THE ECONOMIC COST OF FEDERALISM COLLABORATION, NOT COMPETITION

In the language of economics, federalism will result in zero-sum game with one region’s gain becoming another’s loss.

One of the most frequently mentioned reasons for adopting a federal form of government in the Philippines is to promote competition among the states. It is a generally accepted argument that this will be beneficial to society as a whole. This position rests on the traditional textbook assumption that allowing firms to compete among themselves in pursuit of their individual profit objectives will result in lower prices and better quality products for consumers and will therefore yield maximum benefits for society as a whole.

The question we pose here is whether this same argument applies to competition among the states that will comprise Philippine society.

We believe not. A key proposal of those who advocate federalism in the Philippines is to encourage the different states to compete among themselves in pursuit of their respective economic objectives with a minimum of interference from a central authority to direct their actions.

We contend that competition among the different regions of the country will have deleterious effects on the welfare of society as a whole, and in the long run on their own individual well-being as well.

In the context of the issue at hand, competition takes two forms: competition for foreign markets and competition for common resources.

The different regions and provinces of the Philippines sell their products and services to essentially the same countries. This is true for most of our manufactures, our services, and our agricultural, fisheries and mineral exports, and certainly for our world-renown tourist spots.

Consider competition in tourism, a major dollar earner for the country.

Monthly tourist arrivals in the Philippines reached over 550,000 in December 2015, a figure which continues to rise. These visitors came mostly from South Korea ( 136,156 arrivals in December 2015), the US ( 87,106), Japan (42,903), Australia (32,768) and Canada (23,264).

We maintain that competing for foreign visitors, while potentially beneficial to a particular region or tourist destination, may be detrimental to others. Every additional dollar earned by one part of the country through active promotional activities will most likely result in one dollar less income elsewhere. Prospective tourists with fixed budgets and limited time who are induced to visit El Nido may decide to cancel their planned visit to Boracay. One region’s gain is another’s loss.

Having a larger slice of a given tourism pie means that a smaller portion of the pie will be available to other tourist destinations in the country. In the language of economics, this strategy is a zerosum game. Essentially the same argument applies to competition for foreign markets in general, especially in agricultural, fisheries, forestry and mineral commodities.

A preferred approach is to engage in joint promotional activities intended to sell the country as a whole — in other words, attempt to create a larger tourism pie for all to share. This requires collaboration, not competition.

TRAGEDY OF THE COMMONS

The country is rich in resources much of which are shared by many parts of the country. These common resources include most of our forestry, mineral and marine resources. Our entire ecosystem is a resource that is common to all. These resources, along with our common cultural heritage and historical roots, are collectively referred to as “the commons.” They are available to all of society and not allocable to its components for their exclusive use.

The free access to the commons typically results in overuse and their eventual depletion and degradation. Unrestrained competition for the commons among the different regions of the country results in what is known as a “negative sum game.”

Here, everybody loses. It calls to reason that the most appropriate strategy is a joint endeavor among all regions and political subdivisions of the country to preserve and develop our common resources.

In both competition for our common markets and competition for our shared resources, collaboration, not competition, should be encouraged. Such collaboration is less feasible under a federal regime.

THE FIX

We do realize that there is a need to empower the different

political subdivisions, and to give them the autonomy to independently pursue their peculiar economic, political, social and cultural interests. To ensure that these individual actions are not taken at the expense of the interest society, appropriate governance mechanisms and control systems should be put in place. This is most effectively achieved in a unitary system of government.

Having said all these, we believe that establishing a federal system of government for the Philippines is not an appropriate course of action. It is sufficient that we reform and fine-tune the unitary system that is currently in place in the light of our accumulated experience with it in order to enhance the well-being of the country, and at the same time preserve the unique cultural and social identities of the different regions that comprise our diverse society.

Changing the system outright to a federal one is an extremely disruptive strategy and will most certainly lead to undesirable consequences.