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10:49 PM July 8th, 2013

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By: Cielito F. Habito, July 8th, 2013 10:49 PM

I often point out that some of the most critical policy reforms for achieving broad-based and widely beneficial (i.e., inclusive) economic growth have long been known and well understood. Our policymakers have simply failed consistently to get them done through the years. I have seen too many policy prescriptions widely acknowledged for decades to be crucial, yet continuing to remain just that: as prescriptions that never become actual policies. This is because the key policymakers in both the legislative and executive branches of government simply could not muster the political will to go against the enemies of reform, who have vested interests to protect. In many instances, the policymakers are co-opted by the same vested interests, in a political and electoral system wherein the golden rule (“he who holds the gold makes the rules”) prevails.

Some of my readers, knowing that I was once upon a time the country’s chief economic planner, fault me for supposedly not having done many of the things I write about now. Alas, planners hardly control policy, especially where populist or rent-seeking politicians can readily thwart evidence-based policy directions set by studious technocrats. Indeed, it is not uncommon for us to hear that we have some of the best-laid plans, but it is in their implementation that we fall apart. A former colleague in government once told me that we should be happy enough to take one step backward if we can take two steps forward. In my experience and observation, though, we have taken far too many backward steps that were not matched by offsetting forward steps.

Many of the long-recognized but unheeded reforms are well known. One such reform long called for is the easing or repeal of the age-old Cabotage Law, which prohibits foreign shipping lines from ferrying goods between two domestic ports. For decades, we have been lamenting how it is much more costly to ship goods between Mindanao and Manila than between Bangkok or Singapore and Manila. Even more appalling is the fact that it is more expensive to transport goods directly between two domestic ports than between the same two domestic ports via an international port. For example, a 2010 study documented that it costs US$1,860 to transport goods in a 40-foot container directly from Manila to Cagayan de Oro. But transporting it first via Kaohsiung in Taiwan would reduce the shipping costs to only US$1,144, or US$716 less! The clear implication is that domestic shippers are charging much more than what would prevail if international shippers could compete directly with them on domestic routes. Inasmuch as transport and logistics costs comprise from 24 to 44 percent of the wholesale price of commodities, the higher cost of domestic shipping due to lack of competition penalizes most of us Filipinos. And yet we have allowed this situation to persist for decades, in the name of protecting our domestic shipping industry—never mind how inefficient and costly it might have been. Nationalism is hardly the word for this; I’d call it masochistic xenophobia. The same self-injuring attitude is at work as we continue refusing to open our skies more freely to foreign airlines, in the name of “reciprocity” for our domestic carriers. In effect, we are depriving ourselves of millions of likely additional foreign tourists, and a corresponding number of tourism-related jobs—even as we have over 3 million jobless Filipinos, and many more with inadequate jobs—to protect the interests of a few. And I always thought that good policymaking meant seeking the greatest good for the greatest number.

There has been much discussion lately about the long-debated need to ease the constitutional restrictions on foreign ownership in certain key industries including education, mass media and public utilities. Such restrictions have not only restricted foreign firms from bringing in job-creating investments. They have also prevented them from contesting tightly controlled markets traditionally cornered by domestic oligopolists, thereby restricting competition that could otherwise spur higher quality and lower prices. Such foreign ownership restrictions have long been abandoned by most of our progressive neighbors and economic peers, which now have high employment rates and more equitable and broadly based economies to show for it. As we work for a long-needed competition policy law to promote healthy competition within the economy, we need to complete the picture by also enabling competition from without.

President Aquino’s great political capital gives him a unique opportunity to push desired constitutional amendments (and resist undesirable ones) with the least resistance. Ironically, he argues that constitutional amendments are not essential to achieving high rates of economic growth, citing our recent growth record. But he is just as bothered that the benefits of brisk growth are largely reaped by the wealthy few, and fail to reach the wide masses of Filipinos. Granting that easing foreign ownership restrictions may not be essential to rapid economic growth, the more relevant question could well be: Is more inclusive growth likely without it? Barriers to entry in key sectors of the economy, whether from within or without, have perpetuated what analysts call “elite capture” and the persistent failure of the benefits of growth to trickle down to ordinary Filipinos.

President Quezon once declared that he’d rather have our country “run like hell” by Filipinos (than run like heaven by foreigners). But in the economy, his rationale (“we can always change them”) doesn’t quite hold: the dominant players cannot simply be voted out.

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E-mail: cielito.habito@gmail.com

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