Elections and the economy

Elections always perk up the Philippine economy. Yesterday’s elections are one important factor that drives analysts’ expectations that this year’s growth in our gross domestic product (GDP) will match or exceed its 6.6 percent growth last year. A quick scan of GDP growth data over the past 25 years would readily show that election years tend to be marked by higher than usual economic growth. In the election years of 2004, 2007 and 2010, our GDP grew by 6.2, 7.2 and 7.3 percent respectively, as against an average of only 4.4 percent in the nonelection years since then. While there are surely many other determinants of economic growth, the above data seem to suggest that elections have a substantial growth-inducing effect on the economy, pushing growth by up to 2-3 percentage points. How does that additional growth come about?

We all know that a lot of money goes around the economy in election seasons. Much of the money comes into circulation out of bank accounts being held here and abroad, hidden or unhidden. It also comes out of government coffers, or from underneath mattresses and treasure chests, or even from illegal money printing machines. One such money counterfeiting operation was recently caught by the National Bureau of Investigation. All this money buys campaign posters, streamers and tarps; radio, TV and newspaper ads; land, sea and air transport services for candidates and their entourage; hotel and other accommodations; T-shirts and caps emblazoned with candidates’ names; show business personalities’ talent fees; salaries and wages of various campaign workers; food and meals consumed and given away during the campaign, and so on and so forth.

On the government side, the Commission on Elections was reportedly given a total budget of P13.4 billion for the conduct of the 2013 midterm elections. Government at both national and local levels also has the tendency to boost infrastructure spending in the run-up to elections for obvious reasons, up until the 45-day election ban.

How much additional spending can be directly attributable to the elections? A precise estimate is nearly impossible to make. Staff members from the National Economic and Development Authority attempted to do so a few years ago using data from the 2007 midterm elections. In their 2010 paper, Richard Emerson Ballester, Michael Bartolazo, Melanie Calumpang, Bien Ganapin and

Sheryll Namingit came up with the figure of P13.5 billion, which counted campaign spending by political parties and candidates, and spending by the government, particularly by the Comelec. In their analysis, this was equivalent to a 0.34 percentage point increase in overall GDP. They went on to analyze how that spending must have been distributed among various industries and sectors in the economy. Employment impact, according to their estimate, was equivalent to about 1.5 million jobs.

We can do a rough exercise to attempt a 2013 update of the figures that Ballester et al. obtained. On campaign spending, the law permits candidates to spend a maximum of P3 per voter. The Comelec now counts more than 52 million registered Filipino voters. Thus, each national (senatorial) candidate is allowed to spend P156 million. Just taking the two major coalitions fielding 11-12 senatorial candidates each, this would add up to about P3.6 billion.

For the rest of the roughly 60,000 candidates running at all levels, I roughly estimate another P7 billion, giving a rough total of about P10 billion in overall campaign spending. Adding Comelec’s P13.5 billion budget gives us P23.5 billion. One could further add extraordinary infrastructure spending by national and local governments (something Ballester et al. did not account for); let us roughly (and conservatively?) place that at P5 billion. Our total figure of P28.5 billion so far only measures direct spending attributable to the elections. Its total impact on the economy’s income for the year should also account for the so-called multiplier effect as that direct spending leads to subsequent cycles of income and spending as the money reverberates throughout the economy. Applying a rough and probably conservative multiplier of 5, the total GDP impact would come up to P142.5 billion, which is about 1.3 percent of our 2012 nominal GDP of P10.6 trillion. One would expect that election-related spending would boost the 2013 GDP growth by more than 1 percentage point, then.

How broad-based would that election-induced growth boost be? Ballester et al. observed that “the positive impact of elections appears to be not broad-based.” They found that more than half of the overall output/income effect would be felt in the services sector—with the bulk going into private services—which includes broadcast and print media. The positive boost to industry sector growth, including manufacturing, is much less (0.29 percentage point), while the effect on agriculture is a tiny 0.07 percentage point. The most visible impact on common people would be in the salaries and wages of hundreds of thousands of election workers, including school teachers—and of course, the money that changes hands through vote buying/selling. Still, the prominent beneficiaries of the bulk of election spending appear to be big businesses, with mass media being the most prominent.

Ultimately, it is the quality of leaders elected into office that determines an election’s long-term impact on the economy. And on this, it is not so much the election itself, but how we all exercised our electoral duty yesterday, that would make the difference. May God bless our nation with new worthy elective leaders.

(Comments welcome at chabito@ateneo.edu)