The missing measure
Too many people see the annual State of the Nation Address (Sona) primarily as an occasion for a president to brag: “See, we’re so good that we have done so much for you!” True, talking about accomplishments is a necessary and important part of the Sona. But its importance lies more in addressing the question, “Where are we now?” to set the stage for asking “Where do we want to go?” thereby leading to the most important question of all: “How shall we get there?” In other words, the more important part of a president’s Sona is not so much the “bragging part”—which too many tend to question anyway and which drives the usual pack of demonstrators to the streets—but rather, the legislative agenda he lays before members of both houses of Congress. The Sona is, in short, for pointing out to all what more is lacking, and specifically to members of Congress, what laws they still need to pass. Rather than be an opportunity for bragging, then, the Sona should be an occasion for humility and introspection.
Everyone has already pointed out almost ad nauseam what really still needs to be done, and that is to translate all the positive economic news—and no one can deny there has been so much of it—into improving lives for all Filipinos. I was thus somewhat disappointed with the list of nine priority economic measures reported last week to have been identified by the Cabinet cluster on economic development, not so much for what it contained as for what it didn’t. And if that list tells us what President Aquino would most strongly push for with the 16th Congress, then I would have cause to worry.
Those who have been following me in recent weeks would know that I refer to the competition policy law, which actually passed the House of Representatives in the last Congress but didn’t make it through the Senate. For some reason, it was not in the priority list of nine legislative measures identified last week by the Cabinet economic cluster. I have described this law as possibly the most far-reaching economic legislation that the new 16th Congress could pass, if we are really serious about inclusive growth. Why is it so important?
We need a serious policy on competition, and an independent government body to enforce it, if we are to address the glaring concentration of economic power we see in our society. I have pointed out before how the degree of wealth concentration in our economy contrasts starkly with what we see in our neighbors and elsewhere in the developing world. Without a law to prevent unfair trade practices, level the playing field and deliberately improve the enabling environment for small entrepreneurs, small businesses don’t stand a chance against large entrenched ones.
The odds are already stacked against small businesses to begin with. First, small businesses find it very hard to access credit from banks, especially because the latter find it easier to deal with a small number of large borrowers than a large number of small ones. It’s bad enough that small businesses tend to face higher interest rates than large ones that are able to enjoy “prime” or “super prime” rates—that is, interest rate discounts—from the big banks. Smaller borrowers would also have to present tangible collateral before being even considered eligible for a loan, whereas the big guys can often get by on mere “character” or “reputation.”
Second, larger enterprises tend to have cheaper access to raw materials than small ones because they can buy them in bulk and thus get quantity discounts. Indeed, suppliers tend to flock to the large firms seeking their business (offering the best terms they can give in the process), whereas small struggling firms must do a lot of legwork to find the cheapest sources for their inputs. Third, larger enterprises are able to employ mass-production techniques (often labor-saving ones). I could cite even more reasons why a large company could have a cost advantage over one operating on a small scale—even as it is the latter that are more likely to produce more jobs, hence wider benefits, on a per-unit output basis.
Compounding this built-in disadvantage of smaller firms, and as if not content with entrenched market power, large businesses will often resort to unfair practices to further limit the competition they face. When we built our house many years ago, I discovered that I could not buy cement from dealers several towns away even as I found it to be much cheaper there; the cement cartel had partitioned the market among themselves so they could enjoy local monopolies. When I brought my wife to see a movie in a shopping mall recently, I wanted to pay with my credit card, not having enough cash in my wallet. But I was told that only credit cards issued by the bank also owned by the mall owners would be accepted. Hence I was forced to do some legwork to find an automatic teller machine and get cash—and of course, only ATMs of that same bank could be found nearby. Another large mall chain allows only credit card terminals of its own bank in establishments within the mall. And in direct assault of small business, I’ve heard of a distributor of a large multinational firm that threatened to cut off a rural-based sari-sari store if it continued to sell a homegrown soap made by an NGO-assisted community livelihood project.
To my mind, inclusive growth will not happen until we have a serious competition policy that checks undue market concentration and gives smaller businesses a chance. Under the circumstances, not to have it in the President’s priority legislative agenda would be a glaring omission indeed.
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