Thursday, January 21, 2010

Unpacking the Panaderya of Noynoy

In today’s address to the Makati Business Club, presidential hopeful Noynoy Aquino unveils his “economic vision and platform.” Let me unpack some of his key points.

First and Foremost, Democratic Principles

Aquino underlines the importance of the sanctity of the ballot in order to gain a true mandate from the people. He also makes a direct relationship between mandate and accountability.
"We must now become a government committed to accountability. A government that works with the people in achieving long-term change."

Where mandate might be the currency that flows from the governed, accountability is that which flows from those who govern. Above all else, this two-way relationship is the bedrock of any democratic polity. So far, so good.

Roadmap from Serfdom to Capitalist Development

Aquino makes a painful, if obvious observation:
"We must make the shift from bare economic survival to robust economic growth.”

And asks difficult questions:
"Why can’t we progress? What is it in us that limits or prohibits our growth as a people and as a country?"

He then goes to acknowledge that the Filipino is poor:
"We have a growing underclass that statistics tell us have given up looking for work. A permanent underclass that includes the five million of our countrymen that are illiterate, which means their opportunities in life will always be limited to living hand-to-mouth."
Aquino’s vision of society is one which corresponds with many ‘developed’ countries in the world, that is, those that have transitioned from an agrarian-based economy to that of a full capitalist society.
"In every developed, progressive, prosperous democracy, it is the middle class that is the biggest class."
So how does one transform the Philippines from a country with a permanent underclass to one with a large middle class? He hints to some answers by mentioning the following: creating a level playing field for enterprise, putting to rights public finances and rationalizing the agricultural sector.

Indirectly he asserts the correct functions of government vis-à-vis business – an enforcer of transactions and a provider of public goods (i.e. infrastructure):
"We will encourage free and fair competition in a level playing field. One not need be a crony in order to succeed in the field of business. More importantly, government will not compete with business. Nor will government use its regulatory powers to extort, intimidate and harass."
In short, Aquino promises a government that does not seek rents. Others have accused the Arroyo administration as "predatory."

He then makes an important point, something which deserves careful unpacking:
"There is a widespread perception that success in the business milieu can almost be directly correlated to your closeness to the powers-that-be. Because of this, some players in the industry are forced to focus their activities on maintaining relationships in order to retain the favors that they receive in exchange for cultivating that relationship. This has fostered the wrong kind of competitiveness. While it may work, locally, for now, it has not enabled these players to become competitive in the world market, where the rules of the game do not take special relationships into consideration."
This acknowledges that local business interests have prospered not because they are able to provide competitive (i.e. the “best”) goods and services but because they have the political connections and know how to pull the right strings. The incestuous relationship of government and certain business interests forms the core of patron-client relationships which shape the country's economic system. This rent-seeking government is the opposite of Aquino’s envisioned model – government should play the blind contract enforcer and provider of public goods. Businesses which prosper, in Aquino’s ideal, are those that do because they are competitive.

And here Aquino makes another crucial point that should be of importance to any country that wishes to make the transition from an agrarian economy to that of a mature capitalist economy – the ability to create local enterprises that will be able to compete in world markets. The road to capitalist success, as demonstrated by the experience of many other countries in the last few centuries, is the ability to create a viable domestic market and to export goods (not people) to other countries.

Probably because he is addressing the business community, he uses a conflict-free metaphor to describe the societal relations of his future Philippines:
“I’ve always used the analogy of a small panaderya to demonstrate how our approach must change….In a small-scale operation it is easy for everyone involved to visualize that entity as the combination of their collective efforts. As opposed to, say, when you are a bigger firm, and there is the management side and there is the labor side. In Tagalog, it’s even more dramatic. Kayo at kami, sa halip na tayo.”
I do not know if I am reading too much from this, but I suppose it shows a realistic view as to what the transition from tradition to modernity entails – some people will have to make sacrifices but changes have to be made. The small-scale operation versus big firm analogy acknowledges we will be starting pretty much from scratch. As far as public resources go, there will not be a lot to go around in the beginning (hence the conscious choice not to underline the conflictual capital-labour problematic of any capitalist economy).

Here I had hoped to hear more about social services and social spending, but I suppose this was not the audience to tackle such. In Aquino’s model, does government provide targetted social spending to catch those who might fall through cracks?

Further, is he operating on the assumption that Markets allocate best? If so, this is a dangerous assumption to make.

Yes, Money is the Lifeblood of Governments: Public Finances

From what I gather, Noynoy is something of a fiscal conservative. He promises no new taxes, so how does he propose to finance government? He points to more efficient tax and duties collection and curbing tax evasion and smuggling.

He then says he favours "universal low tax rates” rather than a progressive system (i.e. big income = big taxes, low income = low taxes). My knee-jerk reaction is that this goes against the fiscal principles of many developed countries. Even the most cut-throat (i.e. ‘competitive’) model of capitalist economies, the United States, usually taxes the rich more (although less so in the last thirty years).

I do not know what to think about this. I will ruminate and get back to you.

His Job as a Member of Congress and the Role of legislature

In response to the question of what he has done, he responds that many proposed laws do not a good legislator make.
"Our problem is the lack of political will to faithfully implement the many world-class laws that our legislature has passed."

His priorities as a legislator were in strengthening the capacity of Congress to reign in the Executive. My read on this part is that he was interested most in the watchdog function of the legislative.
"It is in addressing this problem that I focused on the fiscalizing aspect of a legislator’s job – on Congress’ oversight and investigative functions."

He then mentions some Executive-driven projects – NBN-ZTE and SCTEX. If Congress had only performed its watchdog functions better, such large-scale corruption scandals would not have occurred in the first place.

I will agree we already have many good laws and they all look good on paper. Those who say he has not done anything tend to hammer him on his legislative output. I think he should do a better job of explaining to people that a lawmaker's job isn't limited to drafting bills.

His Job as President and the Role of Government

He hints at his views on leadership and what it means to be President, then makes a pointed dig at the incumbent powers-that-be:
"As I said when I accepted the people’s draft, the job of chief executive is about the efficient allocation of resources. If you have hogged those resources for yourself, if you have lied, cheated, and stolen to gain power, how can you be trusted to lead the transformation our country needs?"

Let me unpack some crucial points he made about the role of government. His are moderns views on the role of government and the role of chief executive. He sees himself as mere resource-allocator. "Resoure allocation" is, of course, a highly political process and I hope Aquino acknowledges such. As president he will come under tremendous pressure as various interests will constantly tug at his sleeves to curry favours.

Given his record so far (not a whistle of misdeed or corruption), yes, I think we might count on Aquino not using his office for personal gain. His ability to control his government to do the same will perhaps be his greatest achievement. It is a worthwhile endeavour. I hope he has a gameplan on how he will do it because there are many, many entrenched interests who will do all they can not to upset the status quo. Business interests who are profiting handsomely under the current set-up, will probably not take kindly to "leveling the playing field."

And "leveling the playing field", such a harmless-sounding term, will entail superhero-level political will. If Aquino delivers on this promise, it might arrest our descent into Fourth World status.

Public-Private Partnerships and the Size of Government

He hints the kind of public-private relations when he talks about developing public infrastructure:
"It is time that our infrastructure agencies and LGUs transform into cooperative ventures with the private sector by bringing forth an agreed public infrastructure program, based on a cohesive plan that optimizes the value of the entire network…Initially we want our infrastructure program to transform from being the means to enrich a few, to being labor-intensive and biased for employment as a means to pump-prime the economy."
Here he shows an understanding that government spending (in providing infrastructure) has not necessarily brought efficient public works (roads, bridges, mass transport). The assumption is that partnerships with the private sector might curb inefficiency. Because government spends on building roads and bridges and manning mass transportation systems, then government employs people.

The ideal in modern economies is that government ought to leave the private sector to provide employment. I think it safe to assume that in Aquino’s philosophy, the bureaucracy ought to be a lean, mean fighting machine.

What about the couple of million civil servants rubber-stamping their way to retirement? Swim you wretches, swim!

Agriculture: An afterthought?

He only says that there is a need to review programs of the Department of Agriculture and to eliminate leaks and ensure the efficient use of resources. I am not happy with Aquino’s points on agriculture. Land reform is crucial on the road from Serfdom. Capitalist development hinges first on unlocking productivity of the land.

Is it a conscious effort to downplay agriculture because of Hacienda Luisita? To me, this would be a huge mistake. Agriculture still employs majority of the labour force. It is a hugely important policy issue and deserves to be discussed in further detail. Perhaps the Makati Business Club pow-wow isn't the place to do it. When will he schedule a talk with farmers?

A Country that Works

Last, Aquino's vision of the Philippines is deceptively simple. He does not promise "first world status by 2020." Instead he promises to deliver a functional society, one in which institutions (both organisational and ideational) work as they should.
"We must find a unity that transcends the divisions of today, based on a shared commitment to transforming our country into one that works: One where traffic flows well, garbage is collected efficiently, crimes are solved, justice is served, and our kids are educated properly. It works in the sense that you do not have to flee the country to move up in the world, improve your lot in life, and rise to the highest level your personal merits can achieve."
My verdict

Aquino has a specific vision of what he wants for the Philippines. His views on the role of government vis-a-vis the economy is very modern. I do not entirely agree with it, especially some statements hinting at what could be a naive view of the "contract-enforcing" state. There is little mention of welfare and the state's role in disbursing non-infrastructure public goods.

In all, his vision's success rests on entirely on the will to shoot some entrenched interests in the face. Maybe even his family's. If he could do it, my hat's off to him.