The necessity of institutional reforms

We reform institutions to make them (more) inclusive and distributive. These reform efforts, composed of complementary piecemeal and wholesale actions and programs, should start at the very core of the body politic.

The issues of inclusion and poverty, and the role of institutions, are tacked in Raul F. Fabella’s latest book, “Capitalism and Inclusion Under Weak Institutions.” What it says is that inclusion failure in low-income economies like the Philippines is manifested by the presence of abject social inequality.

Fabella cites the commendable growth trajectories of China, Japan and Singapore. These outward-looking Asian economies have ensured sustained and inclusive growth among their citizens. In other words, growth requires the presence of strong institutions, because only under such can a strong and sustainable economy come about.

In the light of our ineffective and inefficient bureaucracy, Fabella presents an alternative—conglomerates. While the public-private partnership (PPP) program has had its ups and downs, the conglomerates in these projects are the government’s best partners to help foster inclusive growth. This is an often-overlooked solution for the complex problems afflicting our economy.

What makes institutional reforms so political is that the government itself has to act as the facilitator of the process, and not become the deterrent. To facilitate inclusion and development, the government should be consistent in its policy steps. It cannot delve half-heartedly into programs and then stop midway, or limit their implementation.

Aside from the PPP, Fabella notes the importance of implementing in full other programs like the Ease of Doing Business Act. Alongside efforts to improve our competitiveness, there should also be a change in mindset among officials and frontline government workers—for them to focus more on output rather than on procedures.

Another step toward reform is lifting restrictions on foreign investment. The approval of the 11th Regular Foreign Negative List is designed to encourage more investments. The 1987 Philippine Constitution has been flagged by the Organization for Economic Cooperation and Development as having one of the most statutory restrictions with regard to foreign investments.

The volatile policy on the mining industry is also illustrative, with the regulatory environment in the Philippines far from agreeable. A prohibitive tax structure threatens to drive out badly needed investments to other mineralized countries that have more sensible tax structures.

The next important step is about taxation. The Duterte administration must work double time to justify the imposition of more/new taxes, especially those with inflationary effects. Legislating new tax measures is far easier—but has graver social impact—than plugging loopholes in the system and reforming the culture of corruption in tax collection agencies.

In terms of privatization, a commendable program thus far has been the privatization of the water distribution and sewage system in 1997. The success of this program heavily relied on difficult key decisions and actions that assured businesses of the government’s commitment to implement the privatization program. Unfortunately, similar stories of government trustworthiness have been few and far between.

Finally, another great lesson has to do with resource management. As Fabella notes in his book, when the government took control of the Apo and Sumilon islands from the locals, the fish in the protected areas dwindled. However, when the local fisher folk regained control, the situation improved.

Radical change will happen only when institutions have the capacity to manage the impact of transformative political practices in the government and its people. Ideally, institutions should also be the champions of a culture that shuns corruption and reactionary thinking in governing social, economic and political relations.

Dindo Manhit is the president of Stratbase ADR Institute.