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It’s RP’s Failed Protectionist-Welfare System, Stupid!

March 6, 2013
Poor boys vs. school boys.

Poor boys vs. school boys.

This is how the country’s mainstream journalists or elite media see the issue of inequality or inequity: they apparently believe that the problem is something that can be legislated or solved by our politicians.

Of course, inequity problem in the Philippines is both political and economic issue. It is political because it is our system of politics that primarily causes inequality or widens the income gap between the rich and the poor.

But allow me to stress that I am not not part of the elite or mainstream media. I am just a blogger– a social critic. My haters call me “armchair intellectual”. I actually take that as a compliment. Unfortunately, there are a lot of politically clueless people who use the word ‘intellectual’ pejoratively without realizing that every thing we do requires intellectual efforts. It requires the use of human intellect. When you sit down at your working table and try to solve a particular problem, you have to rely on your mental efforts or on the functioning of your brain to get the job done.

Social problems, like inequality and widening income gap, is an intellectual issue. You don’t need to be a professional journalist or a popular economist to talk about it. You only need to have proper grasp of politics and economics and to objectively know how these concepts are applied to the real world.

In her latest op-ed titled ‘It’s the Equity, Stupid’, Marites Vitug, a mainstream journalist, talks about certain statistics and figures pertaining to equity.

She profoundly believes that “personal network” (probably a system of volunteerism) “can help reduce inequity”. Yet she adds: “But the more significant contribution should come from our policy-makers.”

How does she define equity? 

She writes: “Equity casts a wide net and covers gut issues such as access to health, education, jobs, business opportunities and political participation. Equity applies to big, medium, and small businesses by providing a level playing field for all. Equity means opening up the political field to non-dynastic, un-minted but meritorious names.”

Very clearly she talks about people’s access to certain services perceived by policymakers and academics as “necessary”. She also talks about leveling the playing field for all. How? She fails to elaborate.

Her definition also includes equity in the field of politics. That is, about giving others a chance to be in politics or to serve the public.

Still, I’d like to know where Ms. Vitug is coming from. She’s part of the makers and movers of public opinion in the country. I need to know how she thinks and views things and issues that affect the people’s lives.

Then she quotes socialist lawmaker Risa Hontiveros who’s so concerned with people’s access to health care: “Candidate Risa Hontiveros said it well in a recent forum on health: “It’s time to look at Part Two of the promise of Matuwid na Daan – the issue of equity. The dividends of the Daang Matuwid should also go to improvements in our health care.””

Vitug does not merely want healthcare; she also wants people’s access to “credit system, access to information, political system, and various other pressing problems”.

Vitug writes: “While she recognizes the gains under the Aquino administration such as wider coverage of Philhealth (85% of our population are covered), Hontiveros advocates scaling up government spending for services in public health facilities.”

I say: No shit, Sherlock! Every government program requires government spending. Welfare services do not grow naturally on trees. They have to be funded and made first, and then delivered or redistributed to their intended beneficiaries.

Her premise becomes a bit clearer when she talks about a small farmer or entrepreneur who “cannot borrow a few thousand pesos from a government bank to grow his livelihood.”

What Vitug wants is not merely an easy access to healthcare and other services, but also people’s adequate access to government banks.

Then she talks about our Asian neighbors that addressed the equity problem through ‘things’ she fails to properly define. How did these countries (Malaysia and Thailand) fix the problem? Unfortunately, she does not elaborate.

She then writes: “This gap between the rich and poor in our country is always visible, especially to foreign eyes. An American fund manager who lives in Southeast Asia and visits Manila occasionally is always struck by the glaring disparities in wealth here. It seems like a cliché but Forbes Park and Baseco are the contrasts that catch the attention of foreign guests.”

What made this gap between the moneyed and the least advantaged? She provides NO specific answer. She just wants our policymakers to fix our equity deficit. How? Perhaps through more government actions, policies and intervention.

What Vitug fails to include in her article is the very basic economic-constitutional explanation on how we eventually got here. It’s not really surprising why she fails to explain what causes the gap between the rich and the poor. This is actually the style of most mainstream journalists, writers and academics. They try to show you a particular social, political or economic problem without telling you the root cause of that problem.

Like I said above, the equity problem is both political and economic. At root it is constitutional. It is our Constitution that primarily sets the political and economic direction of this country. Read the 1987 Charter. It will give you the basic idea how we got here and why we have very low foreign direct investment, high jobless rate, and poor, struggling economy.

Perhaps you might need to compare the Philippines with our Asian neighbors, like Japan, South Korea and Singapore.

What made these Asian Tigers richer and more developed?

Neo-Malthusians from the University of the Philippines and other ‘elite’ universities would probably tell you: “It’s their declining fertility rates and very low population.”

That very crude explanation might give our college students the fallacious idea that all we need to do is aggressively curb our population to be progressive like Japan and Singapore.

The truth is, that neo-Malthusian view is absolutely NOT true. It is fallacious! It is not supported by empirical evidence and proper economics.

Others might urge you to look at the Asian tigers’ higher level of economic freedom. True enough, Singapore, Japan and South Korea continue to attract foreign investors because of their established institutions of economic freedom, namely, rule of law, property rights, freedom to trade, openness to foreign participation, freedom of contract, stable monetary system, less regulations, etc.

What makes Singapore and Hong Kong the top two freest economies in the world? It’s their openness to foreign investment and participation, minimal welfare, fewer regulatory structures, freedom to trade and to contract, and property rights.

The leaders in these enlightened countries clearly understand the role of foreign investment in building their economies. This is why Singapore Prime Minister Lee Hsien Loong once said: “We have started with very minimal welfare and we’ve gone on the basis of growth and high employment and low unemployment. If you’re out of a job you can find a new job. You will get help but the help is not something you’re absolutely entitled to. We have to adjust that without going overboard and ending up where the Americans are or the Europeans are or where the New Zealanders were.”

Loong was talking of too much government intervention by the policymakers in the United States and New Zealand.

So, basically the Asian tigers’ constitutions establish “limited” welfare and more economic freedom. The Philippine Constitution, on the other hand, establishes a higher degree of welfare state, protectionism and a lower degree of economic freedom.

It is our protectionist laws– the 60-40 law, other forms of restrictions, too much regulations, unpredictable economic policies, and anti-business judicial decisions– that discourage foreign investors from joining our economy.

This particular matter or issue is unknown to many Filipinos. In fact, most Filipinos are unaware that we totally ban foreign professionals from practicing their professions in the country, which is a blatant violation or breach of the international principle of reciprocity.

Since we limit foreign investment and professional participation, we also limit the transfer of technology, knowledge, products, skills, services, etc.

Saudi Arabia, for instance, is fully aware of the positive impact of openness to foreign investment and participation on technology transfer and economic growth.This is why the Saudi government is determined to upgrade to TRIPS-plus (Agreement on Trade-Related Aspects of Intellectual Property Rights) through multilateral and bilateral agreements with developed nations (e.g., USA and EU) to attract TECHNOLOGY TRANSFER and more foreign investment to boost its pharmaceutical, technology and petrochemical industries.

To think that Saudi Arabia is an oil-rich economy and never a third world country. The Saudi government clearly understands that its future lies in acquiring technology, knowledge and skills from foreign sources. It is not worried about too much foreign dominance or participation.

This is actually what the Asian Tigers did in the past. Our developed Asian neighbors started to open their economies to global trade and to liberalize their economic laws and policies from late 1970s and 1980s. By contrast, the Philippines chose to maintain its protectionism, welfare state and higher regulations with the passage of the 1987 Constitution.

Since the expiration of the Parity Rights policy in 1974, the United States began to trade with our Asian neighbors, leaving us in the cold. How did we reciprocate America’s trade relations with us? We spat on them, calling them imperialists, evil, and looters.

The United States had no choice but to trade with Japan, South Korea, Singapore, Malaysia, and even China.

Over three to fives decades ago, the Philippines was economically freer and more open to foreign trade compared to its neighbors. Just think of China that literally closed its borders to foreign trade during its red era. The first wave of economic reforms only came to China from 1979 to 1984, wherein economic reforms were aimed at revising the socialist country’s foreign economic relations. And then everything changed in 2001 when China joined the World Trade Organization to officially become a Corporatist state.

A lot of Filipinos have this nostalgic attitude and mentality to look at their old good past and say: “A long time ago this country was economically great and stable… Today, it’s called the sick man of Asia.”

But what made our formerly great fatherland sick? It’s our welfare-statist mentality!

In my own humble opinion, we were economically strong in the past due to the following reasons:

  • The United States was still our main trading partner in Asia.
  • During the post-war era the Philippines was one of the freest economies in the region.
  • Other Asian countries were still struggling. Soon these struggling Asian nations learned from this socialistic economic past and began to compete for foreign trade and investment.

Our pre-1986 economic past was pockmarked with stripes of economic liberalization and stains of  protectionism and welfare politics. However, things went from good to bad following the passage of the 1987 Constitution. Instead of embracing economic freedom, our Constitution drafters and past leaders upped our level of protectionism and welfare state.

The 21st century marked a heightened period of intense global trade due to technological innovation/advancement, economic liberalization, economic integration of nation-states, e-commerce, and continued knowledge-based industrialization. The Philippines failed to compete due to its protectionism, semi-closed economic policies and intrusive regulations.

Our system of politics gave more political protection to the country’s oligarchs and cronies-owned industries. These cronies-by-law and oligarchs-by-system cornered most of our industries (e.g., the power sector, telecommunications, transportation, education, healthcare, banking and finance, etc).

Our protectionist-welfare system trumps real, genuine market competition, causing chronic joblessness, increased prices of basic commodities (electricity, telecom services, Internet service, etc.), and economic stagnation.

Now, don’t talk about inequality without tackling the root cause of the problem. There is increasing gap between the rich and the poor because the corporate elites or oligarchs have been swallowing the country’s wealth.

Why are they swallowing the country’s wealth? It’s because of our protectionist Constitution.

I wouldn’t mind if foreign investors and professionals become part of our economy. Filipinos are allowed to invest and to practice their professions abroad (e.g., in the U.S., U.K., Singapore, Japan, Saudi Ariabia, U.A.E, etc.), why can’t foreign investors and professionals do the same thing here?

The purpose of economic freedom is not to make us more wealthy, because that’s a funny thing to talk economics. We need to embrace economic freedom or liberalization to give the people a better chance. Without that chance, you cannot expect them to improve. This is why most Filipinos dream of working and living abroad. Observe that poor and even less educated Filipinos who migrated to freer economies, like the United States and Canada, were able to establish a better life. The best explanation I could give is: it’s because they’re given a better economic chance. This ‘chance’ I’m talking about pertains to an elaborate, complex network of thriving, competing industries, businesses, ventures and economic activities that exist– and are allowed– only in freer economies.

If you’re so afraid of foreign collaboration or involvement, here’s my friendly advice: stop talking about solving inequality! You can’t solve this perennial problem by keeping our failed status quo and giving more coercive powers to the government that actually caused the country’s economic mess.

Now, the main problem with the media elites and academics is their utter failure to properly understand the concept of equality/equity. Whenever they prattle about ‘inequality’, they talk about equality of economic results, not equality before the law. The first pertains to government-mandated income or status equality regardless of the people’s ability, degree of intellect, knowledge and skills. Their purpose is to make things that are metaphysically unequal equal.

Their social scheme or advocacy is pretty clear for wise men to see and understand. They demand equal results from unequal causes—or equal rewards for unequal performance.

In the field of economics, their call for more economic equality means aggressive redistribution of wealth. They damn the rich for being rich and successful, while they call the poor victims of uneven sharing of social wealth. Their solution is more government intervention. Yet in the Philippines, the widening gap between the rich and the poor is caused by our failed politico-economic, corporatist system.

The real solution to inequality problem is to make every citizen or individual equal before and under the law. The government should be limited only to the protection of individual rights. It should not have the power to redistribute wealth– both to the poor and the corporate elite. The mangled economic principle that justifies the giving of subsidies and behest/political loans and protection to the corporate elites and oligarchs is just the same as the social justice principle that empowers the government to redistribute wealth to allegedly serve the welfare of the poor.

Unknown to many, our failed, corrupt system of politics has two major beneficiaries:

  • the political and corporate elites (e.g., cronies, oligarchs, politically connected businessmen, etc.) who enjoy government subsidy, loans, guarantee, and any form of political and financial protection. 
  • the country’s poor who receive conditional cash transfer (CCT) money, PhilHealth benefits, food stamps, or any form of tax-paid government services.

It is very ironic that the media elites and academics, who publicly demand more equality of results and denounce the country’s one percent, work very hard to preserve our failed politico-economic system that maintains the power of the corporatists and widens the gap between the rich and the poor.

The do-gooders’ corrupt and intellectually bankrupt statist solution is to make more Filipinos dependent on the government. ‘Give the people more public alms’ is their battle-cry. How can they possibly solve inequality by institutionalizing a culture of dependency and by giving more coercive, intrusive powers to the government, which is actually the main source of social inequality?

A government-owned bank with the pretentious social mandate to purportedly give chances to the poor would end up giving subsidies and public money to the politically connected rich and cronies. Worse, it could also end up bankrupting the entire economy and causing great social misery like government-owned Fannie Mae and Freddie Mac did in the United States.

The best solution to inequality is to limit the powers of the government. That is, downsize our system of government, limiting it only to its rights-protection role. Instead of being in the business of giving loans, the government should privatize all state-owned banks and industries, allow foreign investors and professionals to be part of our team, cut taxes, abolish regulations and economic restrictions, and combat corruption. In fact, a limited government system is the best cure to public sector corruption.

One Comment leave one →
  1. April 19, 2013 3:38

    “Our system of politics gave more political protection to the country’s oligarchs and cronies-owned industries. These cronies-by-law and oligarchs-by-system cornered most of our industries (e.g., the power sector, telecommunications, transportation, education, healthcare, banking and finance, etc).” ~ The biggest hole to our country’s flat tire constitution.

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