Overreach

Much has been said about judicial overreach; hardly anything about legislative overreach.

Right now, the Congress is considering legislating a P2000 pension hike for members of the SSS. Were it not for the measure being so popular, the proposed legislation would have been condemned as scandalous.

The SSS, after all, is a private fund. Members of the fund own it. It only so happens that government appoints the trustees administering this fund. Any legislation intrudes into the private nature of the fund. Imagine if you were building up a retirement portfolio and the politicians decide what you should do with it.

Should legislated pensions bring down the fund, it will be future pensioners who will be harmed. They end up with an empty bag.

But trust the politicians to grandstand on every popular issue – even if populist gimmickry is inherently shortsighted. They want to legislate wage increases, for instance, even if a regional wage board exists for that purpose.

From a pure market standpoint, government has no business interfering in matters that should be in the exclusive domain of the private sector. The wage level should be the outcome of free transaction between employer and worker. Otherwise wages will be politicized and the entire domestic market skewed.

Fortunately, we do not have the Oil Price Stabilization Fund (OPSF) anymore. That was a mechanism that, in the guise of protecting consumers from oil price shocks, effectively politicized fuel prices. The public decided to pay the price it wants. In the end, government subsidized the difference between the politically acceptable price level and prices in the real world.

The OPSF, while it was there, inflicted huge budget deficits that forced government to borrow. That, and the subsidies on power, account for much of the foreign borrowing that brought about the debt crisis of the eighties. Consumers benefitted from subsidized fuel and power, the rich particularly since they consumed more of both on a per capita basis. But all of us, the poor especially, bore the costs of the debt crisis.

The lesson here is that untargeted subsidies are never progressive. They always end up harming the poor more.

We have so much populist legislation in the books. Collectively they explain why rates of extreme poverty have become so high.

Every now and then, some politician tells us we make an inventory of laws passed and repeal those that are obsolete, that were never funded or that have proven counterproductive. Our Congress never got around to doing that. Some of the most obscene, more economically irrational pieces of legislation also happen to be the most popular – such as those that exempt this or that disadvantaged group from VAT coverage.

These exemptions punched large holes on the VAT net, creating immense leakages for the whole system. Now, the DOF is swimming against the tide of populist opinion, trying to plug those legislated holes.

Agri-Agra

Among the most grotesque, albeit legislated, anomalies is the Agri-Agra Law.

The first version of this law was enacted as Presidential Decree No. 717. This martial law imposition was amended most recently by R.A. 10000.

At first glance, this might appear a lovely law. It mandates all banks to set aside a total of 25 percent of loanable funds to be lent to agriculture and agrarian reform sectors. Of this quarter, 10 percent should be set aside for agrarian reform initiatives and 15 percent for agricultural financing. Non-compliance with this imposition is prescribed fines and penalties for the banks.

Despite this imposition, our agriculture remains retarded. Some banks are forced to pay the penalties because there simply are no takers for the loans. Over time, loopholes were opened for the banks. Either that, or we face a banking crisis.

This is patently class legislation. The Philippines is the only country in the world that dictates mandatory lending to a specific sector. It smacks of authoritarianism and economic dictation by the state. The decree was issued because, well, a dictatorship can do what it wants no matter the realities of the market.

In the four decades since this unwise concept was decreed, the domestic banking system grew and our agriculture receded as a proportion of the whole economy. Because of that, if the law is obeyed to the letter today, the banking system should have about P52 million to lend for every hectare of land devoted to agriculture. Our agriculture, tied to subsistence farming, cannot justify the lending with matching productivity.

Besides, agrarian reform advocates, wary of fueling land speculation and re-concentration, legislated a counter-foil to capitalizing our agriculture. They took away from land reform beneficiaries what should be their property rights: to use the land as collateral or sell it in the open market.

The Agri-Agra Law and other policies relating to our agriculture were at cross-purposes. Elsewhere in the economy, we promoted competition. In agriculture, we banned it. While our neighbors grew their agricultural sectors by promoting agro-industry to raise productivity, we bound ours to subsistence arrangements – and to rice and corn in particular which produced the lowest value per unit of land.

The volume of rural poverty is a self-inflicted malaise.

The glaring anomaly of the Agri-Agra Law is that it infringes on the rights of banking as a business. The banks, as trustees of the people’s savings, have the responsibility to produce returns for deposits. That is their mandate.

But the Agri-Aga Law is a monkey on the backs of our banks, undermining their ability to compete on a regional basis. This stupid law should be repealed right now.