Tuesday, April 06, 2010

Diagnosing Symptoms

A new discovery, UP Prof. Bong Mendoza's blog. Don't be intimidated by the tone of the language (just keep plugging on), this is an excellent summary of what is wrong with the Philippines'...

economic system:
The failures of the Philippine state and politics are highlighted by the inability to sustain and realize a promising economic growth potential (as of the 1950s) when the country was supposed to be second in Asia only to Japan in terms of economic development.  At the core of this failure is inconsistency and incompatibility of economic policymaking with the requirements of sustainable growth since 1946.

...The source of policy inconsistency is identified in the literature as reflective of incomplete elite class differentiation in the country.  For example, as the country’s elite groups are involved in almost all lines of business such as external trade (imports and exports), real estate, commercial agriculture, manufacturing, and finance—there has been for a long time no elite consensus on trade and foreign exchange policy. 

political system:

The country’s political institutions are unevenly developed and are not fully functional even after sixty years of modern statehood...The most glaring evidence of dysfunctional institutions is recent instances of or attempts at regime change through extra-constitutional means.

political motivations:

The intensity of political contests in the Philippines is a function of the fact that the government disposes a significant chunk of resources and exercises discretion over a wide sphere. The premiere political plum is that of the Presidency.  The implicit goal of elite struggles is to control the state’s machinery and resources and skew their deployment to favor specific interests.  Powerful incentives then work to persuade incumbents at various levels to retain power indefinitely in order to protect such interests.  Conversely, turnovers—whether electoral contests or more fundamental challenges to legitimacy, such as attempted coups—may be viewed as chances to attain or to retain political power.

 why investors are shying away:

Further losses apart from those occasioned by rent seeking may arise as investment is discouraged by political uncertainty. In this respect, two potential effects of democratic, decentralized regimes in raising investment uncertainty may be distinguished.  One effect owes to the greater challenge to authority even in periods between regime turnovers—in short, internal uncertainty to investors brought on by the diffusion of power (through the system of checks and balances) even without a regime change. 

...A second source of uncertainty is regime turnovers. This uncertainty results from possibly large changes in policies, ranging from reversals of broad policy initiatives to alteration of contracts. The threat of victory by hostile factions may be viewed as leading to unsettling changes in policies that further raise the cost and the risk of investing. Potential political challengers may threaten to reverse the results of transactions accomplished under the incumbent administration once they come to power.

lack of elite class differentiation leading to an anarchical system of policy preferences:

The possible shift in policy consequent to turnover represents additional uncertainty and a discouragement to investment.  An additional element of uncertainty is offered by the fluidity of the country’s political factions, manifested by the weakness of political parties and the relative lack of party discipline.  Given the heterogeneity of elite groups’ economic interests and the attendant lack of clear-cut policy preferences, changing compositions of political factions may yield differing policy preferences or could simply lead to contract alteration simply because the new ‘ins’ will want to have their ‘cut’ on big uncompleted projects.

the military establishment:

The important role that the military played in the overthrow of the Marcos dictatorship in February 1986 had allowed it to escape its own responsibilities and culpabilities as one of the dictatorship’s main props.  Despite a return to democracy in 1986, the continued existence of a communist insurgency had guaranteed an inordinately heavy influence of the military establishment on the nation’s security policy.

The reprise of the ‘people power’ uprising in 2001 had unfortunately ‘institutionalized’ the military’s role in extra-ordinary and non-institutional regime change in the country...Political incumbents and regime challengers since then have consistently wooed military support and contributed to renewed factionalism and divisiveness within the ranks.  Many analysts are also convinced that the GMA government is dependent upon the military brass for its continued political survival and is captive to the military’s security policy preferences.  What is quite disturbing was the government’s use of the security forces for clearly partisan purposes during the May 2007 elections especially against leftist party list groups.  Thus, what we have is a military establishment that is not modernized and professionalized, still embroiled in internal wars, plagued once more with factions and restiveness, and vulnerable to political pressures and influences.

and local politics:

Following independence in 1946, the continued subordination of the national state apparatus to this multi-tiered hierarchy of elected officials and the expanding economic role of the state in import-substitution industrialization led to entrenchment of political bosses in numerous localities and at various levels of state power.  In some localities, a concentration of land or other forms of proprietary wealth facilitated the entrenchment of political dynasties over successive generations.  At the congressional district and provincial levels, long-time congressmen and governors have relied on state office to control ‘nodal’ economic choke points and key natural resources.  The key to local political control has lain in the accumulation and retention of a preponderant share of resources for electoral success: a retinue of loyal personal followers, money for buying votes and bribing election officials; and coercive resources to reinforce personal and pecuniary objectives.   A modus-vivendi between local politicians and those who aspired for the presidency was established.  Local politicians delivered vote banks under their control to the presidential candidate of their choice in exchange for pork barrel allocations and other patronage resources.

1 comment:

Ryan said...

Great find.

On why investors are shying away, aside from what he's mentioned, an idea I've been fascinated with is the allure of "open and tolerant" societies. According to research done by Richard Florida, there is a parallel increase in economic growth and the acceptance of gay communities.

The basic idea is that the members "creative Class", which Florida believes to be the driving forces of the new economy, are attracted to areas that are open and tolerant. Where the creative class is, so go the companies/investors.