Costly mistakes in our nation-building

Big mistakes in nation-building arise out of unwise decisions. Small mistakes that serially get repeated are big mistakes.

I have often dealt with such mistakes in my discussions of policy reforms. Today I will be blunt and talk of them as bad decisions. They cost our nation a great deal of distress and pain. They deter and alter for the worse our march toward economic and social progress.

“Reasons for mistakes.” In general, there are three dominating reasons that explain how a mistake is committed: a bad decision could be the result of (a) wrong reasoning; (b) incompetence; and (c) emotions arising from self-righteous indignation.

It is possible that all three contribute to the making of a bad decision. This convergence would not happen all the time.

Yet, a nation’s political system should be able to insulate the leaders from making such terrible mistakes. In our young democracy, the absence of feedback on the errors that we commit in nation-building, the weakness of the country’s economic and political institutions, the lack of sufficient debate on important issues, and the cult of personality contribute to the failure to make sound decisions that help promote the common good.

Let us draw up a list of these mistakes and discuss why they have proven costly to the nation.

“Restrictive economic provisions in the Constitution concerning foreign investments.” I have put this problem as the most costly blunder in our nation-building. I did write about it about two years ago, and the essay is reproduced in my book, Weighing In on the Philippine Economy and Social Progress (Anvil, 2013, pp. 186-7).

Large economic and political interests benefit from mistaken policies, for they acquire more power from the benefits that they derive. Hence, any moves to rectify mistaken policies could be thwarted by these interests. This is one reason why it is difficult to change the said constitutional provisions.

For a while, there was a strong move in Congress to undertake a reform of these economic provisions through “charter change” (cha-cha). This economic cha cha, however, is now under some jeopardy.

The recent indication that the president now is partial toward seeking a second term of office requires cha-cha to amend the political provisions on term limits. This development inevitably snarls us back to the political cha-cha as the trade-off toward getting an economic cha-cha.

Thus, the reform on economic provisions is held hostage again to political developments.

“No to nuclear power.” The decision to scuttle the nuclear power project was the result of self-righteous outrage of the new president. Cory Aquino associated the nuclear power project with corruption. And the object of hate was Marcos.

The nuclear power project cost the nation some US$1.2 biliion dollars at its cost then. It was thought to be over-priced and large commissions had changed hands. To demonstrate moral outrage, the project was discontinued. The cost of the decision impoverished the nation in several respects.

For one thing, the investment was associated with foreign debts incurred to finance it. Eventually, these debts had to be paid out of the nation’s coffers. That decision burdened us with enormous debts without a single ounce of new productivity (no electrical output).

Hence, it reduced the nation’s capacity to service its debt from this act alone! It also plunged the nation into a power crisis over a prolonged period, the nation’s economic inefficiency rose.

The economic loss from this mistaken decision is a large multiple of the cost of the project. There was economic loss from this mistake in terms of year-to-year output (or GDP) forgone.

Then compare it to the investment already made. It was stopped when it was ready to be commissioned for service! Therefore, it was almost ready to go. The economic loss to us was certainly a grand multiple of the investment cost.

The investment cost to us was real. It was sunk investment. By Cory Aquino’s decision, we had to continue servicing the loans incurred in the project and swallow the other expended construction costs as lost

Yes, other reasons could have provoked the decision – safety, cost, Three Mile Island, Chernobyl. Other countries with nuclear power projects knew better. They tightened their safety requirements (as we did.) The wrong calculus of welfare for the nation was used.

What have we got to show, because of the Cory Aquino decision? It’s not only the empty shell of a wasted investment in the power structure that lies today in Bataan. We got the 1990s energy shortages that cost the nation a lot of foregone industrial progress. In part because of high power costs, many foreign investments have gone to tour neighbors in Southeast Asia.

Moreover, we wasted practically the whole six-year term of a very able president, Fidel Ramos, who spent most of his time repairing the damage left behind by the energy deficiencies that the country suffered. Because he had to cure the problem in the shortest possible time, he got us into fairly high cost contracts for generated electricity that was made available to the nation.

“Our nuclear neighbors.” At the start of the nuclear power project, we were alongside major countries that embraced nuclear power as a source of electricity at the time. In our region, South Korea, Taiwan and Japan initiated their nuclear power projects after the energy crisis during this period.

It brought to their industries higher technological sophistication. Their manpower complement in engineering and scientific capacity rose toward a new level.

Today, China is on a high course of nuclear power development along with other energy projects. The dogged determination of Iran, a country with enormous supply of petroleum and gas resources, to have a nuclear industry can be gauged in part by the leap in technology that this industry would bring to this nation.

If only Cory Aquino did not make the mistake concerning the nuclear power project in 1987, we would be dependent on nuclear power on a broader scale today, like Taiwan and South Korea, now two very highly developed countries, whose growth paralleled ours during the early post-war years.

Possibly too, we might have followed a different path toward progress. Such experience could have also induced us to become much more competitive economy.

My email is: [email protected]. Visit this site for more information, feedback and commentary: http://econ.upd.edu.ph/gpsicat/