Memo on the economy for the next Philippine president

Almost all Filipinos want their president to succeed. Only politics makes it difficult to see through this basic fact. Significant success of the president momentously moves the nation forward.

Obviously, I address this open memo to the presidential candidates, one of whom by the grace of the electorate, will be elected the next president.

A vision of the future. A vision of the future is important. Such a vision should extend beyond the six year term of office a president is allowed under our laws.

The vision provides the fixed point towards which the new president would hope to bring the country closer. It helps to determine strategies and policies of his six years in office.

The job of president is like that of a captain of an air-or sea-craft. The captain has a definite route to travel towards the destination. If problems happen along the way, he undertakes the essential directional changes to set the proper course, both small and big. Thus, he avoids the hazardous ways and traps toward the destination.

To succeed, the leader needs the right set of crew as well as the proper instrumentations (read: technology) that enable the craft trip-worthy.

Macroeconomic stability is needed first, most of the way.  The most important task facing a national leader is to see that the house he works in is in good order.

Good macro-management sets the pace. It is essential to the achievement of economic goals. Those goals need to be realistic however. They should be feasible under situations of macro-economic stability.

Sound domestic policies are needed, but when powerful outside forces dominate, the leader makes adjustments to the circumstances. Such moves help maintain or come close to macroeconomic stability.

What, then, is macro-stability? For the most part, it is the combination of three sets of major sound relationships: (1) fiscal spending and taxes and other incomes of government are compatible; (2) the country’s total foreign earnings are close to the payments that it must make to other countries; and (3) domestic prices are relatively stable (read: sound monetary policy).

Appointing competent economic managers whose qualifications are vetted by the respect of others. A good defense against difficult problems becoming worse is to appoint capable people to hold the critical economic and sector posts.

When competent people manage the economic positions, the president will get good advice and act correctly and prudently. Then, outcomes are likely to be sound.

The presidency is surrounded by a den of supporters who seek recompense for their support, vested interests out to promote only their own welfare, hangers-on seeking favors, and cronies, not to mention relations and favor seekers. To make wise decisions that promote the nation’s welfare requires good, capable help.

A president must be able to appoint well-qualified people who are at the same time vetted by the trust and confidence of peers and disinterested laymen on their capabilities.

This starts the process of wise and well-directed decision-making. Capable people want other capable lieutenants to help them in their work. They want institutions to develop soundly. Hence, they will strengthen the public service and build a strong civil service.

Allow markets to function well. An orderly way to reach the economic objectives, if they are consistent with the resources available to us, is to let economic markets to function properly.

Properly functioning markets involve competition among the market participants (the sellers and buyers) and they determine the price and allocation of volumes of goods or resources that get transacted.

The market solution allows efficiency, often without the interference of the government. Unfortunately, and often, the impatience for solutions that are clouded by myopic vision or that favor certain interests often means leaders get swayed to adopt policies that contravene the sound functioning of markets.

Such shortcuts to the market solution led us to commit big mistakes for which the nation greatly suffers to this day.

Examples of problems generated by ignoring market realities. The biggest mistake committed in our nation-building is the thinking that nationalism means only that we should give opportunities mainly to our citizens.

Of course nation-building means the benefits of growth accrue mainly to the citizens. To speed up and maximize such gains, the help of outside productive factors is essential.

Many of our successful East Asian neighbors have done precisely this. They encouraged foreign direct investments to enlarge the pool of capital and, as a consequence, to accelerate the employment of their abundant labor.

Our initial situation was similar: “capital” was very scarce and our “labor” supply very abundant. But our leaders built walls to regulate and restrict foreign capital in critical fields and made sure more capital could come in only with conditions of venturing with local capital.

On the other hand, political leaders built up strong interventions to raise wages by government fiat rather than by market forces. They also brought in high standards of labor conditions for the protection of those employed.

The result of these two contrary policies produced perverse outcomes for us. Capital remained relatively very scarce and the increase of employment for the large part of the labor force did not improve.

Thus, always, employable labor at home was always abundant, with some living in abject poverty. A consequence was that Filipino workers sought good jobs abroad where capital is most abundant, and the demand for our workers with their skills is `high. We force-built the Filipinos going abroad for work because jobs were not available in abundance at home.

At home, our industries supplying public utilities remained challenged over time. The industries promoted under protection suffered from competition when exposed to import competition. And labor continues to be very abundant and wanting in sustained jobs.

The next president will have to ask himself: Why must Filipino workers go abroad and leave their families to support them? What we would need is to open the country to more foreign capital, make capital abundant at home so that jobs could be more available at home and families united and happier.

To succeed in doing this, he has to open more sectors of the domestic economy toward foreign capital participation. In doing so, the next president will have to strike down many restrictions and impediments that exist in business incentives and regulations. Such restrictions and regulatory requirements complicates the matter of doing business in the country.

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