A Critical Look into the Crux of Philippine Economic Development vis-a-vis Economic Planning, Deregulation, Privatization and Decentralization

Introduction

In the modern socio-political dispensation, national governments have assumed a direct hand in the economic development of countries as an act of providing order to endeavors and undertakings that purportedly aim to serve the well-being and improve the lives of people. It doesn’t however mean that governments have always been successful in achieving this explicitly pronounced intended purpose. Tadaro and Smith remark:

National governments have played an important role in the successful development experiences of the countries in East Asia. In other parts of the world, including some countries in Africa, Latin America and the Carribean, and the transition countries, government appears to have been more of a hindrance to development than a help, stifling the market rather than facilitating its role in growth and development.[1]

In developed countries where the broad majority experiences a life of relative contentment in a situation of economic prosperity, we find a narrow chasm that separates the rich and the poor. (In fact, “the poor” in a developing—or underdeveloped—society evokes an understanding different from what the same concept mean in a developed society.) We can imagine an ideal scenario of economic productivity generally driven by an enthusiastic group of entrepreneurs and an army of satisfied proletarians that spontaneously perform collaboratively, cooperatively and coordinately with less government policy intervention. As we have said, this is a situation conditioned by economic prosperity and hence social contentment. But on the opposite side, we can also imagine the breaking down of “the good life” in a comfortably prosperous setting as history reminds us of certain large-scale economic crises in emerging powers like the US of the early 20th century when the stock market crash of October 1929 led to the Great Depression of the 1930s. In the early 1990s, the US experienced another economic setback in the form of a recession. Another case in point was the economic crisis that hit South Asia also in the early 1990s heavily damaging the emerging economies of Thailand, South Korea, Indonesia, and, in some ways, Malaysia. This is where we find government policy intervention reconsidered. The eminent economic guru of Nobel Prize in Economics fame, John Kenneth Galbraith, comments:

However intervention by the state may be condemned in the age of contentment, it has been relatively comprehensive when the interests of the contented are involved and relatively limited when the problems are those of the poor. In consequence, one may reasonably conclude that a recession or depression is much less likely to trigger redemptive government action than in the past. Intervention to provide employment and alleviate enhanced poverty and suffering is far less likely than hitherto. The contented electoral majority is or has been made relatively secure; it can watch the adversity elsewhere with sympathy but with no strong call for corrective measures.[2]

In this connection, it is at this point deemed important to critically examine the controversies that surround the relationships between government policy intervention and private market activities in the economic development process. In other words, we find the burden of our present concern in the area of realizing the contextual conditions that properly make relevant private market disposition on the one hand and government policy dispensation on the other. Todaro and Smith observe:

The problem is one of achieving the proper balance between private markets and public policy. In early years, a perception of the state as a benevolent supporter of development held sway, at least implicitly; but the record of corruption, poor governance, and state captive by vested interests, in so many developing countries over the past few decades, has made this view untenable as a “positive” or empirically accurate description of government. More recently, a negative view of government has predominated, but it too has been based more on theory than fact and has failed to explain the important and constructive role that the state has played in many successful development experiences, particularly in East Asia. Finally, a middle ground is emerging, recognizing both strengths and weaknesses of public and private roles, and providing a more empirically grounded analysis of what goes wrong with governance in development and the conditions under which these flaws can be rectified.[ 3]

A. Economic Planning

Todaro and Smith define economic planning “as a deliberate governmental attempt to coordinate economic decision making over the long run and to influence, direct, and in some cases even control the level and growth of a nation’s principal economic variables (income, consumption, employment, investment, saving, exports, imports, etc.) to achieve a predetermined set of development objectives.”[ 4] In economic planning, it is thus assumed that government plays an indispensable role to stabilize, normalize, and hence strengthen a country’s economy by regulating domestic economic activities as well as standardizing economic programs by way of certain policies intended to protect the general interests of the general public engaged in both areas of production and consumption. Todaro and Smith further note:

Proponents of economic planning for developing countries argued that the uncontrolled market economy can, and often does, subject these nations to economic dualism, fluctuating prices, unstable markets, and low levels of unemployment. In particular, they claimed that the market economy is not geared to the principal operational task of poor countries: mobilizing limited resources in a way that will bring about the structural change necessary to stimulate a sustained and balanced growth of the entire economy. Planning came to be accepted, therefore, as an essential and pivotal means of guiding and accelerating economic growth in almost all developing countries.[5]

A myriad studies done in various parts of the world on developing economies prove head over heels what proponents of economic planning claimed according to Todaro and Smith. In the case of Philippine economy, it is a somewhat more complicated matter considering that the Philippine society is basically semi-feudal and semi colonial whose economy is of mixed character, i.e., a mixed economy characteristic of a developing country. Mixed economies “are characterized by the existence of an institutional setting in which some of the productive resources are privately owned and operated and some are controlled by the public sector.”[6] Philippine “mixed economy” operates uniquely in a socio-political setting that renders obsolete the demarcation line separating the private and the public sectors.

Patronage politics has “legitimized” the entire socio-political landscape which is heavily controlled by the comprador big bourgeoisie and the big bureaucrat capitalists—the intertwined major economic force that has intensified economic dualism in the country. In this case, Philippine politics gets under the aegis of capitalist patrons, on the one hand, and Philippine economy, on the other hand, gets protected by the bureaucratic demigods. In the lecture “Crisis of the Semi-Feudal Economy” delivered by Prof. Jose Ma. Sison at the University of the Philippines in Diliman on 18 April 1986, Sison clarifies that “[t]he comprador big bourgeoisie is the dominant class in the relations of production. It determines the semi-feudal character of the economy. As the chief trading and financial agent of US monopoly capitalism, it lords over the commodity system and decides the system of production and distribution.”[7] The big bureaucrat capitalists, Sison further says, are “big compradors and big landlords who have stood our as such by using their public offices, privileges issued by the state, state banks, and state enterprises to amass private capital and land. In Philippine history, the most outstanding example of bureaucrat capitalism would be that of the fallen Marcos regime.”[8] In simple terms, it is not quite inaccurate to say that the Philippine socio-politico-economic formation is controlled by a conspiratorial powerhouse. Those in control of the economy are directly or indirectly the same people who call the political shots at least in the executive and legislative branches of government.

B. Calling for Deregulation?

Given this reality, the ideals of being simply emancipated from severely burdensome government regulations and control is definitely precluded. Such an ideal call is actually realized only in a democracy where those who truly control governance are the sovereign people whose political empowerment cannot be assailed by an elite block. What we have in the Philippines is a pseudo-democracy, a semblance or a simulacrum of popular rule wherein the mechanics of a democratic state are operational but the dynamics are certainly expressive of a habitus of subservience to the ruling elite. State bureaucrats cannot in whatever way open an iota of possibility to relinquish its tight grip on the economy and allow the flowering of high-level competition in domestic and commerce much less in industrial productivity.

But whatever the case maybe, government regulation will always play a necessary role even in the private markets of a liberally democratic country. Deregulation is therefore either an imagined alternative of a difficult road to travel on. Galbraith remarks:

But while government in general has been viewed as a burden, there have been, as will be seen, significant and costly exceptions from this broad condemnation. Excluded from criticism, needless to say, have been Social Security, medical care at higher income levels, from income supports and financial guarantees to depositors in ill-fated banks and savings and loan enterprises. These are strong supports to the comfort and security of the contented majority. No one would dream of attacking them, even marginally, in say electoral contest.[9]

Taking our lessons from the American experience, deregulation in several ways derailed major economic sectors so that in the fragile economy of a developing country like the Philippines, no concrete large-scale benefit can be had once we go the way of deregulation full-speed ahead. Galbraith informs us on how deregulation failed in US:

Perhaps the worst financial devastation has been the nation’s airlines. Here an ill-considered deregulation—faith once again in the market in a public-service industry where utility regulation is normal—has been combined with corporate raiding and leveraged buyouts on an impressive scale. The results have been heavy debt, the bankruptcy of several of the larger airlines, the folding up of Eastern Airlines and of Pan Am, a chaotic muddle of fares and available routes, an inability to replace aging equipment and, in the end, quite possibly an exploitative monopoly by the survivors.[10]

Further, Galbraith says:

Then with the age and culture of contentment, there came the new overriding commitment to laissez faire and the market and the resulting movement toward general deregulation. The commercial banks, once released from regulation, greatly increased the interest rates there available to depositors, which meant that if the similarly deregulated S&Ls were to compete, they would need to pa higher rates to their depositors. Sadly, however, these payments would have to be met by the low rates then in place on a large and passive inventory of earlier mortgage loans.[11]

In this connection, economic planning and hence government regulation is reaffirmed at this point buttressed by the realization of the fact that the imperfect market, like government, fails. Todaro and Smith point out the “three general forms in which market failure can be observed: The market cannot function properly or no market exists; the market exists but implies an inefficient allocation of resources; and the market produces undesirable results as measured by social objectives other than the allocation of resources. Market failures can occur in situations in which social costs or benefits differ from the private costs or benefits of firms or consumers; public goods, externalities, and market power are the best known examples.”[12]

C. What About Privatization?

We now focus our attention on fully-regulated, wholly-owned and exclusively-controlled government corporations whose service instrumentalities are aimed to facilitate the public in terms of power sourcing and distribution, water and sewage management, transportation conveyances, and communication deliveries. In the Philippine context certain areas of public facilitation have already been transferred to private ownership, operation and control.

Generally, the only expressed rationale for the privatization of state-owned public service facilities is to fully enhance and upgrade the efficiency and effectiveness factors in the delivery of said services to the public. The obvious picture the whole situation leaves us with is a grossly ineffective, inefficient, mismanaged and absolutely corrupt government system that in the final analysis is going nowhere but to the dogs. At the end of the day, no one is the loser except the Filipino people themselves who have been led to a dark road of confusion and uncertainty because at this very point of their so-called national life, they have no one to turn to. On the one hand, government is so inefficient and hence unreliable. In other words, we cannot expect genuine public service from government whose main interest is focused largely on the self-gratification of its people. And that is precisely the reason why government has failed miserably to manage its responsibilities to the public. In well-managed and highly efficient governments of developed countries—and this I personally experienced in some Scandinavian countries I visited—there is an explicit performance of responsible public service in major state-owned instrumentalities of facilitation like in transportation, communication, water and sewage management, and power provision.

On the other hand, once public service facilities have been handed over to the private sector, the people are now faced with monopoly capitalism in operation and a developing country like the Philippines will inevitably be swallowed by the mouth of intensifying poverty considering the fact that the privatization of public service facilities may only be effected in negotiation with well-entrenched comprador big bourgeoisie in the land. The main concern, therefore, of the owners of these privatized public service corporations is the classic capitalist objective of profit-generation through exorbitant service charges to which the people cannot complain at all.

D. Leveling the Field through Decentralization

The late eminent German-turned-British economist and social critic of the 70s, Ernst F. Schumacher, entitled his bestseller Small is Beautiful. It could be construed to have created an impetus for big-deal thinkers to reconsider their vantage point and place more importance on the depth and high-definition projection of small, specific concerns of human life. So that even on the issue of social, political, and economic problematizations, both academic and professional theorists have learnt to value and appreciate the beauty of small things. In a more serious tone, the whole pattern of movement at this juncture is form the enormity of central concerns o the specificity of definite locales by way of a decentralized approach. Decentralization de-complicates—simplifies, in simple terms, of course—processes with absolutely no details sacrificed. It is a zeroing into definite issues and concerns that are genuinely meaningful to real people directly affected in actual contexts. Looking back to economic planning, decentralization simplifies it and makes it more relevant to the recipients. In connection with deregulation and privatization, they seem to become insignificant concerns in the face of decentralization.

Gunnar Myrdal of Asian Drama and Nobel Prize in Economics fame explains decentralization as “a synonym [of democratic planning] especially in reference to political self-government within units smaller than the state. The basic idea is that of organized corporation between people in the same region or locality, or in the same industry or occupation.”[13] Myrdal beforehand establishes the notion that decentralization is actually democratic planning which according o him “is a term that is popular in South Asia. It embraces many ideas, but the most prominent are the following: First, ‘democratic planning’ is held to mean that planning and the policies coordinated in the plans should enlist not only the support of the masses but also their active participation in preparing and implementing planning. Secondly, it is generally held to mean that this popular participation and cooperation should emerge voluntarily so that state policies can be carried out without regimentation or coercion.”[14]

Todaro and Smith’s concurrence revitalizes the notion of decentralization even in the 21st century:

Decentralization has long been a long-term trend in developed countries. . . . Decentralization has been steadily gaining momentum in most European countries. . . .

Recently, trends toward decentralization and greater urban self-government have been growing in the developing world as democracy has spread in Latin America, East Europe, and elsewhere, and the political process has allowed for providing greater autonomy, notably more fiscal autonomy, for regional and local levels of government. . . .[15]

The entire decentralized situation in governance strongly encourages citizens’ participation in crucial decision-making undertakings which will spontaneously and ultimately dissolve in time national government’s serious trouble with deregulation and privatization because a decentralized state of affairs realizes the demands of either deregulation or privatization. The celebrated futurist John Naisbitt attests to this as decentralization was actually experienced by Americans in the early 1980s:

The failure of centralized, top-down solutions has been accompanied by a huge upsurge in grassroots political activity everywhere in the United States. Some 20 million Americans are now organized around issues of local concern. About 25 percent of the population of any neighborhood in the country say they are members of a neighborhood group. Neighborhood groups are becoming powerful and demanding greater participation in decision making.[16]

Conclusion

Considering the geographical formation of the Philippines being an archipelago, decentralization of governance in a decentralized political, administrative, fiscal, and market sectors is a challenging matter worthy of serious study. On a positive note, Philippine economic development could truly be a matter of exciting consideration if reckoned in a decentralized landscape which will ultimately make obsolete the hegemonic power of “Manila imperialism” and in the process spawn the seeds of real economic growth in a multiplicity of centers across the archipelago from Batanes to Sulu.

However, there is no easy road to complete decentralization. What we are faced with at this point in time is an awful array of difficulties in the realm of culture that surely hinders us to fully get to the smooth terrain of successful decentralization.

© Ruel F. Pepa, PhD, Zetetics Research Center for Asia

NOTES:

[1] Michael P. Todaro and Stephen C. Smith, Economic Development (8th Edition), (Singapore: Pearson Education South Asia Pte Ltd, 2003), p. 679.
[2] John Kenneth Galbraith, The Culture of Contentment, (New York: Houghton Mifflin Company, 1992), p. 162.
[3] Todaro and Smith, pp. 679-680.
[4] Ibid., p. 681.
[5] Loc. Cit.
[6] Ibid., pp. 681-682.
[7] Ruel F. Pepa and Dennis Paul P. Guevarra, A Compendium of Readings in Philippine History: A Critico-Transformative Approach, (Quezon City: Trinity College of Quezon City, 2006), p 139.
[8] Ibid., p. 140.
[9] Galbraith, p. 23.
[10] Ibid., pp. 57-58.
[11] Ibid., p. 62.
[12] Todaro and Smith, p. 683.
[13] Gunnar Myrdal, Asian Drama: An Inquiry into the Poverty of Nations (Abridged Edition), (New York: Vintage Books, 1971), p. 169.
[14] Ibid., p. 168.
[15] Todaro and Smith, p. 714.
[16] John Naisbitt, Megatrends: Ten New Directions Transforming Our Lives (New York: Warner Books, Inc., 1982, 1984), p. 121.

 

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