‘Economic rents’ created by bureaucrats reduced in federal system

OVER THE last 30 years, the Philippine economy has been characterized by the widening gap between the rich and the poor, brought about by the present setup of power and control in politics and economics. With a fragile state and a strong private sector, policies and laws are crafted to favor the rich. In economic terminology, this leads to what is referred to as “Matthew Effect”—the rich get richer while the poor get poorer.

From 1977 to 1980, the Philippine economy recorded a high negative $200-million trade balance deficit resulting from the capital flights initiated by the cronies of the ruling power at the time. Indeed, oligarchs then, stashed an immeasurable amount of the country’s resources abroad.

What deepening social gap are we now talking about? The social gaps and divisions caused by “centric-development” are already very evident. These gaps show in the form of poverty, lack of economic opportunities, poor education and health access, unemployment and underemployment. Three in 10 Filipinos are poor, and this has been the situation for more than 30 years. The intergenerational bequest in our country is poverty.

There is an economic concept called Ricardian equivalence. It refers to investments made today, with loans, for the benefit of future generations. However, future generations will be burdened by the debt payments when the loans mature during their time. Yet, if today’s investments are effective, they will raise the quality of life of the future generations, hence, the “equivalence.”

On the other hand, note that the past generations have not done well to ensure a better quality of life for the current generation. In fact, the older generations caused the decline of the general wellbeing of the present generation. And this came to pass because accountability was generally too far from the public mind.

A unitary and highly centralized government, more often than not, crafts wrong policies. These policies allow the exploitation of public resources in a manner that favors private interest more than the general public. Control is in the hands of oligarchs. This is elitist democracy, which leads to booty capitalism.

Booty capitalism occurs when private interests are pursued using government resources, in the process denying basic services to the public, especially the poor and marginalized. When laws and policies favor private interests, there is what we generally call “regulatory capture.”

A federal government system, along with political reforms, reduces the economic rents created by the bureaucrats in various government levels. Federalism improves accountability, and its responsibility is to the people it governs. Unbridled capitalism will be addressed; economic opportunities of ordinary Juans and Juanas improve. In effect, the wedge between the rich and the poor will be dismantled. Federal system leads to equal opportunities and equitable outcomes.

—ADRIAN TAMAYO, Faculty of Economics, University of Mindanao, and member, Lihok Pideral Davao