Outside the Box
HOW does the Philippines stay alive economically? Ruthless politics, a feeble manufacturing industry, an entrenched oligarchy, being geographically fragmented, two armed insurgent ideologies.
The list is long, formidable and challenging to any sort of economic growth. Yet, this nation has progressed and keeps progressing regardless of the obstacles. Why?
It would be hard to find any economic or political expert that would note this, but in fact, the Philippines has a strong free-market system that has allowed the nation to push against those factors that would otherwise keep it as a “basket case.”
Filipinos look back to the Edsa Revolution of 1986 as the beginning of the march to economic freedom. That is incorrect. Economic freedom through the free market came to the Philippines with the inauguration of Fidel Ramos as president in 1992.
With that freedom, the free markets have allowed the Philippines 17 years of economic expansion.
In the late 1980s, the Philippines was a basket case, the economy held tight, strangled by the “crony capitalism” of Ferdinand Marcos.
After the ouster of Marcos, the Philippines believed that with political freedom would come economic prosperity. But this was not to happen. The reason is that there was little difference between a crony-controlled economy and a government-controlled economy.
Ironically, there are some disturbing similarities between the Marcos economic policies of 25 years ago and the economic polices of the United States and Europe in 2009.
Philippine banks were owned by a favored few and lending was, in effect, controlled by the government. We were told the United States government takeover and control of automobile-manufacturing firms is for the good of the nation. Marcos said the same thing of his government’s control and oftentimes ownership of telecommunications, power generation, natural resources, public-construction works and transportation.
When Corazon Aquino took power, there was an incredible optimism about the future. But the dream was never realized during her presidency. The blame is placed on the political instability that shadowed each day of her administration. Yet, politics is only partly guilty for the stagnant economy.
Ramos brought the economic dream to a reality not through political stability, but by releasing the benefits of the free market.
Today, as in 1992, few if any of the aforementioned impediments to growth have changed. The one fundamental change is that the free market is alive and well in most sectors of the Philippine economy.
By 1992, a decade-and-a-half of government destruction of the free market, all in the furthering of creating a “New Society,” had taken a great economic toll. The tight regulation of sea and air transportation had reduced domestic travel to a shambles. Control of the power sector eventually caused 12- to -18-hour-a-day blackouts for several years. The government monopoly of telecommunications created a normal waiting time of five years to have a simple telephone installed.
The death, no, the murder of free- market capitalism reached to the lowest level of the economy. Taxicab franchises throughout the country were awarded only to those who had the capital to field a large number of units. Competition was minimal; service was also minimal.
Nearly from day one of his administration, Fidel Ramos sought to bring the free market back to life. The government ended the power crisis within 18 months by granting licenses to independent power producers. But old habits die hard, and the free market was subverted by the government guaranteeing purchase contracts regardless of demand.
Economic sector after sector was taken out of government control. Competition was encouraged through deregulation and the privatization of transportation, communications and energy, to name a few. From one carrier, government-owned Philippine Airlines, now half a dozen compete in a domestic market which grew by 20 percent in first-quarter 2009 over 2008.
Telecommunications is fiercely competitive, making the Philippines the wireless capital of the world if 200 million text (short messaging system, or SMS) messages a day is any measure. Nearly $200 million worth of banking transactions per day in the Philippines are wireless.
Privatization and deregulation of the petroleum industry has created a climate where same-company gas stations compete through pricing. And the difference in pump prices of gasoline between the “major” and “minor” players can be as much as 10 percent.
The most creative adherence of the Ramos administration to free market principles was the creation of the build-operate-transfer (BOT) scheme for public-works projects. Private capital, investing for profit and not the public good, have built dozens of large-scale projects that will eventually be turned over to the government at virtually no cost, freeing public capital for those services better supplied by the government.
We can also measure the success of the free market in the Philippines by looking at areas still under government control. Rice prices are quasi-controlled through the National Food Authority. And “poor” rice farmers economically suffer under price controls in order to benefit the “poor” consumers. But there is not enough domestic rice production, so the poor consumers must pay higher prices for imported rice. No one wins under this pricing scheme.
Energy costs are outrageously high, a remnant of Marcos’s National Power Corp. and Ramos’s guaranteed pricing, nonfree-market generation and noncompetition, which hampers development.
The Philippines is not a freewheeling capitalist system by any means. Corporate taxes are very high. Regulation and red tape can be stifling. But it is a free-market economy, and the empirical evidence shows the gains and benefits of the free market even in this underdeveloped nation.
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Tuesday, 23 June 2009
Outside the Box