‘Shortcomings of the current growth scene’

My comments last week on the country’s high growth performance emphasized the role of luck and the importance of international perception on economic prospects. Good perception creates a positive outlook.

Anti-corruption governance program vs. articulating overall economic reforms.  I also stressed the difference in Benigno Aquino’s style of running the economic program and that of Prime Minister Modi, who laid out all the major shortcomings of the Indian economy and made a full scale attack on them during the first few months of his government in power.

Incidentally, President Joko Widodo, the recently elected Indonesian president, appears also to be in same the mould as the Indian leader. Widodo sees a lot of gaps in economic policy and he focuses on their solutions by stressing them when he presented his program at the first opportunity. So, during his first year in office, he took major steps to remove a lot of subsidies that have crippled Indonesia’s finances.

Both the current leaders of Indonesia and India also remind me of the enthusiasm with which President Fidel Ramos asserted the need for economic reforms when he took over the helm of the political power in the country. He also had to work hard to solve the festering electricity crisis that was brought on by the failure of the first Aquino administration to commission the finished nuclear power plant project which would have generated cheap and steady power supply. (Instead, the country suffered major power brownouts for years.)

President Ramos devoted his time to break the telephone monopoly and open the telecommunications sector to other operators. The telco sector which has been a major driving force for development in recent years. I wonder how much farther President Ramos  could have advanced economic reforms if he did not have to contend with addressing the electricity problem.

Through all the five years of his term, President Benigno Aquino has avoided the serious economic reform issues facing the economy. The annual SONAs (State of the Nation Addresses) provide the best test of how the President views the country’s problems. The SONAs delivered so far (four of them) have mainly articulated the problems of corruption, and seldom focused on the economic measures that he considered important, except of course the budget.

For the most part, the SONAs were dramatic exhortations on anti-corruption work and a recitation of government achievements from year to year. A remarkable absence in the SONAs was a devoted attention to an analysis of gaps in economic policies that hold back the economy.

The Philippine Development Plan, crafted for the period 2011 to 2016, heavily uses the theme of promoting “inclusive development.” As such, there is great sensitivity in pointing out sector issues and macroeconomic framework to help maintain and create competition within the economy. Finally, it is overarching in its emphasis on “good governance and anti-corruption.”

Yet, in all these, the document avoids any direct references to policy gaps related to “restrictive economic provisions in the Constitution” in specific industries and areas of the economy that affect the attraction of foreign direct investments. In addition, it is also quiet on the need for labor market reforms to help in attracting more investments to expand employment and reduce the poverty caused by lack of jobs.

These omissions serve to imply that these gaps in economic policies could be overcome by improvements in investments in infrastructure, improvements of sector policies, by gains in the fight against corruption, and by the virtuous mechanisms of “inclusive growth.”

This, of course, is mistaken. The economy has to deepen the adoption of more economic reforms to remove barriers to investments and create more channels of growth and market competition. The early economic reforms adopted in the past – those that liberalized industry and trade – were mainly in the “goods market” – the buying, selling, and importing and exporting of goods.

The major policy bottlenecks that remain affect the “factors of production” – economic resources such as land, capital, and labor – which all contribute toward improving the efficiency of production and reduction of costs.

To improve market competition, Congress may soon pass a law governing monopolies and cartels. The barriers designed to restrict greater foreign direct investments in the country help to foment greater economic concentration and monopolies within the country.

On the momentous occasions when he could have faced amendments regarding the restrictive economic provisions in the Constitution, President Aquino has been the main silent oppositor or, on some cases, the main shirker of the issue. This, he has done even when the leaderships of both the House and the Senate had sought his support to expedite the remedial measures to amend these provisions.

Indecision: the perverse result of the anti-corruption drive. The anti-corruption drive under the present government has caused a lot of indecision in public investment projects. This has contributed to lower productivity and greater economic inefficiency.

A perverse outcome of the anti-corruption drive was the long process of making decisions in the government. Many important PPP (public private partnerships) projects have not been completed. Some have been postponed intermittently. And many of those held back for review have seen slow action.

Many of these, unfortunately, are projects in transportation infrastructure that further aggravates the bottlenecks of transport logistics in the Metro Manila area. The slowness of construction contracts has been aggravated by the mismanagement of the maintenance of the metro rail transport system, adding discomfort and fear to thousands of daily commuters.

Although lately, some of the PPPs have moved forward, few projects will see the light of day at the end of the Aquino presidency, even if some of these projects take less time to construct than the presidential term.

In the meantime, the commuters of the city – and those that only pass through the metropolitan area to go between north and south-suffer enormous time lost due to transport inefficiencies.

These inefficiencies are costly in terms of logistics, in production time lost, thus adding to the cost of production. If this presidency had given more attention toward infrastructure construction from the very start, much of this inconveniences and inefficiencies could have been avoided.

The current problems of transportation bottlnecks translate also in terms of worker efficiencies. Imagine the daily time that is lost due to long travel time. They fray the workers’ nerves. They add to distemper, if not error in the work place.

My email is: [email protected]. Visit this site for more information, feedback and commentary: http://econ.upd.edu.ph/gpsicat/