To next year’s president: Slash government

my Trade Tripper column in the 11-12 December 2015 issue of BusinessWorld:

Last Dec. 2, I spoke at the University of Asia and the Pacific’s Business Economics Club 2015 Year-end Business Economics Briefing. The theme this year was “2016: New Normal or New Mediocre.” It was apt, coming off a horrible 2015, even by merely using policy direction as sole standard.

And if public commentator Ben Kritz is to be believed, 2016 promises to be an annus horribilis. An assessment I happen to agree with.

In any event, the point I wanted to make in the Briefing was essentially threefold:

• Our foreign policy must flow from an effective domestic policy, for which experienced well trained leadership is vital;
• The traditional family institution must be protected for its vital social benefits, as well as economic significance and overall effect on the common good; and
• The need to cut back on government and put more responsibility (and choice) to the people.

Of the first, I need not dwell on, it being previously discussed in other articles for this column. What will be said is that many critical challenges will be faced by the next administration (perhaps so intended by the current one): managing a likely legal victory over China at The Hague in relation to our sea claims, a Moro Islamic Liberation Front disgruntled over perceived noncompliance of a possible implementing legislation with the Comprehensive Agreement on the Bangsamoro, and the ramifications of public courtship (as what happened during the Asia-Pacific Economic Cooperation meeting in Manila) for the Trans-Pacific Partnership over the Regional Comprehensive Economic Partnership.

On the second, I refer the reader to “Strong Families, Prosperous States: Do Healthy Families Affect The Wealth Of States?” (W. Bradford Wilcox, Robert I. Lerman, and Joseph Price; American Enterprise Institute, 2015):

“Higher levels of marriage, and especially higher levels of married-parent families, are strongly associated with more economic growth, more economic mobility, less child poverty, and higher median family income at the state level in the United States.”

Furthermore: “Violent crime is much less common in states with larger shares of families headed by married parents, even after controlling for a range of socio-demographic factors at the state level... This is noteworthy because high crime rates lower the quality of life and real living standards and are associated with lower levels of economic growth and mobility.”

Hence, this column urges people to vote for candidates that will do away with nonsense such as government subsidized contraceptives, gay “marriage,” divorce, and euthanasia; and instead support those that uphold the traditional marriage and the family. It’s really the socially and economically sensible thing to do.

On the last, it is really urged by this column (and will be a theme repeated throughout 2016) to move away from the paternalistic, socialistic form of government that crept over the country through the decades.

It comes with a cost: a proposed 2016 national budget ballooned to P3 trillion, representing a whopping 461% increase from 2000 and a nearly 300% from 2006. Add to that a nearly P6-trillion national debt.

And this will not be solved by better tax collection or increased personal income tax. Regarding the latter, as John Mangun pointed out, any non-insane increase would still only constitute 14% of the national budget.

The point is that whatever way our government goes regarding tax increases, a budget deficit will still result.

No. The best way for the Philippines moving forward is to really start cutting down the size of government, which now is a humongous 25% of our economy.

Right now, our welfare expenses (using the 2015 budget as benchmark) add up to 64%: this includes programs such as socialized housing, climate change, social protection such as the Conditional Cash Transfer, health care, and employment.

These are fine. But we’ll be far better off allowing the bulk of the responsibility to be shouldered by the private sector.

Cut the size of government, lower spending, lower taxes, allow people to keep more of their hard-earned money, and give them the power to choose which health care, school, business, etc., they want.

Cut the bureaucracy and allow our citizens the power to open and close up businesses as is needed, to hire and fire people, and give incentives for them to share their wealth (such as donations to charity) rather than coercively taking money through taxes.

Such policies are more democratic and empowering of Filipinos.

On the other hand (and again using the 2015 budget as benchmark), on the one job that government is really supposed to do, which is national security, we allocated only a mere 4.4%.

In a world where terrorists and secessionists abound, this is patently not enough. Increased military spending and beefing up our civilian police force should be encouraged.

Clearly, these things cannot be achieved overnight.

But those looking to vote in the next elections would do well seeking candidates that put their trust in the Filipino, encouraging personal responsibility, rather than in fat paternalistic bureaucracies.


Three books for Christmas

my Trade Tripper column in this 4-5 December 2015 issue of BusinessWorld:

Christmas is nearing and with it the dreaded season of giving. There are three books that I recommend as help and for a couple of reasons: they make good reading and provide great insights, which is certainly a plus to the one you’re gifting it to. But they would be also be a boost to national discourse, as these books offer an unvarnished, frank look at what it takes for a society to better itself.

The first is Calixto V. Chikiamco’s The Way Forward: The Path To Inclusive Growth. Currently the president of the Foundation For Economic Freedom (FEF; of which I am a Fellow), Toti (as he is called by friends) is the foremost -- and certainly the most active -- exponent in the Philippines of “incrementalism” as a way towards development. It’s something that up to now I still am trying to grasp, particularly in terms of it being a realistic methodology to achieving actual change.

But Toti certainly believes it can and many a smart person agrees with him. My fellow Fellow at the FEF (and colleague at BusinessWorld) Romy Bernardo wrote of Toti as being a “synergy between public intellectual and grounded entrepreneur.”

From my own field, which is international economic law, The Way Forward asks an interesting question: “it’s a wonder why Economics hadn’t invaded the field of Law earlier.” It’s a question I’ve oft asked myself and certainly the discipline can only be enhanced if a more qualitative and quantitative rationale can be made of why civil damages and penal laws are constructed the way they are.

For a slim book of 183 pages, The Way Forward covers a lot of ground. And if one can’t find value inherent already in its content, then the fact that many of our politicians and policy makers are reading it (Romy reports that Speaker Feliciano “Sonny” Belmonte purchased 300 copies to be distributed to members of the House) is an added motivation to get the book.

The Way Forward (2015) is available at Powerbooks.

While The Way Forward purports to look, well, forward, Chris Pforr’s Dangerous Waters: A Whirlwind Tour of the Philippine Economy Since Independence tells us where we are and came from. And despite the ambition, coming in at a mere 98 pages, it does pull it off.

Mind you, the book’s main service is as an introduction but it does it superbly. Other local books purportedly try to analyze Philippine economic history but end up as mere hagiography.

But not Dangerous Waters, which relishes the non-mincing of words. I particularly find interesting that Pforr partially absolves Ferdinand Marcos of the economic malaise at the end of his term and instead declares that a “more substantial reason was the 20 years of neoliberal policies which had been imposed by the US and the World Bank,” which he alleges “pushed the Philippines into deeper debt-based so-called ‘development’ just when the global economy entered the worst crisis since World War II.”

Read that alongside his point that the “first four years” of the presidency of President Benigno S. C. Aquino III had “been a constant parade of scandals involving Cabinet officials, lawmakers, members of the judiciary, military officers, local government officials, and non-government organizations.”

Interestingly, Chikiamco does declare in The Way Forward that Aquino’s “biggest failure is his failure to apply Daang Matuwid to all public officials, whether they are political opponents or friends, party mates, family or allies.”

Pforr notes the controversies surrounding the Priority Development Assistance Fund and the Disbursement Acceleration Program, and the curious fact that, despite President Aquino “gloats about the economic performance of his administration,” the number of people considered poor hovers around “55%” (quoting a Social Weather Stations second-half of 2013 survey) amidst a 2014 Forbes Asia report that the “wealth of the 50 richest people in the Philippines reached $74 billion.”

This makes Pforr ask, quite reasonably indeed, if the “huge wealth disparity” is actually the “biggest national financial scandal of all?”

Dangerous Waters (2015) is available at Popular Bookstore (in Quezon City).

Finally, a book I haven’t read yet but I do hope would be a good Christmas gift to myself: The Thriving Society: On the Social Conditions of Human Flourishing.

For those of us who think that the Philippines is headed in the wrong direction, well, many Americans think the same of their country. And according to Witherspoon Institute’s James Stoner and Harold James, The Thriving Society collects the thoughts of some of the US’ most distinguished scholars, with the “aim to help the public understand what elements make up a society where people can flourish. They also point out the reasons for some of the problems we currently experience and indicate several avenues for reform.”

The core of the book is Robert P. George’s essay, “Five Pillars of a Decent and Dynamic Society.” According to him, these five pillars are the person, the family, the law and government, the university, and the market.

The Thriving Society (2015) is available through the Witherspoon Institute.

APEC in Manila’s missed opportunities

my Trade Tripper column in this 27-28 November 2015 issue of BusinessWorld:

Probably it’s just me.

But try as I might, it’s really difficult to justify the hardship that our Metro Manila people went through by weighing it against the supposed benefits of hosting the Asia-Pacific Economic Cooperation (APEC) Summit in Manila. Granted that hosting it is by country rotation. And there was really no reason to refuse hosting duties. Still, effort (or pain) should match the result. And hence understandable why people are still scratching their heads, muttering “what was that all about?”

Of course, the government touts the fact that the number of “tourists” that visited the country during APEC week (around 11,000) exceeded government expectations. But how many of them actually spent money on our establishments, as opposed to us spending on them via taxpayer money?

Then there were the bilateral deals signed at the sidelines of APEC. But even that does not give comfort.

Most of those supposed agreements are like the promises people make to newly met friends at a party: all exuberance and best wishes but as to whether they actually amount to anything concrete is another thing.

The US gave us a couple of ships: a research vessel and a coast guard cutter to repel any Chinese intrusion against our waters. There was the Russian deal to explore a possible trade agreement. A memorandum of agreement with Vietnam regarding rice. The rest were technical agreements on drugs, crime, double taxation, and expressions of support.

The thing is: all of those bilaterals could have been signed without APEC and certainly not at the cost (direct and economic) of P40 billion.

On the other hand: what was hoped that APEC could have done, which was expression of unity against Islamic radicalism, fell again increasingly weak. Aside that is, from the petulant answers of President Obama at his press conference here.

There was, of course, the small and medium enterprises (SME). Which was a decided emphasis that the Philippines chose (as host) for the APEC meeting. Thus, the drumbeat was that APEC could spur SMEs to innovate and be more participative in global trade.

Which is all well and good. Were it not for this: trade agreements don’t really provide innovation or any form of assistance (unless funds for capacity building or special/differential treatment are placed in the mix, which nowadays would be minimal at best).

Trade agreements give competition and the markets to compete in. That’s it.

And if the SMEs are hobbled by high taxes, unproductive or untrained workers, high transportation and power costs, high legal wages, unreliable infrastructure, and unreliable legal protection then the chances of them benefiting from global trading arrangements is illusory.

What SMEs need, particularly Filipino SMEs, are not trading arrangements but rather internal Philippine measures that would enable them to unleash their potential. Which is something they’re not getting due to the quality of the politics we have here.

In fact, more and more regional trading arrangements could actually be harmful for SMEs. Particularly for developing countries like the Philippines.

Bilateral and regional trade deals tend to benefit richer countries at the expense of poorer ones. The Economist, a staunch advocate of liberalized trade, way back in 2004 (“Trade Policy: Not All Trade Agreements Are Good”), also took note of the darker side of free trade agreements: “Most bilateral agreements are far from ideal. Those between poor countries often exist more on paper than in practice. Bilateral deals between rich and poor tend to be better implemented, but are marred by restrictive rules of origin and by the routine exclusion of important agricultural products... Bilateralism may be a route to freer global trade, but it is, at best, a risky one.”

This seeming disparity between the benefits going to richer countries as opposed to that going to poorer countries is affirmed, for example, by a United Nations University working paper (“North-South vs. South-South Asian FTAs: Trends, Compatibilities, and Ways Forward”; 2010). The paper’s empirical analysis do reveal “that several incompatibilities exist between N -- S (North -- South) and S -- S (South -- South) FTAs (Free Trade Agreements) in core areas including tariff liberalization, rules of origin, liberalization of services trade.”

Which leads to the other thing that the APEC meeting here in Manila could have done but didn’t: really (rather than issue mere motherhood statements) renew commitment to multilateral trade and revive the World Trade Organization.

Jack Ma of Alibaba was correct: “Let’s agree on something that will really help the small guys,” he said (referring to SMEs) and that is a “WTO 2.0” is important. “In the past 20 years, WTO (World Trade Organization) did for big companies. In the next 20 years, we should use WTO to support small guys because if we cannot change it, it will be a disaster for everybody.”

While FTAs and regional agreements tend to be discriminatory, confusing, and even divisive, a strengthening (“rebooting,” to imitate Ma’s analogy) of the WTO would give businesses of poorer countries greater certainty, simplified (due to unified) trade rules, as well as mitigation of risks.

Well, there’s always next time.