Rifle vs shotgun

No, this article is not another one about shooting and violent conflict in Mindanao, even as the blame game for the Mamasapano debacle rages on. It’s about policies, purportedly aimed at helping distinct sectors of the economy, that inflict collateral damage on the wider majority of Filipinos. Our economic history is replete with such ill-advised “shotgun” policies, often justified on nationalist grounds, and yet ultimately hurting more Filipinos than they helped. Nowhere in our policy landscape has this rifle-shotgun dichotomy been as pronounced as in trade and investment policies.

There’s a widely held misconception that the country will face a “tsunami” of Asean products that threaten to drown our domestic producers when the Asean Economic Community (AEC) officially comes into effect on Dec. 31, 2015. Few Filipinos seem to realize that save for very few exceptions—notably rice and a few other farm products—virtually all products we trade with our Asean neighbors have already been at 0-5 percent duty since January 2010. The feared “tsunami” is a ghost people have created in their minds out of a misunderstanding of where AEC actually is as of now. Still, there is legitimate concern in the case of the few holdouts such as rice, where our much higher costs relative to
rice-exporting neighbors indeed put to question the plight of farmers, once trade in the product is
finally and inevitably freed.

The story of why we failed to become competitive in rice, even with the International Rice Research Institute in our midst, is a hotly debated and emotional one. But few would disagree that governance failures have been a dominant, if not the central factor that drove us to our current position of disadvantage. Any economist worth his/her salt understands why our traditional policy of supposedly “protecting” rice farmers by restricting rice importation to the control of a state monopoly via the National Food Authority has worked against us. It was a “shotgun policy” that inflicted wide collateral damage to the rest of the Philippine economy and the wide majority of Filipinos, farmers included. To make matters worse, the policy was easily hijacked by corrupt officials who saw fabulous moneymaking opportunities in the state-controlled trade of the commodity.

The protected market fostered decades of complacency and ineffective support for the industry, perpetuating inefficiency and higher costs. Under a highly shielded market, there was little impetus to reduce production costs. We leaned heavily on a policy that was thought to “protect” our rice farmers from lower-cost foreign rice, a policy that amounted to pushing up the price that all Filipinos, rich and poor alike, must pay for our primary food staple. The burden turned out to fall on rice farmers and their families as well, with various researches, including incisive poverty studies undertaken by Socioeconomic Planning Secretary Arsenio Balisacan himself, showing that (poor) rice farmers are rice buyers, too. And with rice being the primary wage good, our wages have had to be higher, undermining the economy’s overall competitiveness. Looking forward, a focused approach of nurturing the industry with appropriate support that will eventually reduce costs—as opposed to one of “protecting” it with higher prices at the expense of a wider number of stakeholders—makes much more sense. Balisacan now wants to correct our flawed rice trade policy, but is being demonized by those who have either profited from the traditional market restriction, or have failed to appreciate the full implications of our shotgun approach.

Also impinging on the competitiveness of both agriculture and manufacturing is the age-old law on cabotage that prohibits foreign ships from moving cargo within the country. The decades-old lament is that it is cheaper to ship goods from Bangkok to Manila than from Mindanao to Manila, due to lack of competition. This hurts domestic producers, especially farmers, as a feed mill in  Luzon, for example, finds it cheaper to import corn from Thailand rather than source it from Mindanao, even with ample supplies there. Filipino consumers are also hurt, having to face higher commodity prices that embody the higher costs incurred in moving them across our islands. The cabotage law is another shotgun policy that effectively sacrifices the interests of the wide majority of Filipinos as it tries to protect a few, namely, the local shipping industry.

The infant industry argument had traditionally led our government to use high import tariffs to protect domestic producers from foreign competition. But we ended up with a proliferation of 20- to 30-year-old “infants” focused entirely on our limited domestic market. Given the protected market and with no clear timeline for eventual removal of infant industry protection, it was all right to persist being more costly and less competitive than foreign counterparts, and penalizing Filipino consumers in the process. Not surprisingly, we missed the opportunities that the export drive of the 1980s to 1990s gave our neighbors, whose economies zoomed ahead while substantially reducing poverty. Rather than tap the opportunities the inevitable globalization wave brought about, we were reduced to a defensive posture, not quite able to achieve the economic dynamism seen in most of our neighborhood.

Well, things are finally changing, to a large extent because closer economic integration has forced us to open up and realize that a rifle-focused policy of nurturing is superior to one of shotgun-style “protection” that helps a targeted few but hurts many others.

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