Philippine Development, Good Governance, and the Pork Scandal in Context

Cesar Polvorosa, Jr.

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The pork barrel scandal is just the latest epiosde in the perpetual struggle for good governance in the Philippines. Cesar Polvorosa, Jr. takes the longview.

The rise of a country fascinates historians, investors, economists, and researchers. The Philippines, widely heralded as the next “Tiger” economy of Asia has recently been in the spotlight for its stellar economic performance.  Amid the continuing weakness of the global economy, the country posted a robust economic growth of 6.8% in 2012 and 7.0% as of the 3rd quarter of 2013, maintaining its enviable status as one of the fastest growing Asian economies. 

There is a need, however, to temper exuberant expectations as the rapid growth has only been very recent. Achieving development requires decades of respectable economic growth and structural transformation. Economic powerhouses China, Japan, and South Korea advanced from decades of blistering 8-10% annual growth. In stark contrast, the Philippines expanded at a lacklustre yearly average of 3.3% from 1980 to 2012. 

There is a pervading sense of déjà vu as well: The economy has been on this path more than once and each time it proved to be a false dawn. For several years after World War 2, the Philippines was considered a progressive Asian country second only to Japan. It was acclaimed as a rising Newly Industrializing Country (NIC) in the 1970s and again in the mid 1990s. 

Why is the country unable to ascend to a higher sustainable growth path?  All economies are buffeted by external shocks but for post-war Philippines, domestic upheavals were major crises of governance that played a major role in derailing the economy. “Governance,” notes the IMF, includes “all aspects of the way a country is governed, including its economic policies and regulatory framework, as well as adherence to the rule of law.” According to the United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP), good governance has eight major characteristics: “It is participatory, consensus oriented, accountable, transparent, responsive, effective and efficient, equitable and inclusive and follows the rule of law. It assures that corruption is minimized…” The failure of Philippine governance to fulfill these eight characteristics has time and again triggered socio political tumult with grave economic repercussions. 

Boom and Bust Cycles: Crises of Governance 

The 1980s marked a major crisis of governance for the Philippines that culminated in the People Power revolution of 1986. Average economic growth plunged to -1% in the period from 1983–1987, which excluded would result in a 4.2% average growth for 1980-2012 instead of 3.3%. 

The Ramos administration restored stability and boosted average growth to 5% and that presidency is generally regarded as a rare period of relatively good governance for the Philippines. The country was again hailed as an emerging NIC but that vision vanished with the 1997 Asian Financial Crisis. The country struggled to recover due to the turbulent Estrada administration and the 2001 People Power 2 protests. The succeeding Arroyo government rode on the global economic upswing of the mid 2000s and improved average growth to 5.7% in the period from 2003 to 2007, though corruption scandals hounded the latter part of her term.  In short, the Philippine economy failed to sustain respectable growth during the past generation. 

There were prolonged periods of uncertainty and two regime changes initiated by the Parliament of the Streets. During the past 13 years, the country has ousted and prosecuted one president, while investigating another. A Supreme Court Chief Justice has been impeached and ousted as well. Clearly, the Philippine ship of state, often with an inept helmsman and crew members that plunder from the passengers, is a decrepit vessel. 

Like a malignant tumor, ruinous and predatory regimes need to be excised from the body politic for the patient to live. The cost will be short-term economic disruptions, but in the long run the resulting good governance will enable the country to fulfill its development potential. Without the real cure, however, the crisis of governance will recur. What is the origin of this disease?

History Matters: Philippine Political Economy

An encompassing lens of analysis to explain Philippine underdevelopment is path dependency: examining the role of history in the political and economic paths states take. Centuries of colonization have created a society dominated by a small elite while the vast majority of the people have been mired in poverty and servitude. 

The Spaniards instituted the encomienda system—a feudal system patterned after the governance template of their Latin American colonies. Extractive political and economic institutions emerged that existed to benefit a small elite. This is not to essentialize the highly diverse Latin American and Philippine societies, but only to highlight key historical parallelisms based on common colonial experiences. Power concentrated in a small elite leads to weak institutions, fragile governance structures, and distortions of market incentives. Exploitation and unequal opportunities constrain social mobility as resources serve the oligarchy’s interests. Political dynasties strive to cling to power. Corruption becomes embedded and institutionalized in relations and transactions.

While the colonial rule of the United States ostensibly established democracy in the Philippines, it gave an immense advantage to the entrenched economic and political elite that had the resources to win elections and take advantage of new business opportunities. The perpetuation of family interests once in political office was facilitated by the same unequal distribution of resources that brought them to power. American economic policies in its Philippine colony entrenched an oligarchy, while weakening the peasantry and the middle class.

Largely because of their colonial experiences, Latin American countries (and Sub Saharan Africa) are the most unequal societies in the world, with average Gini Indeces of .52. The Philippines has one of the highest income disparities in East/South East Asia with Gini Index of .43. High inequality aggravates poverty levels, fuel wide spread resentment, health problems, and sociopolitical instability.

Corruption and Underdevelopment: State Capture and Regulatory Capture

According to the IMF, “Corruption is a narrower concept than governance. It is often defined as the abuse of public authority or trust for private benefit. The two concepts are closely linked. Where there is poor governance, there are greater incentives and there is more scope for corruption.

There is also a reverse link: corruption undermines governance to the extent that it distorts policy decisions and their implementation.” Corruption also reduces the effectiveness of the government as regulator of the economy and the enforcement of rules, regulations, and property rights.

The most pernicious form of corruption is the pervasive and systemic abuse in the allocation of public resources. Firms, interest groups, bureaucrats, elected officials etc. influence the rules of the game through decrees and regulation concerning the allocation of resources. The system is particularly insidious because of its veneer of legality, as is evidenced in the pork barrel system.

Given the historical context, can the pork barrel scandal be just the tip of the iceberg? Corrupt practices that range from non payment of taxes, the bribery of officials for the creation ghost projects have profound inimical effects as they starve priority sectors such as education, healthcare, and infrastructure. Imported yachts, luxury cars etc. acquired by corrupt politicians do not create local jobs and economic benefits. Investors bring jobs and technologies to other countries while local entrepreneurs are hobbled by bureaucratic red tape, bribery, lack of financing, and deplorable infrastructure.

The lost luster of public office stained by corruption attracts individuals with dubious qualifications and unscrupulous morals. With the levers of power they gain a sense of entitlement and impunity. The impoverished masses concerned with daily survival become vulnerable to vote buying. Subsequently, the lack of opportunities in the domestic job market forces many to work abroad, leading to brain drain and the break-up of families.

The wide-ranging and severe adverse impacts of systemic corruption have been underscored by the magnified devastating effects of the Yolanda/Haiyan super typhoon. While the destructive power of Yolanda/Haiyan is unprecedented, systemic corruption resulted in inadequate infrastructure to prepare for the typhoon and the necessary communication and transportation facilities for the subsequent relief operations. There were reports of bribes needed to move relief goods from a port in Luzon to the Visayas. The perception of widespread corruption made many Filipinos and foreigners hesitate to give donation money and relief goods.

Can cross country data show connections between corruption levels and the state of national development?

The most widely used international measurement of corruption is the Corruption Perception Index based on an annual survey by Transparency International. The Corruption Perception Index ranks countries based on how corrupt their public sector is perceived to be based on a scale of 0 – 100, where 0 means that a country is perceived as highly corrupt and 100 means it is perceived as very clean.

A measure of a country’s average income is GDP (Gross Domestic Product) divided by the population adjusted for purchasing power parity (PPP). Countries also use the United Nations’ Human Development Index (HDI), which measures a country’s well being using life expectancy, education, and income indices. The index classifies countries under four Human Development (HD) categories: Very High, High, Medium and Low.

By comparing Corruption Perception Index with GDP per capita incomes and the HDI for various countries some insights can be gained about the relationship of corruption as an indicator of ineffective governance with corresponding income and quality of life levels.

 

Table 1: Corruption, GDP Per Capita and HDI (Selected Countries)

2013 Rank in Corruption Perception Index (out of 177) Country Score 2012 US$ GDP Per Capita PPP HDI Rank/Human Development(HD) Category (New 2013 Est. for 2012)
1 Denmark 91 42,086 15   Very High HD
1 New Zealand 91 32,219    6   Very High HD
3 Finland 89 38,655  21   Very High HD
3 Sweden 89 43,180    7   Very High HD
5 Norway 86 65,640    1   Very High HD
5 Singapore 86 61,803  18   Very High HD
7 Switzerland 85 53,367    9   Very High HD
8 Netherlands 83 43,198    4   Very High HD
9 Australia 81 44,598    2   Very High HD
9 Canada 81 42,533  11   Very High HD
11 Luxembourg 80 91,388  26   Very High HD
18 Japan 74 35,178  10   Very High HD
19 United States 73 49,965    3   Very High HD
80 China 40   9,233 101 Medium HD
83 Peru 38 10,932   77  High HD
94 Colombia 36 10,583   91  Medium HD
94 India 36   3,876 136  Medium HD
94 Philippines 36   4,410 114  Medium HD
102 Ecuador 35   9,796   89   High HD
106 Bolivia 34   5,276 108  Medium HD

sources: Transparency International (Corruption Perception Index), World Bank (GDP Per Capita) and UNDP (HDI).

The figures above indicate that countries with the least level of corruption achieved the highest average incomes and quality of life and those countries that are seen as more corrupt have lower average incomes and quality of life.

For 2013, the Global Corruption Index for the Philippines showed that a significant percentage of the respondents perceive that key Philippine institutions were corrupt/extremely corrupt: political parties (58%), judiciary (56%), police (69%), public officials and civil servants (64%) and legislature (52%). Since the surveys were conducted during the period from September 2012 to March 2013, these disturbing results do not even reflect the expectedly detrimental impacts of the Pork Scandal in the 2nd half of 2013.

Sustaining Economic Growth and Development: Beyond the Pork Barrel Scandal

The Philippine economy is forecasted to grow 6.5% – 7.5% until 2016—the end of President Aquino’s term. While this is a realistic scenario, the general absence of prognosticating beyond 2016 manifests the perceived risks associated with each new Philippine administration. It is a recognition that democracy has not yet matured in the country. What is also generally perceived as the ineffective handling by the government of the Yolanda/Haiyan relief effort has eroded the political capital and popularity of the Aquino administration and enhanced uncertainty about the Philippines after 2016.

As Acemoglou and Robinson explain in their book Why Nations Fail, countries with extractive political and economic institutions may grow but this growth will not be sustainable. The misallocation of resources and loss of efficiency make it harder to achieve and sustain growth. Thus, Latin American and Philippines economies go through fits and starts of the boom and bust cycle. Economists have observed that many countries after graduating from underdevelopment become ensnared in a “Middle Income Trap.” Entrenched extractive institutions and the exhaustion of resource advantages may stifle the dynamism of these countries.

Philippine economic growth has disproportionately benefited country’s elite. Poverty is persistently high at about 28% of the population, unemployment remains above 7%, and underemployment is at an alarming 19%. The highly unequal income distribution in the Philippines should be a cause of concern as research suggests that equality is important in promoting and sustaining growth. Widening inequality deepens the fault lines in society that, not only can stall economic growth but can eventually lead to sociopolitical upheaval.

With GDP per capita incomes that are generally higher than the Philippines, Latin American countries provide a preview of a possible future for the Philippine economy. Latin American countries such as Guatemala, Bolivia, and Paraguay have per capita incomes of US$5,102; US$5,276 and US $6,138 respectively—levels that are attainable by the Philippines over the medium term. Though Latin America is making progress towards egalitarianism, it remains a highly unequal region with significant social and economic concerns. Though the Philippines and Latin America have similar pasts, their futures need not be the same.

From the historical perspective, People Power in 1986 and 2000 may represent only the initial crucial steps taken by Filipinos to establish genuine democracy and good governance in the country. People Power did not change the rules of the game and the oligarchy remained firmly in place, and governance crises keep recurring. The Million March to protest against the Pork Barrel and the subsequent actions may represent real progress, or they may not if the people fail to seize the historic opportunity. The unanimous decision of the Supreme Court (SC) declaring the PDAF and the use of the Malampaya funds for purposes other than energy related projects unconstitutional is a critical milestone in the evolution of Philippine governance. It illustrated that good governance reforms, transparency, and accountability in the allocation of public resources can be achieved. Depending on developments down the road, the SC decision may just have averted another People Power.

There is now an unprecedented historic opportunity to reform Philippine governance with the momentum created by the SC decision. If the follow-through to the SC decision only yields cosmetic reforms, then the Philippines will miss a golden chance to transform its governance structures.

Good governance is not limited to the high-profile prosecutions of erring officials. The good governance imperative demands the overhaul of entire systems and institutions. The Philippines needs to undertake systemic reforms by integrating firm anti-corruption mechanisms in its governance structures necessary to unleash the full creative and productive energies of Filipinos.

The Philippines is at a critical crossroads as the next steps it will take in response to the pork barrel scandal will determine whether it will progress along the future path of good governance or regress. 

Good governance requires political will. It is about believing in the shared destiny of Filipinos regardless of class. The political leadership needs to transcend its elite class interests to engender sustainable and inclusive economic growth. The key is good governance and that can be the historic and enduring legacy of the present administration if it acts with decisiveness, persistence and clarity of vision.