Capitalism and inclusion under weak institutions
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 marketoriented 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 con-
glomerates 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 anticompetitive. 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.”
A sample of my favorite takeaways from Professor Raul Fabella: “Do conglomerates contribute in a positive way to inclusion in its normal profit-motivated way? The answer is ‘Yes.’” He 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.