopolies, protection, and other government granted privileges.
It differs from true capitalism where the profit or surplus is extracted from the market, usually through innovations in product or marketing and distribution. True capitalism is dynamic because it results in innovations and increases in consumer welfare. Society benefits as a result. In rent seeking, there’s no innovation, nor additional value to the consumer. Instead, there’s unearned extraction from the consumer. Welfare is diminished.
Rent seeking in the Philippines hasn’t stopped. It just takes new forms.
A vivid example of this is the Feed-in-Tariff (FIT) rate to be given to Renewable Energy Developers under the Renewable Energy Act. Under the proposal of the National Renewable Energy Board, all electricity consumers must pay an additional 12 centavos per kilowatt hour, amounting to 8 billion pesos per year, to subsidize Renewable Energy developers.
Why the need for a subsidy? Because the cost to produce energy by RE developers is much higher than conventional sources. The price for conventional sources (coal, natural gas, geothermal, big hydro) averages about P5 per kilowatt hour while the price to be paid for run of the river hydro is P6.15, biomass at P7.0, wind at P10.37 and solar at P17.95.
The difference between the price of conventional sources and the price to be paid for Renewable Energy must be made up by the FIT Rate, which is really a surcharge on consumers.
Some may ask: shouldn’t the Philippines do its share to halt carbon-induced global warming?
No, because the country’s contribution to carbon emissions is only less than 1% (.48%s). Hence, unlike the rich, developed countries, it has no moral or legal obligation to slow down global warming. Furthermore, the share of renewables in its energy mix is already 32%, much more than the 10% in the US and other countries.
But here’s the cake: Not only are we poor consumers being coerced to pay three times as much for solar energy and two times as much for wind, but in addition the developers are guaranteed a generous rate of return for the next 20 years! No risk on their part, even of technological obsolescence, because that risk has been passed on to us poor consumers who must pay the same FIT Rate for the next 20 years even if the cost to produce solar energy drops by 50%.
The guaranteed rate of return is not the only form of rent seeking. Under the proposal of the NREB, there will be no auction, whether among the different technologies (run-of-the-river hydro, biomass, wind, and solar) or among suppliers within a specific technology. Everything will be negotiated (wink, wink). No competition either on price or on time period (i.e., for a time frame less than 20 years) will be allowed.
Aside from that guaranteed rate of return and the no-sweat, no-competition policy, the developers will be enjoying a seven-year income tax holiday, duty-free importation, special realty tax rate, zero VAT on sales and purchases, cash incentives, 10% tax rate after income tax holiday, and so on.
The high-costing wind and solar energy producers are resisting a dispatch policy of cheapest first because they say that the country must have a “portfolio strategy.” It’s a conceit to think that the government can ever place bets on a particular technology. Should the government have subsidized the pager industry? Or the typewriter industry? The only valid criterion is value for money or efficiency. The market, not NREB, must determine the winners.
Besides, solar and wind are unstable and unreliable sources of energy, dependent as they are on weather and other climatic conditions. They would be poor choices for a diversification strategy. They can never be energy sources for industrialization.
Also, why the rush? A policy of waiting when solar prices are expected to come down to grid parity in five years would better serve the power consumers, but the NERB wants to hand out contracts and lock in the profits of developers for the next 20 years now. We can only speculate why.
Rent seekers usually cloak themselves with noble aspirations to mask their predation. Since the 1950s, rent seekers have raised the lofty banner of nationalism in order to keep out competition and to mask their government granted monopolistic privileges.
Today, the new cloak is not nationalism but “environmentalism.” But it’s the same old predation. Different color perhaps (green), but the same old predation.
What’s disturbing is that the manufacturing sector, already suffering from the highest power cost in Asia, will have to bear this burden in addition to the lifeline rate and other impositions. This is the road to perdition because societies collapse when the productive sectors of society are “taxed” to subsidize the inefficient, non-productive sectors.
The scourge of Philippine society is not corruption per se, but rent seeking. What the NREB proposal shows is that the scourge has not been eliminated. It’s just taking new forms. Pity us poor consumers. We can only say, “Please, moderate the greed.”