The worst long-term policy mistake in the nation

If President Benigno Aquino III has made an impact on the nation during his early months in office, it is by initiating behavioral change within the government. There were signature acts from the day of his inauguration demonstrating leadership by example: walang wang-wang, prohibition of the use of political names in signs involving public works projects; getting the right revenues from the existing tax laws, and so on.

Sustaining this effort requires enormous discipline. Could he keep it up – from him to his lower officers – when the day to day problems of governing consume their work and the prospects of reelection knock on their doors?

Without introducing any new policies, it is possible to make a big difference simply by making the government perform its job more efficiently and making its officials accountable for their actions. Without using extra resources, gains in productivity could be achieved for the nation.

But when he says in his announcement in the State of the Nation (SONA) address that he will rely on “public-private” partnerships to fuel his program of government he treads on inadequate grounds. He needs the help of a vision for economic change that is missing in his message to the Filipino people.

There is little that is new in “public-private” partnerships. It is simply newspeak for an old idea. Such partnerships could work if accompanied by reforms that reduce barriers to the entry of capital in various parts of the economy.

But how is the nation to be protected against the machinations of monopolies, cronies, cartelized secret deals, favored allocations, political party accommodations, and kamag-anaks? The best way to deal with these prospects is to enable a wider field of competing proponents under conditions of transparency. The market has to be helped so that it introduces competitive actions by those who get ensnared into the public-private sphere of partnerships.

The one thing missing in President Aquino’s program of government is the lack of vision of the reforms. Nothing has been said in that direction.

After years of economic reforms pursued by many government administrations, the list of deep and difficult reforms is no longer long. But the few that remain are very difficult to deal with. But these remaining ones are so politically explosive that he needs to risk his political capital to attain the good life for the nation.

Whether his inaction on this front is due to a different set of beliefs or he is still in the stage of early education about our needs as a nation, I am not sure of. It might mean that the right advice is not reaching him.

What I am sure of is that if he tarries too long he might find that time will slip by and that the enormous political capital that he has acquired after the election will have dissipated by then. Witness how such capital is threatened already by petty political controversies that early decisions in the government have often caused him to explain. Notice also how the Hong Kong hostage crisis has threatened the tourism program.

The nation’s early founders emphasized the negative – that foreigners could expand their industries at the expense of Filipino enterprise. I say – this should have been said before but it still needs great hearing today – foreign capital will make it possible for Filipinos to have a meaningful participation in their own economy. Foreign capital will energize domestic capital rather than swallow it. Foreign capital can be a great supplement and complement to the uses of Filipino capital in our investment efforts.

A living nation surpasses the lifetimes of its citizens. Each generation of citizens is just a passing scene in the long haul of history. But some generations contribute more to a nation’s push to greatness. And others help to shackle or slow down that progress and that of following generations.

Here is a major historical teaser: Which generation of Filipinos is to be blamed for our long term poor economic performance? More appropriately, the question might be recast: What generation of Filipinos erected the barriers that made it difficult to enact laws to attract the needed capital that our neighbors had little effort in attracting to come to their shores for their own needs?

The answer to this question is a game that pundits and other analysts play all the time. Their answers are as varied as their perceptions and persuasions.

Some analysts emphasize the self-destructing politics of the nation, in which case it is the fault of many generations. Others highlight the lack of attention to agriculture and the low implementation of land reform. Still others emphasize the opposite, bad industrial strategy: lack of protection to new industries. Alternatively, they say it is the excess of protection that killed the incentives to compete.

Others emphasize extreme nationalistic laws that complicate the legal and business framework and incentives. Others will emphasize colonial mentality or dependence on foreign advice! But still others say corruption. Still others would say the high population growth.

To go more visceral and personal, some would say Marcos. Or crony capitalism. Or Cory Aquino’s bad decision on the nuclear power plant! Or bad leaders in general.

In my view, the biggest mistake posed on the Filipino people’s progress was the masterwork of the do-gooders of our national politics during the fight for independence. They achieved a great goal of instituting the political institutions for our independence as a nation.

But at the same time, they denied us with the weapon to make a successful attraction of the capital that we needed to develop and promote industry. In short, they gave us strong ideals of future nationhood but left us with a defective weapon with which we could obtain economic independence.

It was they who, in 1933, proposed the economic restrictions in the Philippine constitution that legislated almost for all time – these provisions remain to the present and further enhanced by the 1987 constitution – definite laws on the manner we would treat foreign capital participation in the economy.

Without belaboring this point at the moment – and this is one of the major points that I will delve upon as I go along – the provisions of the constitution encapsulated many rigid principles of economic nationalism that became our undoing as we developed the policies and frameworks for our future progress as an independent political entity.

The reader who wants to get deeper to the issues raised here could read what I had written in the Philippine Law Journal, December 2007. In that issue, I discuss the “Legal and Constitutional Disputes and the Philippine Economy.” In the future some of the points discussed in this paper will be discussed briefly.