Thursday, 2 June 2011

Reversing government failure

Business Mirror

Sometimes it is fun and enlightening to look back at what we were saying in the past. A year ago, this column was entitled “The underground economy,” where I discussed how difficult it was for the government and the private-sector watchers to understand what the economy was doing based on the information that is used to compile the “official” numbers.

I wrote then: “Read this from the first week of March 2010: ‘The domestic economy is projected to grow below 3 percent in the first quarter of 2010 with a 2-percent to 3-percent decline in agriculture output due to El Niño and a strong peso that would limit the stimulative effect of overseas Filipino workers.” This is from the “experts” at Metro Bank and the University of Asia and the Pacific Capital Markets Research and, honestly, those groups are not foolish or unintelligent. They just never asked one of the sari-sari storeowners who sell 85 percent of the beer in the Philippines how their businesses were doing.

As we all know, the economy grew by over 7 percent in the first quarter of 2010.

The government has a difficult time making accurate projections and often the data that are eventually released are suspect as being too rosy, tilted for political purposes. Honestly, I am inclined to believe that here in the Philippines, economic data and information gathering are inherently difficult and, therefore, usually a “best guess.”

The question that might be asked then is: Is it better for the government to do the best it can and not reach a high level of competence? Or is it better for the government to stand aside and let someone else do it? I wonder if the companies that count and measure data and numbers as a business would do a better job than the government? Would a company that measures television viewership be able to count economic activity equally, as well?

The reason I bring this issue up is that there is a storm of criticism over the President’s Public-Private Partnership (PPP) Program. I would think that it is difficult to criticize something that has yet to happen and is just an idea. However, in the weeks after this scheme was announced, there was detailed analysis on why it could not work because the government did not have the available funds, why there would be the opportunity for corruption, and a host of other objections.

I suppose the critics should be happy that their worst fears have not been realized as PPP is still at the idea stage since there have not been any PPP projects.

Every administration comes to office starry-eyed, with grand plans about what the government is going to do for the country. Yet, the grandiose plans put forward in the first few months never seem to happen, whether it’s nation-wide wireless Internet, massive new housing developments, or food self-sufficiency.

One member of the Philippine legislature was recently commended as hard-working because that person had written literally hundreds of pieces of legislation. I wonder how much wealth creation occurred because of all that “hard work.” It would be refreshing to hear from an important national leader a thought-provoking discussion on what the role of the government should really be rather than simply what the government thinks it can accomplish.

My personal feeling is that the government should confine its efforts to areas and projects where the private sector cannot do as good a job.

We complain that public transportation in Manila. Metro Manila is one of the minority metropolises where buses are not government- owned and -operated. And yet, Manila has some of the cheapest public-transportation costs and highest penetration of service around.

We look at what happened when the government monopoly of air transportation was eliminated and how fares and service improved dramatically when the government got out of the airline business. Yet, it keeps its hold on the Philippine National Railway when rail transportation in Luzon and beyond could be a huge boon to the country.

The National Food Authority (NFA) is ineffective and costly. And here again, the government keeps its hold on the NFA like a mother clinging to her child. Instead of selling National Power Corp. (Napocor), absorbing the loans like it did for the Bataan Nuclear-Power Plant, letting the private sector take over and moving on, succeeding administrations hold on, refusing to admit Napocor is a huge failure. Meanwhile, whenever the government allows it, the private sector is building power-generation facilities to keep the country from going dark, which is what the government allowed to happen in the first Aquino administration and is moving toward today.

Many other countries have privatized their prisons systems. What country would be better to do that than the Philippines, where the government cannot afford to properly feed and house the prison population or even, sometimes, keep them inside the cells? The government worries so much about how to raise the money to do all the things that it thinks it can do better than the private sector, but does not. Wouldn’t it make more sense to let the private sector do the job and provide the services that the government has failed at doing?

Government successes are so rare that when they do happen, it is front-page news. Private-sector successes are just ordinary, business-as-usual day-to-day occurrences.

On a personal note, once again as we prepare for the launching of our web site in a few weeks,, a Twitter account has been set up. If you would like to follow mangunonmarkets on Twitter, please join. Once the web site is launched, the Twitter updates will only be available to subscribers of the Premium Area.

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