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| Reference Material |
| How will the �strong republic� be built? Amado M. Mendoza, Jr. e-mail: [email protected] 26 July 2002 Asked to comment on President GMA�s state-of-the-nation-address (SONA) last Monday, opposition senator Rodolfo Biazon quipped: �Strong words do not make a strong republic.� Nobody will quarrel with the need to build a strong republic in the Philippines if a strong republic means good governance. [2] The demand for good governance at the nation-state level is almost universal. The more relevant and interesting question is a question of supply. How do strong states develop? How are �strong republics� built? If one considers the history of state making in Western Europe (where the nation-state was born), the US, the USSR (yes there once was a Soviet Union), and the states divided by the Cold War, international war was the cruel crucible. Centuries of warfare forced the nascent states to steadily build their capacities to penetrate and extract resources from their societies and to coordinate variegated functions and programs. The test of statehood was war; weak and incompetent states such as Poland, Tsarist Russia, and Manchu China, usually sustained military defeats and debacles. More recent examples indicate that international war, even if of the �cold� kind, continue to be the forgers of strong states. Taiwan, South Korea and West Germany built strong states, with the help of the United States, as they competed with their communist alter egos. Of course, Israel built its strong state, albeit with strong American support, during a series of �hot� conventional wars with the Arabs. In principle, the Philippine state rejects war as an instrument of national policy. In truth, the weak Philippine state is not in any position to wage international war. In lieu of this option, our leaders, especially after Marcos, had chosen the neo-liberal solution, or closer integration into the global economy, as the way to bring about good governance and a strong state. The international capital market will supposedly impose disciplinary strictures on local political and economic actors, public and private. This view has a noble lineage; classical writers like Adam Smith, David Hume, and Montesquieu saw capital mobility as a powerful antidote to bad princes. [3] Where mobile capital goes will be depend on the quality and competitiveness of immobile factors of a particular location. These immobile factors include the hard ones�land, roads and bridges, information and communications systems, and the like; and the soft ones such as law enforcement, contract enforcement, property rights protection, and public service delivery systems�governance in short. The burden of attracting mobile capital falls squarely on the immobile factors of a country. From the viewpoint of international capital, the ultimate competitiveness of each location depends upon the attractiveness of the package of immobile factors it offers. Previously, competition for mobile capital among and within developing economies has largely taken the form of providing more attractive hard immobile factors as well as investment incentives such as tax credits and strike-free industrial estates. More recently, the greater salience of governance had been recognized. During much of its history as a modern and �independent� state, the Philippines had been an American protectorate. Our elites had been babied by their foreign patrons with air and naval cover, free trade, and aid. They therefore have not bothered nor forced to build a credible army and a competent bureaucracy�the sine qua non of effective states. Couple that with the �natural resource curse�. Since 1946, the same elites got content earning foreign exchange through the export of commodities (desiccated coconut, sugar meal, mineral ore, logs) very close to their natural form and with minimal processing and very low value-added. In contrast, the elites in more austere and frontline jurisdictions as South Korea and Taiwan had to go into industry and manufacturing in a big way. Of course, it helped that the landlord class was disenfranchised politically and economically through land reform in both countries. While our political economy has in fact been changing since the 1970s, the decisive policy break in favor of export industrialization and freer markets has apparently never been made. Temario Rivera suggested, among others, that this was due to continued intertwining of landlord and capitalist, comprador and exporter, financier and industrialist, amongst our elites. The economy�s integration into the international capital markets, which received a great boost with President Ramos� liberalization of the capital account, was apparently the preferred path. Our local elites have been able to share in the bonanzas brought about by fluctuations in capital flows, especially those in short-term portfolio movements. Almost all of our elite families have interests in financial institutions or are in joint venture with foreign financial interests and hot money flows, as in other emerging economies, were heftier than direct foreign investments. Since fund managers can still make money even in the short run, they may not share the concerns of those who make longer term capital investments in say factories, industrial estates, and the like. Consequently, their placement decisions stimulates governments in the so-called �emerging markets� like the Philippines to pay attention to short-run goals like improving the economic indicators (inflation, exchange rates, budget deficits, balance of payments, and the like)�the checklist items that are more readily measurable and understood by economists and fund managers the world over. Rather than the more difficult and tedious tasks of improving the law enforcement and justice dispensation systems, reducing or eliminating corruption, reforming the bureaucracy, strengthening the political party system through campaign finance reform, among others. This is not to say that fixing our macro-economic indicators is not necessary. But it may not be sufficient to attract the kind of capital, domestic and foreign, that creates jobs�jobs that matter in a labor-surplus economy. These jobs can in fact keep a large number of Filipinos from going to their �Saudis� and avoid the social costs of being away from their families for a long time. Mobile capital may indeed be a corrective to bad governance. However, extremely mobile capital may lack the patience for good governance to emerge over time in particular jurisdictions. This is shortsightedness. Capital mobility and the changed nature of on-the-cutting-edge products (being more a bundle of ideas rather than a package of tangible or material inputs and are therefore more vulnerable to counterfeiting) make property rights even more important today than ever before. [4] Public agencies such as nation-states are still tasked with the enforcement and protection of these same rights even as they cooperate with each other through international issue-area regimes (such as the GATT-Uruguay Round with its TRIPs, TRIMs, etc). After all, mobile capital still belongs to people who are rooted one way or the other to particular jurisdictions. Thus good governance matters for mobile capital even as the latter induces the former. But as Harvard�s Dani Rodrik warned, the priorities implied by integration into the global economy will arguably not always coincide with those of a more fully developmental national agenda. Consider the following trade-offs: � Education. What should the government priorities be in its education budget? Should it train more bank auditors and accountants, even if it means fewer elementary and secondary school teachers? � Corruption. How should government focus its anti-corruption strategy? Should it target the �grand� corruption that foreign investors complain about, or the petty corruption that affects the average person the most? � Legal reform. Should the government focus its energies on �importing� legal codes and standards, or on improving existing domestic legal institutions? Reforming the existing legal system for the benefit of foreign and domestic investors might be a better strategy in the long run. � Public health. Should the government pursue tough policies on compulsory licensing and/or parallel importation of basic medicines (to make low-cost drugs available to the poor), even if that means running afoul of existing World Trade Organization (WTO) rules? � Industrial strategy. Should the government simply open up and let the chips drop wherever they might, or emulate East Asian experience of industrial policies through export subsidies, directed credit, and selective protection? � Social protection and safety nets. How much can the government afford to spend on social protection and safety programs in view of financial constraints imposed by market �discipline�? How could governance at the state level be improved? A general prescription is to reduce the state�s intervention in the economy. The argument here is that the over-reaching state will consequently be an incompetent one since its grasp will fall short of its reach. If the state reduces the scope of its activities, its competence will improve. The retreat of the state from direct intervention and involvement in the economy in turn requires new governance and regulatory capacities. Where markets do not exist or where markets do exist but are unfree, state action is needed either to help create markets, to free existing ones, and to maintain the freedom of existing ones. This is the so-called �orthodox paradox� of market reform. The �orthodox paradox� stipulates that while market reform calls for less intervention of the state in the economy, it requires the same state to initiate and sustain these changes. While there is debate about the state�s �limited agenda,� Raul Fabella, dean of the UP School of Economics, notes a consensus on three basic items: l The state should stay clear of areas where markets can function properly; l The state, should, at best, regulate in areas where market failures are endemic (as with prudential rules for banks where moral hazard is eminent) rather than acquire ownership; l The state should improve its performance in the Smithian agenda: that is, it must ensure internal peace and order and external defense; provide for a reliable system of property rights protection and contract enforcement; and help provide critically-needed infrastructure such as roads, ports and communications systems. Retreating from the overreaching agenda of the past is the political challenge confronting the Philippine state and society. Alongside this necessary retreat is the need to change the prevailing culture of entitlements. As far as the Philippine state is concerned, it is both a case for retreat and advance. In many cases and levels, state action is sorely lacking. In this sense, the state is a weak and soft one. In instances where the state is overbearing, this is usually when and where the intervention is in favor of vested interests. Reverting to a minimalist agenda is not problem-free. Several questions need to be answered. Where will the impetus to dismantle the overreaching soft state come from? From the state leaders and bureaucrats themselves (even if they benefit from the state�s softness)? From the rent-seeking special interest groups? From the general public who also benefit from the transgression of rules via the contagion effect? [5] All these questions are derivatives of the more fundamental questions: where do good institutions come from? How are they built and how are they sustained? A number of the greatest minds tried answering these questions, including the participants of the 1999 conference on second-generation reforms organized by the International Monetary Fund (IMF). Rodrik noted that the choice lay between importing wholesale a �blueprint� from the more advanced countries and relying on the expertise of technocrats and foreign advisors or relying on hands-on experience, local knowledge, and experimentation. The local knowledge approach relies on mechanisms for eliciting and aggregating local information. The most reliable forms of such mechanisms, according to Rodrik, are participatory political institutions since democracy helps build better institutions for achieving prosperous societies. He also argued that democratic regimes are associated with significantly lower levels of aggregate economic instability since democracies have a greater propensity than non-democracies to moderate social conflict and induce compromise. One of the usual laments about under-developed societies in general, and the Philippines, in particular, is that there is supposedly �too much politics� and that therefore, the road ahead would be better if politics were reduced. Kenneth Shepsle, a noted political scientist, warned against na�ve prescriptions, which call for the creation of institutions that are depoliticized, that is, purged of politics, such as those contained in the World Bank-produced World Development Report 1997. Politics may be a problem but it must be part of the solution since institutions are inherently political and therefore those engaged in the design of appropriate institutions and social reform must �take politicians and political motivations as a fixture and try to design institutional arrangements in light of these, not despite them.� In the end, Shepsle sees hope in the competition between uber-officials and unter-officials, between older and younger politicians, where ambition is pitted against ambition. Older uber-officials with shorter time-horizons will discount the future heavily and may be partial to present consumption (or predatory behavior, if you will). The future welfare of his people will thus depend on his (or the lack of) altruism. On the other hand, younger unter-officials have greater valuations of the future and may therefore prefer investments to current consumption for future growth. To the extent that uber-officials need the cooperation of unter-officials to implement policy or changes in policy, then the latter can temper the excesses of the former. All these arguments are made in appreciation of the fact that successful economic development requires sacrifices in the short-term for long-term gain. However, politicians of whatever age, as a rule, have short time horizons. While some of them may genuinely desire prosperity and equity for the people, most of them are mainly concerned with their personal interests and advancement. Uber-officials want to remain as such while unter-officials want to become uber-officials. Furthermore, the pressures and demands exerted on them by their constituents and patrons are for gratification in the short-run. Should we pine for monumental changes in the behavior of our political leaders and our citizens? Or should we design solutions in due recognition of the fact that most men, officials and citizens, are ambitious and self-interested. Thus, the solution is not �political will� nor �impeccable non-corrupt behavior� because if these were available there would not be a problem in the first place. Enlightenment and incorruptibility are in short supply and properly designed institutions may serve as substitutes. We have already alluded to one source of hope and change. The difference in age and valuations among politicians, even as they are as a rule with short time horizons, will lead the rising ambitious set to oppose actions by the current incumbents to run down the privileges, authority, and capital assets associated with the higher offices to which they aspire. Shepsle also notes that even if all politicians were predatory, the presence of organizations with longer lives and therefore, longer time horizons, which represent interests to whom politicians are beholden for their political survival�political parties, labor unions, corporations, churches and religious organizations, etc.�will also serve as countervailing powers. The most important implication of this analytical line is that non-state actors, which normally have longer-time horizons than politicians, must be thoroughly integrated into a society�s political life. In this sense, therefore, Shepsle�s institutional preferences are compatible with those of Rodrik even as they are no more than a general principle rather than a well worked-out or fully operational plan. This is where local learning and experimentation will come in. I return to the question. Will the strictures of the international capital markets be enough to discipline and create strong nation-states in the contemporary globalizing world? While mobile capital may be a corrective to bad governance, it will not suffice by itself. A large part of the reason depends on the nature of capital itself and the differing time horizons of players in the international money markets. After the warnings raised by ISAFP head Col. Victor Corpus about the dangers of �narco-politics�, I am more convinced that mobile capital lacks teeth. If fabulous wealth can be made in the nefarious world of jueteng, drugs, kidnapping, murder and mayhem, who needs the �seal of good housekeeping� from the IMF and the international banks? Why would vested interests engaged in these activities want the emergence of a strong and competent state? They would in fact prefer a feeble one so they could go about their unholy business unmolested, using even state resources as capital. If one can profitably operate a firetrap, masquerading as a decent family hotel, by bribing regulatory authorities, who wants honest public servants? If one can overload a decrepit inter-island vessel to the rafters, who needs a competent coast guard? If one earns oodles of dollars from the smuggling of aliens, who wants an efficient immigration service? If they could not be bought or compromised, then judges, prosecutors, policemen, generals, journalists, bankers, border guards, customs officials, and politicians can be killed. The generals in Yangoon, the drug lords of Colombia and the Philippines, the white slavers of the Ukraine and Belarus, the warlords in Afghanistan and Central Asia�all can thumb their noses at the international community and not be cowed by the hostile ratings of Moody or Standard and Poor. They are happily responding to a more powerful constituency�the affluent, sex-obsessed, and drug-crazed markets in the West. While estimates of profits and financial flows related to crime vary wildly and are not fully reliable, they are indicative of their staggering size. In 1994, for instance, the United Nations Conference on Global organized Crime estimated that global trade in drugs amounted to $500 billion a year. This volume is supposedly larger than the global trade in crude oil. Manuel Castells had observed that in the past two or so decades, criminal organizations have increasingly organized their operations transnationally, boosted by globalization and advances in communication and transportation technologies. The strategy adopted is logical and deadly-efficient: �to base their management and production functions in low-risk areas, where they have relative control of the institutional environment, while targeting as preferential markets those areas with the most affluent demand, so that higher prices can be charged.� Thus if one surveys the prospects for building a strong republic in the Philippines, one has to recognize that the venture will essentially be a grand political struggle. The emergence of a strong Philippine state will benefit some elite groups and interests and the broad populace but will adversely affect other vested interests. We must take note of the political and economic forces aligned against each other in this political fight. A new coalition composed of imperial capital (some foreign governments, multi-lateral financial institutions such as the International Monetary Fund, the World Bank, and the Asian Development Bank, and transnational corporations), the internationalist faction of the domestic elite, and the civil society groups from the middle and under-classes are for good governance, a competent and efficient public bureaucracy, an upright judiciary, police and military�in short, a strong Philippine democratic state. This coalition is opposed by an array of domestic (including a distinct faction of the ruling elite) and international groups and interests who profit from the weakness of the Philippine state and the corruption of the bureaucracy. They are those involved in lucrative criminal activity, massive corruption and rent seeking. The pro-strong state coalition is a newly-formed one and civil society groups even from the under-classes (like the peasantry, workers, and the urban poor) find common ground with imperial capital to the extent that a strong state may protect property rights and ensure the enforcement of contracts, secure a market environment friendly to profit-making, ensure compliance with electoral laws and the conduct of fairly-honest elections, and provide adequate police protection to all concerned. Imperial capital and the internationalist faction of the domestic elite (except for some technocrats) may not be too keen on property reform, an issue dear the under-classes. The organized under-classes and some middle class intellectuals (e.g., Walden Bello) are also allergic to the neo-liberal pro-market orientation of their new coalition partners. This newly formed coalition could be strengthened and consolidated if a better understanding of the need to utilize both market and asset reform in reducing poverty and stimulating economic growth must be reached. The experience of the East Asian states that adopted policies that reduced poverty and income inequality, such as the provision of high quality basic education and the implementation of agrarian reform, is highly instructive. Redistributive reformers in the past often underestimated the dependence of their proposals on more robust and freer markets. As a result, even if the poor obtained some education or land, the products and incomes from these new resources were restricted by market or price distortions. Conversely, market reformers since the 1980s had denigrated the complementary role of state redistributive reform simply because the state has fallen in disfavor. Free marketers have eschewed redistribution largely because states, which they see as inferior institutions. What they overlook is the fact that states are the principal, though not the only agencies that carry out reforms, including market and asset reform. These market reformers fail to see that people with neither adequate nutrition, education, or land are often unable to capitalize on new market opportunities. Several problems must be confronted and overcome. If the Philippine state is currently weak, this means that the state itself is the object of reform. At the same time, the state (or at least, key elements of the state) is tasked with the responsibility of leading the reform effort and consolidating the reform coalition. But the state apparatus is also populated with elements, groups and interests hostile to the reform process that will result in a strong state. These are the grafters, rent seekers, influence peddlers, and the hoodlums in robes, business suits and uniforms. In effect, the state is both target and agent of reform. The state itself is the arena for the political struggle to build a strong republic. The pro-reform and anti-reform factions of the domestic elites are likewise not organized along coherent party lines. Even within the ruling administration, some are not too keen on reform. Within the political opposition are kindred spirits hospitable to the reform project. Will President GMA, who is unique among the post-Marcos presidents since she can run for the presidency in 2004 after serving the un-expired term of President Estrada, be able to lead in building a broad reform coalition that will cut across party, class, religious, gender, age, and ethnic lines? In the end, the strength or weakness of a state is simply a reflection of the strength or weakness of a particular society. Is Philippine society up to the urgent challenge of building a strong republic? (The author is an associate professor at the Department of Political Science, College of Social Science and Philosophy, University of the Philippines.) |