Better thinking on poverty and development

my Trade Tripper column in the recent weekend issue of BusinessWorld:

The Philippines today is a country of contradictions: it proclaims economic growth with rising unemployment, good governance with deteriorating infrastructure and broken transportations systems, progress with worsening traffic, and pleas for tolerance and gender equality with increased incidents of rape, teenage pregnancies and marriage annulments. But then, this is what happens when one wants all for nothing.

Unfortunately, this government’s vision (if it has one) does not seem to work for the simple reason that it cannot align with reality and common sense.

Consider that even though Filipinos are taxed the highest in ASEAN but with the lowest of wages (P5,500 a month will get you classified as middle class), it also has the highest unemployment rate. But what’s really disturbing is that almost 80% of our unemployed are from below 35 years old, the age considered most productive and yet formative. And 20% of the unemployed are college graduates.

The foregoing is within the context of the Filipino working among the longest hours. And those work hours do not include the two- to four-hour commute to and from work that many Filipinos go through every day, commuting hours that could get longer (according to the government itself).

Our people pay one of the most expensive rice in Asia, we have water scarcity among floods, and constant threats of power shortage.

The government’s solution, which is to throw money at the poor (via the Conditional Cash Transfer, or CCT), has not worked. And it doesn’t apply to our unemployed but educated population. Not only is there work scarcity, the disincentive to work is even greater.

I’ve long railed at the government’s progressive policy mind-set that, as David Brooks puts it, “aims to place individuals in unmediated dependency on a government” and encourages an entitlement culture. The President’s characterization of himself as the “father of the country” is indicative of that. But this has reached the level of ridiculousness: why make people dependent on the government when it can’t be depended on?

Because from the beginning, it can’t. Our society was constructed along the lines of self-governance and personal accountability, not “progressivism.”

But, in words that are applicable here, Paul Ryan (in a Wall Street Journal opinion piece) aptly describes the pitfalls of such thinking: “Over the years, we’ve slowly been adding to the number of benefits that government provides to an increasing number of our citizens. Some of those benefits are worthy, laudable commitments, but others aren’t really the responsibility of government or the kind of thing we can afford. If we keep on this way, we’ll reach a tipping point where there are too many people receiving government benefits and not enough people to pay for those benefits. That’s an untenable problem.”

There are severe limits to what the government can do, despite its propensity to think otherwise: “the tipping point we’re approaching is the result of a liberal progressive mind-set that seeks a larger, more active government and lets bureaucrats decide what’s best for everyone instead of allowing citizens to govern themselves. Its response to every social problem is more government, more bureaucracy and more taxpayer money.”

This column has warned repeatedly about the dangers of such an entitlement culture. But now, scientific data may even show that welfare entitlements like the CCT, no matter how huge the allotment, are futile at best.

The Economist reported a study published in the British Journal of Psychiatry that found that “families which had started poor and got richer, the younger children -- those born into relative affluence -- were just as likely to misbehave when they were teenagers as their elder siblings had been. Family income was not, per se, the determining factor.

“That suggests two, not mutually exclusive, possibilities. One is that a family’s culture, once established, is ‘sticky’ -- that you can, to put it crudely, take the kid out of the neighborhood, but not the neighborhood out of the kid. Given, for example, children’s propensity to emulate elder siblings whom they admire, that sounds perfectly plausible. The other possibility is that genes which predispose to criminal behavior (several studies suggest such genes exist) are more common at the bottom of society than at the top, perhaps because the lack of impulse-control they engender also tends to reduce someone’s earning capacity.

“Neither of these conclusions is likely to be welcome to social reformers. The first suggests that merely topping up people’s incomes, though it may well be a good idea for other reasons, will not by itself address questions of bad behavior. The second raises the possibility that the problem of intergenerational poverty may be self-reinforcing.”

Our constitutional system espouses the principles of subsidiarity, solidarity, virtue, strong traditional families, self-responsibility, and the common good. All of these have specific meanings that have centuries of thought and experience behind them. Perhaps the government would like to acquaint itself with these before tinkering around with progressive social programs that do nothing but throw away huge amounts of the people’s money.

ASEAN integration? Forget about it.

my Trade Tripper column in a weekend issue of BusinessWorld:

This is my second article on the upcoming 2015 ASEAN integration (see ASEAN Integration, March 14, 2014). Many still express concern about it, although most of the perceived issues are really off, arising from two misconceptions: the first is that the ASEAN Economic Community (AEC) will lead to a common market in the mold of the European Union, and the second is that the Philippines needs to prepare for 2015. Both are incorrect.

The AEC is not envisioned as an Asian version of the European Union. The AEC, at best, would be one of continuing evolution. As pointed out by Coraline Goron: “The ASEAN Economic Blueprint presents two main objectives: to transform ASEAN into a single market and production base and make it a competitive economic region. One should be aware, however, that despite the bold language, the ideas put forward in this document remain significantly lower than the economic integration in the EU. Notably, no customs union and no single currency are envisaged.”

By the way, a “customs union” focuses on uniform external tariffs, which is different from a free trade agreement or FTA (which also has lowered tariffs but maintains separate external trade policies).

Finally, the idea that integration will take place next year is not exactly accurate. ASEAN integration has long begun. In fact, we have long been living in an integrated ASEAN. The truth is that many of the provisions of the ASEAN integration plans are already in place: from the lowered tariffs, to increased FTA activity, to the smoothening of customs procedures.

As of 2012, Philippine compliance with ASEAN integration is at 76.9%. Many members are at more than 80%. But Vietnam is still at 79.6%, Cambodia 76.6% and Brunei 75.5% (lower than the Philippines).

In other words, intra-ASEAN trade is already virtually duty-free, providing a relative advantage (price-wise) on the cost of goods when compared to other countries. Plus, note the various FTAs that ASEAN has with other countries

Having said that, there is certainly work to be done. The question really is not the dangers that ASEAN integration can bring (if there are any) but rather if the Philippines itself is ready to take advantage of it or be left again in the dust.

One challenge for the Philippines is to realize and manage the transition from a negotiations-based system to a more legal, rule-oriented paradigm. As far as legalities are concerned, the main source of Philippine obligations is found in Article 5.2 of the ASEAN Charter: “Member States shall take all necessary measures, including the enactment of appropriate legislation, to effectively implement the provisions of this Charter and to comply with all obligations of membership.”

Incidentally, Article 24 states that all disputes “relating to specific ASEAN instruments shall be settled through the mechanisms and procedures provided for in such instruments.”

With such general-sounding obligations, our government is nevertheless mandated to review Philippine laws to determine compliance on matters relating to: tariff and non-tariff barriers, rules of origin, customs integration, professional and employment qualifications, investment laws, capital markets, securities standards, intellectual property, taxation, competition policy, and the like. Our courts and administrative agencies must now be brought up to speed on the demands of ASEAN.

Incidentally, the foregoing also highlights the need for lawyers not only with professed international law capabilities but also business orientation and ASEAN competence. Emphatically, there is a necessity now for our lawyers to develop an “international” outlook. Which is inevitable, what with international law forming part of the laws of the Philippines.

But this globalization of our lawyers’ mindsets must also be based on pragmatic considerations, including particularly our nation’s interests. The decision of some local law schools to favor World Trade Organization or international commercial arbitration courses (or even that of the European Commission), for example, has sadly come at the expense of lawyers being completely unfamiliar with the legal systems of our neighboring trading partners in ASEAN and the Asia-Pacific Economic Community.

Finally, to reiterate what I wrote the last time, what is the point of opened markets if we don’t have the know-how and capacity to satisfy those markets? And what is the point of opening up the country for investments if the environment does not make it attractive for investors?

Our use of the ASEAN FTA benefits continues to hover at a mere 20%. This low rate has never been resolved, and even up to now a lot of Philippine firms are still baffled by the mechanics of FTAs.

Despite reported improvements in the area of competitiveness, our foreign direct investments, ease of doing business, power, transport, productivity, infrastructure, education, and rule of law protection lag behind most other ASEAN countries. Our worsening traffic, rather than a sign of progress, allegedly costs the country an amount equal to 7% of the GDP.

So, really: the best way to deal with ASEAN integration is to forget about it. And instead focus on improving ourselves.


Competition law? Maybe.

was my Trade Tripper column in the recent weekend issue of BusinessWorld:

I'm not sure if people are aware of this, but if there is a piece of legislation that policy makers are going gaga over to get passed, it is not the Freedom of Information law. Rather it is the competition law, now in its present form as House Bill 1133 (partnered with Senate Bill 2282, both known as the Fair Competition Act). Unfortunately, the people pushing for this law miss the point: yes, clearly we need a competition law. But we need one that will work effectively for the interests of Filipinos.

Teddy Boy Locsin was spot on in his Sept. 4 Teditorial: “If the anti-competition law seeks to stop giant local companies from keeping local competition down and foreign competition out, then that law is a yes. But if it seeks to break up local giants now dominating the local market and getting a lion’s share of a cash-rich country after beating the foreigners who were taking all the money long ago, then it is a big, fat no.”

One fundamental problem with present competition bills is their implicit reliance on this huge assumption: monopolies are bad and government is the solution. But note, not even our Constitution sees monopolies in such light: the “State shall regulate or prohibit monopolies when the public interest so requires. No combinations in restraint of trade or unfair competition shall be allowed.”

And as Nonoy Oplas, president of Minimal Government Thinkers Inc., correctly pointed out: “When government intervenes hard to force or pretend to attain social equality, such intervention will naturally result in subsidizing the lazy and irresponsible, while penalizing and over-taxing the efficient and industrious.” For him, “fierce competition is fair competition. Government-managed or protected competition is not fair competition.”

I also concur with his assessment that, at least for the present, the “best anti-monopolization regulation that government can do is to have rule of law strictly enforced.”

Indeed, the size of our market should lead us to appreciate the idea of “natural monopolies,” whereby maximum efficiency is derived by way of economies of scale through one or two suppliers.

As such, Filipinos should be supportive of even larger Filipino conglomerates. Take San Miguel Corp. (or PLDT or PAL), for example, which, despite its size and reach, could not really be considered possessing monopoly power due to the nature and threat presented by global (or regional) competition.

As I’ve written several times before, Filipinos should be more discerning about the strong possibility of foreign corporations sneaking up and acquiring Filipino companies or influence to the point that monopoly powers are exercised from beyond Philippine jurisdiction, constricting Filipino entrepreneurial efforts and damaging local consumer interests.

Again, Teddy Boy Locsin (who’s not a trade lawyer but has more sense than most competition experts) gets it exactly right: “Big is better if it is Filipino because capital has a nationality,” but “big is bad if it is foreign, which will destroy what we have, milk it by big bonuses, siphon profits abroad, and make sure no Filipino ever gets big again. If foreign competition wants to break up Filipino giants, let the free market do it. Do not make a Filipino law tailor-made for foreigners do the job for them. Foreign competition does not believe in Filipino competition in their home countries. It only believes in foreign competition here and elsewhere abroad.”

Another area we need to look at is the relationship that competition law has with corruption, and thus, relatedly, the need to constrain the ill effects of having both political and economic power held by a select number of families in the country, which is something that even the latest drafts of our competition laws seem to ignore.

Because, what is the point of having trade commissions, legal procedures, and the like if in the end the judged and the judge are from the same side of the fence? Competition laws work in the United States and Europe as the people who lead in business would not be the same people who comprise government, thus serving as a check upon each other. While undoubtedly relationships exists between the two groups in any country, that is a far cry from having the same families actually in control of both business and government. Which is the case in the Philippines.

Finally, why are the competition law drafts merely aping the texts of foreign competition laws? After all, US laws are worded generally, which is understandable as the core provisions were made a century ago. But that was followed by more than a hundred years of US jurisprudence (plus that of Europe and Japan) that we should have learned from and could have been incorporated into the draft competition law, thus giving the law more depth and precision.

We need to really put more thought in crafting our competition policy law, considering the profound effect it will have on the country’s economy and Filipino lives.


Killing ISIS

was my Trade Tripper column for the recent weekend issue of BusinessWorld:

The outrage generated by ISIS’ atrocities effected unity of sorts among people of different persuasions. Except for the Left in the United States, which is incapable of grasping the notion that President Obama’s foreign policy is effete at best and likely nurtured ISIS’ rise, many are of the belief that the world’s governments should do something concrete to stop the terrorist onslaught. Right that sentiment may be, but in international law terms it’s easier said than done.

Which is ironic, as Pope Francis himself was reported to have approved of the air strikes against ISIS (more on that later). The legality, however, of the air strikes (or any military move by a foreign power) against ISIS is, believe it or not, questionable at this time.

Colum Lynch in a Foreign Policy piece correctly pointed out: “International legal experts say the United States has an uphill battle convincing many of its allies that there is a legal rationale for extending strikes into Syria. The UN Charter offers two major paths to military action. A government is permitted, under Article 51, to use force against an armed aggressor in self-defense. It can also invite foreign powers to help it defend itself, as Iraq has done. The UN Security Council can, under Article 42, authorize a military intervention. But those roads may be blocked for the time being.

“The Syrian government has not approved American air power. Syrian Foreign Minister Walid Muallem warned that Bashar al-Assad’s regime would consider American military intervention in its territory an ‘act of aggression’ unless it coordinated its activities with Damascus -- a condition Washington has rejected. And Russia -- while no friend of the Islamic State -- may not be inclined to approve a Security Council resolution granting Washington a blank check in Syria.”

Ryan Goodman, on the other hand, stated: “In conducting attacks against ISIS, the United States might assert either (1) the right of individual self-defense due to ISIS’ direct threat to the United States; or (2) the right of collective self-defense in coming to the aid of Iraq. At this point, the former is a weak one -- without a truly imminent or actual ‘armed attack’ against the United States. The latter is solid.

“But what about US forces crossing the border into Syria? The US government would likely assert that Syria is ‘unwilling or unable’ to deal effectively with the ISIS threat. This is the same prerogative that the United States invokes in other parts of the world (think: the US operation to kill Osama bin Laden without seeking Pakistan’s approval). The ‘unwilling or unable’ test is now a fairly well settled part of the US government’s legal position. Nevertheless, it remains controversial under international law.”

Regarding “collective self-defense” that Goodman indicated above, the same could be legally defensible but politically difficult. Considering the dynamics involved in Security Council votes, as well as Obama’s continuing inability to show leadership in this matter, for it to authorize actual military force is currently improbable.

As for the Pope himself agreeing to the use of force, what he actually said was aptly described by Think Progress as follows: “‘I can only say this: It is licit to stop the unjust aggressor,’ the pontiff said in reference to ISIS, according to CNN. ‘I underline the verb: stop. I do not say bomb, make war, I say stop by some means.’ ‘But we must also have memory,’ he added. ‘How many times under this excuse of stopping an unjust aggressor the powers [that intervened] have taken control of peoples, and have made a true war of conquest.’”

Indeed, under the teachings of the Church, military force may be morally permissible if “the following conditions are simultaneously present:
• the suffering inflicted by the aggressor must be lasting, grave and certain;

• all other peaceful means must have been shown to be ineffective;

• there are well-founded prospects of success;

• the use of arms, especially given the power of modern weapons of mass destruction, must not produce evils graver than the evil to be eliminated.”

And even then, “during a war the moral law always remains valid. It requires the humane treatment of noncombatants, wounded soldiers and prisoners of war. Deliberate actions contrary to the law of nations, and the orders that command such actions are crimes, which blind obedience does not excuse. Acts of mass destruction must be condemned and likewise the extermination of peoples or ethnic minorities, which are most grievous sins. One is morally bound to resist the orders that command such acts.”

Which just goes to show that, even in war, what is moral is not necessarily legal. And vice versa.