Propping up the rich a failed growth strategy
THE rebound and recovery strategy of the Duterte administration is a cut and paste from the Republican Party playbook, from Reagan to Trump. The underlying principle is to empower the big, as in Big Business. It is supposed to work like this: when Big Business is empowered with tax cuts and other stability-building measures, the sheer effort to invest and increase productive activities — the natural consequence of that propping up — will have a trickle-down effect, pulling up and lifting up everybody. A rising tide lifts all boats, from the yachts of the masters of the universe to the rickety bancas of the poor.
Arthur Laffer, a conservative economist, reportedly drew a scatterplot of trickle-down on a napkin that mightily impressed the Reagan economic crowd. From then on, it became the unquestioned and infallible strategy on economic growths and turnarounds of the Republican Party.
The obsession with trickle-down had a complementary belief system. Don’t give generously to the poor as they will just squander government aid and make them lazy. The term Cadillac Queen, a reference to a Chicago woman (of course she was black) who supposedly squandered her government checks on Cadillacs and furs and paid for steak with her food stamps, was the ugly myth perpetrated by the Reagan administration to demonize aid to the struggling and poor. And to justify weak safety nets amid all the pampering of the rich.
The empower-the-big and starvethe-poor orthodoxy still thrives in the 21st century Republican Party. In 2017, the signature economic plank of the Trump administration was a tax cut for the rich. The expectation was this: the tax cuts will encourage Big Business to use the proceeds for investments, thus creating jobs on a massive scale. The offshore corporations will return to their original domicile, the US, because of the conductive tax structure.
These expectations did not materialize. The proceeds from the lower taxes were used by the wealthy beneficiaries to buy back shares and acquire rare works of art. And the offshore corporations that basically relocated to Cayman Islands and the like to dodge tax payments, stayed in their tax havens.
The underlying principles driving the pandemic rebound and recovery strategy of the Duterte administration have been lifted from the Republican orthodoxies. The two major pieces of economic legislation passed by the Duterte-controlled Congress are the Corporate Recovery and Tax Incentives for Enterprises Act (Create) and Financial Institutions Strategic Transfer (FIST) Law.
Create aims to lower corporate income taxes in stages, until it reaches a low of 20 percent. FIST protects banks and financial institutions by helping them dispose off their nonperforming loans. The law is about maintaining the financial health of the banking system.
The third major piece of legislation that has the unanimous support of the House of Representatives is about opening certain strategic industries such as telecommunications to full foreign ownership. The law has the equivalent of amending the equity provisions (60-40 sharing) in the Philippine Constitution. This is also for the big — the big multinational corporations.
It is always about propping up the big and the wealthy and the powerful. For the poor and the small industries battered by the pandemic, almost nothing. Or crumbs.
How uninspired and how niggardly was the Philippine pandemic spending, from health intervention to cash assistance to the poor, to support for the struggling small businesses? Figures from the Asian Development Bank (ADB) on Covid-19 spending in the Asean core sadly showed our austerity-obsessed Covid-19 response. The support for the struggling and the poor was the most pathetic and anemic component of that underwhelming spending.
As of late April 2021, according to the ADB database, Indonesia spent $115.3 billion. Singapore, the tiny nation-state, spent $100.5 billion and its neighbor, Malaysia, spent $$97.9 billion. Thailand spent $94.9 billion. The Philippine spending will make you weep — an austerity-inspired spending of $30.3 billion, or $60 billion less than Thailand’s. So sclerotic was the Covid-19 spending that former Economic Planning Secretary Ernesto Pernia was forced to react with this tweet. “Lack of virtuous impatience, also known as sense of urgency, clearly shone in responding to and managing the pandemic.”
The austerity-obsessed Covid-19 spending has reaped what it sowed, five consecutive quarters of economic contraction. The heartbreaking 4.2-percent GDP contraction in the first quarter of 2021, the fifth GDP drop after a historic 9.5 percent last year, is a portent of the grimmer things to come. The government’s half-hearted spin, “that nothing really was expected to happen in the first quarter,” was a feckless, flailing effort at containing the news of the gloom and doom.
What do you expect when people have nothing to spend, when the much-touted Covid-19 stimulus amounted to a few thousand pesos per capita? What would push household spending — the key to increased production and economic activity and ultimately GDP growth — without adequate Covid-19 support for the poor who have had to go through several stages of harsh lockdowns?
The poor, when you support them with cash, spend all that cash support on food and basic needs readily and giddily and that spending generates economic productivity like no other. There are no shares to be bought back, no artwork to splurge on. None of that cash support will be placed in savings.
You hand out adequate cash to the poor, and they will put that money back into the economic mainstream.
Instead of focusing on propping up the big and the wealthy and the well-connected, the government should do a paradigm shift in this pandemic regime. Hand out adequate cash, do helicopter drops if possible and an economic driver like no other would pull us out from a long, crippling stasis.