Capitalism and inclusion under weak institutions
October
21, 2018 | 9:56 pm
Introspective
By Romeo L. Bernardo
One could not have thought
of a better title for the latest book of UP Economics Professor, former Dean
and National Scientist Raul Fabella, a deceptively slim volume (120 pages) but
a real heavyweight. It has amazing sweep and depth on what ails our economy,
and provides possible solutions, cogently pulling together literature and
research on what has worked here and elsewhere.
There is a reason why we
have only one National Scientist in Economics (possibly all the social
sciences). Professor Fabella is without peer in profundity and originality of
thought. And in the elegant and compelling way he explains these ideas.
I have been a fan of Raul’s
writing since we, then strangers, met as fellow travelers and Pinoy graduate
students at a bus station in DC in 1976. He would write long letters to his
friends (in paper and ink, pre-internet) on his observations of US society and
academic life at Yale University. It was a correspondence I could not sustain,
being more inclined to be lateral than literary. (The best I could do was send
him postcards of Williams College I sent everyone. )
Fast forward to 1998, my learning
from Raul would resume as our paths crossed again in lively social dinner
discussions with like minded academics, former public officials and private
professionals united in advocating good governance and market-oriented reform.
This would later metamorphose into the Foundation for Economic Freedom (fef.org.ph).
Its founding members included, among others, Mahar Mangahas, Philip Medalla,
Calixto Chikiamco, Alex Magno, Simon Paterno, Cayetano Paderanga (+) and
Francis Varela (+).
In honor of Dondon and
Francis and their life’s work in doing public good and advancing our common
advocacies, our current President, Toti Chikiamco and Chairman, Bobby de
Ocampo, initiated the Paderanga-Varela Memorial Lecture, now on its third year.
The last two lectures featured FEF Fellows Dr. Vicente Paqueo (“Does Ending
ENDO Contribute to Inclusive Economic Growth”) and Dr. Art Corpuz, (“On a
National Land Policy in the Philippines”).
Later this month, Professor
Raul Fabella will present his book’s findings and recommendations. Just a
sample of my favorite takeaways:
1) Crisis of Inclusion in
Capitalism: Poverty Incidence vs. Income Inequality. The overarching problem of
the Philippines is poverty, not the income inequality of Piketty that has
become banner of the Trump and Brexit nativists and their counterparts in other
rich countries. The two are not the same, nor are their solutions. This is well
illustrated in the case of China under the leadership of Deng Xiaoping where,
thanks to market-oriented reforms, “poverty incidence has been reduced from 64
percent in 1990 to 4 percent in 2015, even while income inequality (measured by
the Gini ratio ) rose from 31 percent to 42 percent.”
2) Taming Overreach: “The
genius and heresy of Deng Xiaoping was in recognizing that there are spheres of
provision other than the state and that these can do better than the state in
many domains. The state, however strong, may be overreaching, that is operating
beyond its domain of competence.” Professor Fabella’s (and my) favorite case in
point of how private sector can do better in social provision and inclusion is
the highly acclaimed MWSS Public Private Partnership. He wrote a chapter on
this in the Asia Foundation book Built on Dreams, Grounded in Reality
(downloadable for free in this link — http://regulationbodyofknowledge.org/wpcontent/uploads/2016/08/BuiltonDreamsGroundedinReality_AsiaFoundation_2011.pdf).
3) The Impulse for Size:
“One very salient feature of current Philippine economy is the unmistakable
presence of conglomerates competing in many markets….The vent for size is more
urgent in weak governance environments (such as the Philippines’).” I have had
direct learning of the built in advantage of bigness when my late father left
me a few hectares of land not too far from what has become Metro Manila, which
would have been ideal for mass housing. My enthusiasm for developing it was
quickly doused from step one by the difficulty of enforcing my ownership rights
against illegal settlers. I happily sold to a major developer, part of a conglomerate,
which has the knowhow and connections to solve this, navigate government
permitting labyrinth and dealing with “revolutionary tax collectors.”
4) Conglomerates and
Inclusion: “Do conglomerates contribute in a positive way to inclusion in its
normal profit-motivated way? The answer is ‘Yes.’” Professor Fabella then
proceeds to illustrate how conglomerates have done this in various fields, from
telecom, water provision, tertiary education, not to mention through their
Corporate Social Responsibility (CSR) Initiatives.
5) The Way Forward: “Rather
than threaten to shackle the conglomerates in our midst, we should re-channel
them to the Tradeable goods sector, such as food production, or towards the
segment of the Non-traded goods that is ancillary to the Traded goods
sector-power generation.” And I may add, create more room in Public-Private
Partnerships in other infrastructure needed to support our global
competitiveness — airports, seaports, mass transport and telecommunications.
Picking up on the last
item, from what I know of the sector as a Board Director of Globe Telecom, the
controversial proposal to limit the number of telecom tower operators to only
two is a case of overreach. It is also anti-competitive. Quoting below the blog
of Peter Wallace on the subject.
DON’T LIMIT TOWERS
Why would we limit the building of cell site towers to two companies? A tower is not exactly a highly technical thing to build. The equipment that goes on it is, but that’s provided separately by the cellphone companies who lease space on the tower.
Get specific specifications
that must be met, then leave it to companies to bid for construction at the
various sites. Sites identified by the cellphone companies who know where to
locate to provide the best signal. This includes areas that are not considered
as densely populated but nevertheless need connectivity and mobile services.
With the backlog of 50,000 towers we are currently facing, the more companies
who are willing and able to build according to agreed specifications should be
allowed to build. This should include incumbent telcos and whoever is the
chosen 3rd player because this is part of their mandate.
NFA MONOPOLY
Another live instance of government overreach is the NFA monopoly. With our rice prices double or higher than our neighbors’, this has profoundly aggravated poverty, dampened manufacturing investments and job creation through wage uncompetitiveness, and periodically inflation shocks our macroeconomy, like now. The FEF’s position on this is well articulated in various statements and columns over the years, most recently by Toti Chikiamco, in his Introspective column last week —
“Abolish the NFA rice
importation monopoly and fully liberalise rice importation. The bill passed by
the House is defective: it allows the NFA to continue licensing and regulating
traders. The Senate should completely abolish the NFA’s rice import monopoly
and remove its regulatory and licensing functions.”
As a wise guy said: “ Let’s
not waste a good crisis.”
Romeo L. Bernardo is a
Fellow of the Foundation for Economic Freedom and a governor of the Management
Association of the Philippines. He was Finance Undersecretary during the
administrations of Corazon C. Aquino and Fidel V. Ramos.
