NOYNOY: WRONG ON CORRUPTION

Noynoy’s handler’s came up recently with a new political ad which aims to ride on the issue of “integrity” the current voter’s preference. It is also an implied characterization that his opponents are magnanakaw.

Explaining a new political ad in which he proclaims, “Hindi ako magnanakaw ( I will not steal),” Aquino told reporters here Friday that this meant he would “lead by example” and pursue a two-prong strategy to “put a stop to corruption” in the Philippines.

The Liberal Party standard-bearer said his formula involved the strict enforcement of anticorruption laws on one hand, and on the other, the provision of “sufficient means” for government employees to be able to fend for their families.

Aquino and his running mate, Sen. Manuel Roxas, were in town to attend the wake of Marciliano “Bong” Dizon, a coordinator of the Noynoy Aquino for President Movement who was gunned down by two men on Wednesday.

“We have good laws [that punish and prevent graft and corruption]. All we need to do is enforce those laws,” Aquino said.

In a battle of perceptions, the easily swayed can be easily brought into the bandwagon by alluding to emotional appeals which are dissonant from reality. Noynoy’s solution however is a tired solution – the same old tired solution peddled to generate different results – Noynoy and his handlers expect something new out of this same old solution – and for lack of critical thought – suckers are buying.

Noynoy’s solution approaches corruption as if it were just a matter of putting in place administrative/institutional reforms to address systemic corruption. Administrative reforms are obviously important – but on their own, are not enough to address systemic corruption. That Noynoy has not recognized this component points to either one or all of three things:

  1. Aquino is just giving lip-service to anti-corruption in order to take advantage of the public preferences.
  2. Aquino’s oligarch backers are not interested in addressing systemic corruption because they are benefitting from it. PLDT, Globe, ABS-CBN are more interested in protecting market share and the bottom line by keeping foreign investors (and competition) out.
  3. Aquino’s grasp of the anti-corruption issue is shallow and does not address the fundamental issues that cause corruption in the Philippines.

In a paper entitled “Fighting Systemic Corruption:Social Foundations for Institutional Reform”, Michael Johnston argues

“While institutional reforms enhancing transparency and accountability in state and economic institutions are indispensable parts of any anti-corruption strategy, they also need a long-term social foundation, particularly where corruption is systemic. Social empowerment — expanding and protecting the range of political and economic resources, and alternatives, open to ordinary citizens — is one way to address this task. Social empowerment entails strengthening civil society in order to enhance its political and economic vitality, providing more orderly paths of access and rules of interaction between state and society, and balancing economic and political opportunities are central tasks. Development strategies aimed particularly at hitherto-excluded people and regions within a country are of particular importance. Social empowerment does not involve wholly new remedies, but rather the judicious coordination of a variety of familiar development and anti-corruption policies. Where it is successful, social empowerment will not totally eradicate corruption; it can, however, provide necessary support for institutional reforms; weaken the combinations of monopoly, discretion, and lack of accountability that make for systemic corruption; and help institutionalize reform for the long term by linking it to lasting interests contending in active political and social processes.”

He further states

“institutional reforms by themselves do not fare as well where corruption problems are worst. Corruption in many of those nations is not only more extensive, but is also a qualitatively different problem, embedded in political and economic systems in ways that both reflect its impact and help sustain its force. Particularly in developing or transitional societies where the challenge of limiting corruption is most urgent, new institutional forms and procedures — like the ones they replace, in many instances — are often deprived of the administrative and political support, and underlying normative consensus, that they require for success. Thus, even where corruption is reduced for a time, it has a way of reasserting itself. This is systemic corruption, and it poses reform challenges that are not only institutional but are also social in nature.”

You can read Michael Johnston’s article here:
[gview file=”https://sanamagan.files.wordpress.com/2010/01/wrong-issue1.jpgwp-content/uploads/2010/01/ejdr.pdf”%5D

Corruption Defined

Corruption has yet to find a comprehensive and universally accepted definition. The word comes from the Latin corruptus (spoiled) and corrumpere (to ruin; to break into pieces). The working definitions presently in vogue are variations of “the misuse of a public or private position for direct or indirect personal gain”.

However, there are working definitions that are currently in use. In defining corruption, the terms used in the proposed UN Handbook for Prosecutors were used.

“Grand corruption” is an expression used to describe corruption that pervades the highest levels of government, engendering major abuses of power. A broad erosion of the rule of law, economic stability and confidence in good governance quickly follow. Sometimes it is referred to as “state capture”, which is where external interests illegally distort the highest levels of a political system to private ends.

“Petty corruption”, sometimes described as “administrative corruption”, involves the exchange of very small amounts of money, and the granting of small favours. These, however, can carry considerable public losses, as with the customs officer who waves through a consignment of high-duty goods having been bribed a mere $50 or so. The essential difference between grand corruption (“state capture”) and petty corruption (day-to-day administrative corruption) is that the former involves the distortion of central functions of government by senior public officials; the latter develops within the context of functioning governance and social frameworks.

Systemic corruption is not a special category of corrupt practice, but rather a situation in which the major institutions and processes of the state are routinely dominated and used by corrupt individuals and groups, and in which many people have few practical alternatives to dealing with corrupt officials. Corruption is said to be “systemic” where it has become ingrained in an administrative system. It is no longer characterised by actions of isolated rogue elements within a public service. Where minor acts of petty corruption occur it is often thought best to leave these to be dealt with by way of administrative sanction (demotion, dismissal etc.), rather than invoke the whole weight of the criminal process.

You can read the handbook here:
[gview file=”https://sanamagan.files.wordpress.com/2010/01/wrong-issue1.jpgwp-content/uploads/2010/01/Handbook_for_prosecutors.pdf”%5D

Petty and Systemic Corruption

In June 2000, Robert Klitgaard,  Dean and Ford Distinguished Professor of International Development and Security at the RAND Graduate School, Santa Monica, California, wrote in “Subverting Corruption”:

Systemic corruption distorts incentives, undermines institutions, and redistributes wealth and power to the undeserving. When corruption undermines property rights, the rule of law, and incentives to invest, economic and political development are crippled. Even Huntington pointed out that “a society in which corruption is already pervasive, however, is unlikely to be improved by more corruption.”

Since Huntington wrote those words in 1968, the fight against corruption has progressed. We have experienced a first stage of anticorruption efforts, where consciousness is raised about the existence and harms of corruption.

In many countries, there seems to be a sea change in public opinion, as elections are increasingly fought in terms of what to do about corruption.We have progressed to a second stage of anticorruption measures, which adds systems analysis to consciousness raising. Civil service reforms are moving beyond “capacity building” to emphasize information, incentives, and competition.

Research is moving beyond perceptions of corruption to studies of where in government and markets the vulnerabilities to corruption lie.

We now need to learn and do more in a third stage of anticorruption activities. What can be done if consciousness raising and prevention have failed, if corruption has become the norm, and if political will cannot be counted on? How can systemic corruption be subverted?

Klitgaard compares petty and systemic corruption in the table below:

Petty vs Systemic Corruption

It is indeed true that there are lots of anti-corruption laws in the Philippines – and, yet they are not enforced. Each candidate vows to eradicate corruption – from Marcos, to Cory, to Ramos, to Erap, to Arroyo.

Given the plethora of laws and talks about law enforcement, and the number of law enforcers – the Philippines is still in the lowest the rankings of Transparency International. While the Philippines CPI rose from  #141 in 2008 to #139 in 2009,  it makes one weep to see where the Philippines’ ASEAN counterparts are in list – South Korea at #39, Malaysia at #56, Indonesia at #111, Vietnam at #120!

In the case of the Philippines, corruption is no longer petty but systemic as well. Therefore, administrative reform which focuses on “the strict enforcement of anticorruption laws on one hand, and on the other, the provision of “sufficient means” for government employees to be able to fend for their families. ” IS NOT ENOUGH, does not address systemic corruption.

To paraphrase Klitgaard – “When corruption does become systemic, as it is in the Philippines, the usual anticorruption measures are insufficient. Not obsolete, to be sure: there will always be a need to raise consciousness about corruption’s costs and to make the institutions of state and market less vulnerable to corruption. But we also need new thinking about new modes of action by new sorts of actors that can faciliate joint efforts to subvert corruption”.

And now, we have another rehash from Noynoy – ““We have good laws [that punish and prevent graft and corruption]. All we need to do is enforce those laws,” ” – WTF, it’s a sirang plaka  that just wouldn’t give up till you get a sledgehammer and smash it to pieces.

Noynoy is right on the issue of administrative/institutional anti-corruption measures – but so is everyone else  – that means Gordon, Villar, Perlas, and all Pinoys who have felt the brunt of petty corruption. For short, Noynoy does not have a monopoly of the corruption issue.

Social Empowerment: The Missing Component

In outlining the broader setting for the conditions that sustain systemic corruption, Johnston avers:

Systemic corruption is so persistent and difficult to combat not only because of its inner workings, but also because it is embedded in a wider political and economic situation that helps sustain it. The relationships between corrupt practices and the broader situation are reciprocal: corruption contributes to delayed and distorted political development, weakening competitive processes and major institutions (Johnston, 1997b), while that environment renders people more vulnerable to corrupt exploitation — or dependent upon its petty rewards, in the absence of better political and economic opportunities — and thus less able to resist it. Corruption becomes embedded in the range of interrelated development problems noted above.

Prolonged slow or negative growth, or even rapid growth if monopolized by a few well-connected factions, perpetuates the scarcity of economic alternatives for the many while reinforcing dependency upon corrupt officials. Political monopoly power puts civil liberties at risk; elections and trials can be rigged. Intimidation and the perception that corruption is inevitable weaken mass support for would-be reformers, who may conclude there is nothing to gain, and much to lose, by remaining in opposition, and throw in their lot with the powerful.

Sustainable anti-corruption isn’t just about “administrative reforms” and “sufficient means for government employees”. Such a perspective is utterly myopic, dated, ineffective, and does not address the deeply embedded systemic corruption in the Philippines. Johnston may very well be describing the Philippines when he asks:

If the limited corruption of more advanced countries represents a formidable challenge, what if anything can be done where it is the rule, and where routine political and economic processes sustain rather than resist it? Where real power is not won through open, honest competition, nor exercised through transparent, accountable processes and institutions, where can reformers begin? And where people find it prudent to respond to corruption by avoiding the problem or though corruption of their own (Alam, 1995), where can reformers find significant support? Finally, how can reform and reductions in corruption be made sustainable, rather than just short-term or superficial?

I agree with Johnstons argument that without social empowerment component, anti-corruption measures will  not be sustainable, will be short-term, and will have superficial impact. He expounds on social empowerment:

“…..expanding and protecting the range of political and economic resources, and alternatives, open to ordinary citizens — is an essential part of any attack upon systemic corruption. Where grassroots communities and the people within them deal with corrupt officials because they have few alternatives, and respond to corruption in evasive or illicit rather than direct ways (Alam, 1995), we must search for ways of reducing their political and economic vulnerability, and of giving them more effective means of recourse. Institutional reforms designed to increase accountability and transparency in the operations of the state and major economic institutions, and measures to counteract specific corrupt practices, will always be worthwhile; in no way does social empowerment supplant these approaches. But major political and economic institutions must engage with viable social processes, including political and economic contention, and become linked to enduring incentives and interests, if they are to be sustainable and to yield their full potential benefits.

Social empowerment does not so much involve a whole new set of anti-corruption measures as an integration of development policies, many of them familiar, aimed at enhancing the vitality of political and economic life, and of civil society, particularly in those segments of a country that have been excluded from development or exploited. In part because the renewal of interest in corruption as a problem in development has been relatively recent, social empowerment as a comprehensive anticorruption strategy has yet to be implemented anywhere (though such empowerment has long been a general development-policy goal, and the anti-corruption debate has devoted renewed attention to the value of a viable civil society — see, on the latter point, Cooter, 1997). However, a number of countries have reduced corruption historically through the development of civil society and enhanced political and economic competition — changes that, while often not planned or coordinated as reforms per se, incorporate some of the elements of social empowerment”.

In other words, it is not enough to implement reforms, the existing relationships that make up the socio economic foundations of Philippine society need to be addressed and changed so that more economic opportunities are available to the widest number of citizens thereby decreasing the systemic pressure to resort to corruption .

What this means (to me anyway), is that the rent capture protectionist clause of the charter which gives the oligarchs (the group of people currently bankolling Noynoy’s campaign) complete control of the Philippine economy needs to be removed. And for that to happen, charter change needs to happen, there is no going around it.

Competition.. Liberalization.. is a Dirty Word? To Oligarchs and Their Serfs

Of course, the oligarchs and their companies such as PLDT, GLOBE, BAYANTEL, SMART, MWSS, PAL, BPI have been so used to being protected from foreign competition and cornering the domestic market despite offering overpriced, lousy, and sloppy services. It bothers the oligarchs and their serf so much that it has resorted to misinformation. Take for example this moronic piece from a William Esposo

The vermin who are promoting Charter change, like the devil quoting scripture and the serpent that caused Adam and Eve to fall from grace, are luring Filipinos with economic incentives that their Cha cha purports to deliver. They call it economic reforms and one of these that they are offering is the generation of foreign investments by allowing foreigners to purchase and own land here. Only an idiot, one who does not know the truth, will buy that.

China and Vietnam attract the bulk of foreign investors in Asia and both China and Vietnam do not allow foreigners to own land in their country. So why should we when that will only make property prices skyrocket beyond the levels that Filipinos can afford? So why should we allow foreigners to buy and own land here when there is not even enough for our expanding population?

The truth is foreigners are not lured by laws allowing them to own land but by level playing fields and big markets that deliver hefty returns on investments. In fact, the vermin promoting Cha cha are some of the biggest disincentives to foreign investments coming here.

What rational investor will want to operate here where the laws are subjectively implemented and whimsically altered to suit narrow interests? What rational investor will want to operate here where we are rated as high risk for a social explosion owing to the poverty situation which fuels social unrest and insurgency?

Now, let’s compare what this idiot by the name of Esposo said to a post Asian crisis unclassified OECD document on FDI in South East Asia. Here are some excerpts from the OECD document which belie Esposo’s statement and which show him to be a complete oaf!

To explain the record of individual countries in attracting FDI inflows requires an understanding not only of policies and events in each host country but also of factors influencing the potential supply of such investment in home countries and of changes in other major host countries. The ebb and flow of Japanese FDI and the rise of China have had a significant impact both on inflows into ASEAN4 and on perceptions concerning future inflows. But at the same time, these external events have not operated within a vacuum. The ASEAN4 countries would never have attracted Japanese investment in the first place if they had not had a competitive workforce and relatively accommodating policies towards foreign investors. Countries such as Malaysia and Thailand were in the right place at the right time in the late 1980s, but they also had the regulatory environment to attract export-oriented investors.

***

Import substitution policies were pursued in all four countries in earlier decades, in keeping with the prevailing development view that government intervention was necessary to promote industrialisation. Strategic sectors were protected from foreign competition through high tariffs. In some sectors foreign investment was proscribed, and in most it was heavily circumscribed. Foreign investors were limited to minority shares of companies, could not own the land on which their factories were built, were required to transfer technology and sometimes to divest after a number of years. Many foreign MNEs nevertheless invested during this period to participate in the economic rents resulting from import protection.

The switch to export promotion began at different times in different countries, with the timing dictated partly by the size of the local market and the availability of natural resources. Small markets limit the scope for economies of scale and hence raise the cost of protection, while natural resources provide export earnings to alleviate balance of payments difficulties. External factors were also important: the example of successful, outward-oriented NIEs, the prolonged commodity slump in the 1980s, and opportunities offered by exchange rate realignments after 1985. Currency realignments, the switch to export promotion, including FDI liberalisation, and the rapid inflow of FDI from Japan and the NIEs all combine to account for the dramatic export-led recovery of the ASEAN4 economies after 1985 following a decade of secular decline.

***

Not all ASEAN4 countries regulate inward investment in the same way or with the same degree of efficiency, but there are nevertheless many similarities: all four countries routinely screen inward investment, often linked to the granting of incentives; some sectors are proscribed for foreign investors, usually contained in a negative list; equity limits often apply in other sectors and for acquisitions of local companies; and land ownership is sometimes restricted.

The most important obstacles to inward investment are presented below.

Obstacle #1 -Screening –  A foreign investor wishing to invest in one of the ASEAN4 must usually go through a screening agency or Board of Investment (BOI). Although domestic investors must also usually apply to the same agency, the conditions applied to their investments are not necessarily the same. The screening agency serves a political purpose as well as an economic one. It demonstrates to a local population which may be hostile to, or suspicious of, foreign investment that such investments are actively monitored by the government. The principal aim of such an agency, however, is to further the development strategies of the host government. The agency will favour certain sectors.

Obstacle #2 – Foreign equity limits –  Screening agencies are concerned with new investment projects or the expansion of existing ones. Acquisitions of local companies by a foreign investor are a different matter. In most cases, until recently, foreign investors were limited to minority stakes in local companies, regardless of the specific sector. The foreign equity share ranged from 30 per cent in Malaysia to 49 per cent in Indonesia and Thailand. Some sectors, such as banking, had even lower limits. In some cases, these restrictions are enshrined in the Constitution.

Acquisitions of local companies are often the preferred mode of entry into a foreign market in both OECD and non-OECD countries. Foreign investors will sometimes not require complete control of a joint venture, but in many of the most technologically-sophisticated sectors and those where brand names are important, full foreign ownership is preferred. A minority ownership requirement can thus act as a significant barrier to investment in these sectors, particularly for those investors wishing to sell principally in the local market.

Obstacle #3 – Negative lists – A complement to horizontal equity limits for acquisitions is the use of negative lists of those sectors in which foreign investment is not permitted or in which there are specific sectoral foreign equity limits, including for greenfield investments. Negative lists add to transparency in FDI regulations by permitting foreign investors to ascertain quickly whether their sector of activity faces any restrictions. At the same time, a negative list is not necessarily exhaustive. Some sectors may still face the horizontal limits mentioned above, while others may not appear on the list because they involve a sector which is not under the responsibility of the agency compiling the list. Nevertheless, negative lists provide a useful benchmark of the degree of openness of each economy, as well as of the extent of liberalisation over time. Only Malaysia does not have a negative list, although there are some sectors in which foreign investment is not permitted. The absence of such a list may stem from the special nature of Malaysia equity restrictions which are intended to promote bumiputera ownership of domestic assets and which cover all sectors not promoted by MIDA.

Obstacle # 4 – Restrictions on land ownership Another restriction which impedes foreign investment concerns the right of foreign-owned corporations to own land. Without the ownership of the land on which the factory is built, the foreign investor faces considerable potential insecurity about the future policies of the host government and is also unable to use the land as collateral for local borrowing. Malaysia requires approval from state authorities before an investor may acquire title to land, except for investments in export processing zones. The three other countries have some form of general restriction on foreign land ownership, except for some promoted companies. In these three countries, investors may generally only lease land for a specific period of time, with only one opportunity for renewal. The period of the lease has been extended in some of these countries as a result of the crisis.

The restrictions mentioned above are not exhaustive. Other measures relate to the right of foreign investors to bring in expatriate staff or the number of foreigners permitted on the Board of Directors, among others. There are also restrictions are specific to particular sectors which may or may not be included in a negative list. Taken together, these restrictions suggest that foreign investment outside of promoted sectors has been heavily circumscribed in the ASEAN4 — a finding at odds with the conventional view that these countries have built their development strategies largely on the backs of foreign firms.

These policies reflect a lingering suspicion of foreign MNEs in the four host countries. Although a number of liberalisation measures have been undertaken as a result of the crisis, it is sometimes surprising given the urgent need to bring in capital and to recapitalise local firms how difficult it has been to pass legislation through parliaments. Local business interests sometimes represent a powerful lobby against change.

You can read the unclassified document below:
[gview file=”http://www.oecd.org/dataoecd/5/24/1897793.pdf”%5D

Thus, like Noynoy, Esposo harps on administrative reforms, but misses the point that – administrative reforms are not enough and need to be partnered with a social empowerment component which necessitates among others – opening up the economy in terms of allowing greater leeway for foreign equity and for allowing ownership of real estate to allow more foreign investments.

At the micro level, how many times have we come across the retired foreign national who married a local, who bankrolls a sari-sari store or a retail establishment but is not granted legitimate ownership under the law? These are also foreign investors who can provide jobs but currently are getting a bum deal due to the consitutional restrictions.

So, while the Philippines partners in the ASEAN4 move forward, where does the Philippines stand in relation to FDI? The following charts illustrate the point that Esposo glaringly misses – Philippines is missing out on the FDI flowing to ASEAN while Malaysia, Indonesia, and Thailand have FDI levels 200% to 300% higher than the Philippines in 2006!

FDI IndonesiaFDI-Indonesia FDI-MalaysiaFDI-Malaysia
FDI - ThailandFDI-Thailand FDI-VietnamFDI-Vietnam
FDI-PhilippinesFDI-Philippines

An interesting development in this equation is the Philippine Left’s  argument for strategic protectionism, where it asserts:

More State, not less – High up o­n the list is adopting the dictum that what we need for development is not less state but more. The Philippine state must be given a greater relative autonomy vis-a-vis the elite. It must be able to discipline the private interests that have constantly hijacked it for particularistic ends. In this regard, the problem with protectionism as it has been practiced in the Philippines is not protectionism per se but that it has been opportunistic–one simply oriented to promoting narrow vested interests and without reference to a strategic plan to deepen the economy.

The Domestic Market as the Driver of Growth -A second element of a post-EDSA development strategy is focusing o­n the internal market as the driver of development. Export oriented growth of the kind that was pursued by the NICs is no longer possible in an era of tremendous manufacturing overcapacity and the resulting protectionism in developed country markets that this has spawned. And even if developed country protectionism were not a problem, export oriented manufacturing would not be an advantageous strategy today, given the tremendous advantage that China has in labor costs. Given the renewed centrality of the internal market, the imperative for massive income distribution to create consumers with purchasing power becomes very critical. Concretely, this means renewing the drive for effective land reform. It would also mean effective programs of taxation of the richer parts of the population, in order both to increase mass purchasing capacity through transfer payments, as well as to accumulate the capital necessary for strategic investments.

Strategic Protectionism – Creating a viable internal market is o­ne priority. Protecting it from artificially cheap imports that stem from subsidization or overexploitation is another. However, protectionism can longer remain opportunistic, an incoherent policy that is simply dictated by vested interests. Protectionism must be strategic, o­ne that is linked to deepening the country’s industrial and manufacturing structure through selective tariffication or selective liberalization. Building up capital intensive industries such as steel, transportation equipment, and computers will necessitate a flexible tariff policy, coupled, of course, with investment incentives and state-sponsored technological development.

As a former investment promotion officer, my beef with this proposition is that:

  1. The domestic market is not growing due to its oligopolic nature. The need to break the oligarchies chokehold on the economy becomes more imperative. As long as the oligarchs and their stooges are in control, there will always be massive poverty, thereby creating systemic pressure for corruption.
  2. Where’s the money coming from? The local elite are not about to redistribute their wealth nor invest for altruistic reasons.

EPILOGUE: WRONG ON CORRUPTION

There is a current debate on what the central issue should be. Noynoy’s camp maintains it is integrity. I disagree.

It’s not about the central issue, it’s about the correct issue – Noynoy and the noynoyistas are wrong on this one.

It isn’t just about integrity – it is about integrity AND proven ability to generate economic prosperity.

Noynoy, the Hyatt 10, Esposo, and the Noynoyistas are flat out WRONG ON CORRUPTION!

P.S. A colleague has these parting words:

Most of Noynoy’s colleagues have produced hundreds of bills EACH in only one year as a congressman or senator and some of them become laws. Noynoy on the contrary, had less than one bill PER YEAR.

DO YOU SEE THE CORRUPTION HERE? We pay for his staff, office, travel expenses, salary, allowances, budget and other logicistics… BUT HE DID NOT PRODUCE ANYTHING!

If you compute what we spent on Noynoy (I am sure it will be in the hundreds of millions in those 11 years) compared to what he gave back to us, HE CORRUPTED OUR MONEY! He did not make ANY LAW! He sat on the money, position and prestige we gave him and wasted it.

“HINDI AKO MAGNANAKAW”?  Kundi ba naman GAGO at SINUNGALING!

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28 comments

  1. if noynoy is “wrong”, who among them are right?

  2. second question. you said esposo is wrong when he writes:

    “China and Vietnam attract the bulk of foreign investors in Asia and both China and Vietnam do not allow foreigners to own land in their country.” or “The truth is foreigners are not lured by laws allowing them to own land ..
    What rational investor will want to operate here where the laws are subjectively implemented and whimsically altered to suit narrow interests?”

    he is wrong coz you cite the OECD working paper that says land ownership is a restriction to FDI. i have no doubt it does. but the question is why is it that the restriction has differential effects among the ASEAN4 when:

    “ALL [emphasis mine] four countries routinely screen inward investment, often linked to the granting of incentives; some sectors are proscribed for foreign investors, usually contained in a negative list; equity limits often apply in other sectors and for acquisitions of local companies; and land ownership is sometimes restricted.”

    your critique is missing this key element. you need to show why, given the same/similar mix of restrictions, the philippines doesnt attract the same amount of FDI. esposo addresses this; you do not.

  3. one final complaint. you write: “In other words, it is not enough to implement reforms, the existing relationships that make up the socio economic foundations of Philippine society need to be addressed and changed so that more economic opportunities are available thereby decreasing the systemic pressure to resort to corruption .

    What this means (to me anyway), is that the rent capture protectionist clause of the charter which gives the oligarchs (the group of people currently bankolling Noynoy’s campaign) complete control of the Philippine economy needs to be removed. And for that to happen, charter change needs to happen, there is no going around it.”

    the “more economic opportunities” here refers to opportunities for filipinos, not foreigners, i assume. thats what reading of johnson, etc tells you. if so, why increase opportunities for FOREIGN ownership?

  4. gabbyd:

    answer this:

    1. have opportunities for Filipinos arisen from the oligarchs – who have been in control of the economy since the founding of the republic? YES? NO?

    2. have these opportunities benefited the broader number of filipinos? or the oligarchs only? you know what the gini coefficient is right?
    would you like to compute the gini coefficient of the Philippines before and after liberalization (opening up to foreign investments)?

    3. given that the oligarchs control the local economy, have the filipinos chances at owning land remain high? on the contrary, despite keeping out foreign investors – filipinos are still homeless! and landless! are they not?

    4. when foreign investors invest – they hire people, they purchase locally – isn’t that an economic opportunity for both local and foreign? do you think an investor will put in money if only the locals will benefit? YES? NO?

  5. GabbyD:

    Read the OECD document in greater detail. Cite the specific sections you don’t understand, I’ll gladly provide you a dictionary 🙂

    On the contrary, you are mistaken. I don’t have to address the matters which have been addressed by the OECD report – I am pointing out the specific content of the OECD report which shows that ESPOSO IS FLAT OUT WRONG IN stating “Ownership of land is not a factor”.

    It wasn’t a major factor in China and Vietnam BUT it was a major factor in Thailand, Indonesia, and Malaysia – countries which have 200% to 300% more FDI than the Philippines. And you have yet to include Japan, Taiwan, Singapore, and South Korea – all of which ALLOW foreigners to own land. Moreover the OECD shows that Land Ownership is a factor – if you or Esposo have a beef with that – go to the OECD. 😀

  6. Jet Pampolina · ·

    BongV, your “white paper” on corruption is laudable, but your last piece response to GabbyD in 4 questions above is succinct enough to explain your point …

  7. “– I am pointing out the specific content of the OECD report which shows that ESPOSO IS FLAT OUT WRONG IN stating “Ownership of land is not a factor”.”

    i am pointing to the same report too. i quoted from the paper (as you did). lets do it again:

    ” all four countries routinely screen inward investment, often linked to the granting of incentives; some sectors are proscribed for foreign investors, usually contained in a negative list; equity limits often apply in other sectors and for acquisitions of local companies; and land ownership is sometimes restricted.”

    ALL four countries — key phrase.

    IF ALL 4 countries do it, why is it especially pernicious for the philippines? it is in this sense that it isnt THE reason for difference in FDI.

    now, in this comment you claim : “It wasn’t a major factor in China and Vietnam BUT it was a major factor in Thailand, Indonesia, and Malaysia ” is this part of the report too? if so, you should report this in your blog post. if it isnt, where did you get this info?

  8. i have no doubt there are oligarchs. none.

    my only question is: why is FDI the answer? IS it the answer? this is something you need to argue directly.

    keyword: directly. it is NOT enough to say: the status quo sucks. lets do action X coz the status quo sucks.

    you have to directly demonstrate how action X changes/can change the status quo.

    i’m not saying you are wrong about FDI. i’m saying you need to do more to make the case.

    also, if you have data on gini coef, go ahead and discuss it. if inequality falls, then that helps your case.i have NO idea if thats true or not.

  9. Gabbyd:

    The perniciousness is an issue where you can go ahead and read up on.

    The point is – the OECD clearly says that “Land Ownership is an important factor in FDI”. William Esposo says otherwise.

    Are you saying the OECD is wrong GabbyD? 🙂

  10. GabbyD:

    There are many solutions – for instance, try the North Korea approach of NO FDI, do you like that?

    1. Given the current economic mess of the Philippines – are Local Direct Investments enough? Yes? No?

    2. The Philippines neighbors have left the Philippines behind – did they rely on LDI exclusively? Yes? No?

  11. Domingo Gabriel · ·

    GabbyDodo,

    >>>>my only question is: why is FDI the answer? IS it the answer? this is something you need to argue directly.

    FDI happens to be the fastest way to create jobs. The alternative is “home grown industrialization” which requires that the locals with the money set up competitive companies that will hire people and make a lot of money.

    But doing it the homegrown way will take a very long time – time that jobless and poor Filipinos cannot afford. Are you saying that you will have to wait for Filipinos in small and medium sized businesses to become big enough to hire massively? You seem to have forgotten that the Philippines is rather overpopulated and that economic opportunities are extremely scarce given the large population. Waiting for homegrown businesses to hire new employees on a massive scale is non-option.

    This, by the way, was Singapore’s route: A full-scale FDI campaign, because Lee Kuan Yew realized that a “protectionist” and “nationalist” route would be too slow in creating the required opportunities. British military bases which employed a significant chunk of Singapore’s population were about to leave Singapore, and thus a huge number of Singaporeans were going to lose their jobs. LKY could not wait for local businesses to step-up and absorb those jobless people, so the other alternative was to court FDI and get them setting up factories that would massively hire people, thus giving them a livelihood. That strategy worked. It created alternative opportunities for the soon-to-be-unemployed British base workers, and it created an economic boom as it also absorbed many more people who were previously unemployed or underemployed.

    FDI is the quickest route to job creation. You don’t have to wait years for local businesses to build systems and competencies and then hire people en masse.

    >>>keyword: directly. it is NOT enough to say: the status quo sucks. lets do action X coz the status quo sucks.

    you have to directly demonstrate how action X changes/can change the status quo.

    >>>>>i’m not saying you are wrong about FDI. i’m saying you need to do more to make the case.

    I think the case is actually out there already. The point is in countering the stupidity of protectionism in the Philippines because it has kept millions of Filipinos unemployed, underemployed, forced to work abroad, forced to work in menial jobs, and forced to work as sex workers.

    Read up on Albert Winsemius and Lee Kuan Yew. Read up on Singapore. It’s all out there.

    You need to read up on it yourself, GabbyDodo.

  12. Dilaw na Mantsa · ·

    This post is too long for the Noynoyans to read. Sasakit lang ulo nila and end up saying the dreaded sentance, “Basta, Noynoy pa rin ako!”

  13. GabbyD:

    Let’s break this down simply, because I don’t have a lot of time for pilosopo today:

    1. The ASEAN countries have similar restrictions on FDI, but have dissimilar results.
    2. According to William Esposo, the success of some countries with similar restrictions is evidence that the restrictions — on land ownership specifically — do not affect FDI.
    3. The OECD study, however, does find that land ownership is a factor which affects FDI.

    Given that the OECD study is an academic work with full disclosure of the supporting literature, research methods and data, and analysis methodology, and William Esposo’s rant was produced with no corroborating material by a fat, beady-eyed slob for commercial purposes (i.e. selling newspapers), I’d say there’s a definite tilt to the balance of authoritativeness, but maybe that’s just me.

    Let’s assume for the moment that Esposo may be right: in that case, where is the disconnect between the success of the Philippines’ neighbors and the comparative lack of productivity of the Philippines, given that “all other things being equal” notion with respect to foreign land ownership?

    In other words, with the same or closely similar land-owning and other FDI restrictions as the Philippines, why do countries like Vietnam succeed in attracting FDI where the Philippines does not?

    Eduardo Borensztein, Jose DeGregorio, and Jong-Wha Lee give a possible answer to that (June 1998 issue of the Journal of International Economics): Regardless of land-ownership provisions, the benefits of FDI in encouraging economic growth — which are demonstrated by their study to have greater effect than domestic investment, primarily through technology transfer mechanisms — are moderated by the absorptive capacity of the host economy for the new technologies, or when there is a minimum threshold amount of human capital available.

    With over 2,000 of the potential skilled and semi-skilled workforce fleeing the country everyday and a moribund education system that cannot replace them, it leads one very naturally to the conclusion that the Philippines must fall below the necessary threshold. There are two solutions to that:

    1. Improve the education system, and provide meaningful jobs to keep the workforce at home, which will either encourage more FDI, make the already-present FDI more effective, obviate the need for FDI, or a combination of all three; or

    2. Drop or significantly reduce FDI restrictions to attract large inflows quickly, which will generate jobs in the short-term and help to fund the objectives of (1) in the medium- to long-term.
    The leadership of this country has to make a choice, and actually do something one way or another. The candidates’ and so-called “opinion leaders” like Esposo latching onto glib, shallow sentiments as solutions is not working, it has never worked, and it never will.

  14. Protectionism works in societies that possess the intellectual and imaginative firepower to innovate their way out of poverty (basically the ability to create wealth from their indigenous skills, resources, and domestic enterprises). For societies like the Philippines where the average schmoe’s idea of seeking a livelihood is to sit under the proverbial guava tree with his mouth wide open, you need an infusion of foreign capital. And I’m not talking here of just the tangible sort (i.e. money and technology), but also the sort of kick-ass philosophies that could help arrest the accelerating dulling of Da Pinoy mind to the finer points of sucking eggs;

    “Duh, what do I do with all this rich volcanic soil and all this monsoon rain keeping it moist?”

    “Duh.. I know, let’s build some substandard housing over it using OFW remittances…”

    Trouble with societies like ours is that we feed off foreign technology that helps us increase our numbers at embarassing rates (modern medicine) yet shun foreign know-how that might help ensure that every Pinoy born can potentially produce economic output to feed her society’s numbers.

    That said, there is also enough evidence to show that even with an abundance of capital, Pinoys simply fail to sustainably squeeze value from equity. In a sense, throwing capital at Pinoys is like sowing seeds on solid rock. We’re a capital sinkhole. The debt we are currently servicing did not simply come to be as a result of a lack of luck. Those borrowed funds were originally intended for something that might have yielded sustainable income and turned whatever stuff they were spent on into self-liquidating assets.

    But no. The funds disappeared into the capital sinkhole that is the Philippines and now we are left with only the liability.

    And that is what poverty is — a lack of inherent ability to match the liabilities that come hand-in-hand with opportunity with results.

    In other words:

    We locked ourselves into commitments beyond any inherent ability in us to honour them.

    FDI is just another form that opportunity takes which Pinoys simply consistently fail to exploit. And that describes the chronic tragedy that is the Philippines — that capital sinkhole where every unit of opportunity is hungrily sucked in (whether it be FDI, OFW remittances, domestic savings, whatever) only to disappear forever.

  15. That is a stupid question. It’s like asking… “IF NOYNOY ISN’T THE SAVIOUR OF THE PHILIPPINES, (what the pundits are promoting) WHO IS?”

    I’m sorry Gabs that sure is one helluva stupid one… NEXT PLEASE….

  16. and speakinfg of education – investment in schools is off-limits to foreign equity – see negative list – and corollary to this – any foreigner who wants to invest in a school in the Philippines cannot own the land where his school will be situated.

    we could have had more techonology but the schools which are willing to loctate in the philippines are not given much leeway, thus they wind up in Singapore or Hong Kong.

  17. Now that Nicanor Perlas is back in the race…

  18. “Aquino’s oligarch backers are not interested in addressing systemic corruption because they are benefitting from it. PLDT, Globe, ABS-CBN are more interested in protecting market share and the bottom line by keeping foreign investors (and competition) out.”

    “The domestic market is not growing due to its oligopolic nature. The need to break the oligarchies chokehold on the economy becomes more imperative. As long as the oligarchs and their stooges are in control, there will always be massive poverty, thereby creating systemic pressure for corruption.”

    —————————————————————————————-

    I hope that future posts would further expand on these good points in layman’s terms. i feel this is important for the general public to understand so that this kind of information would help them think more than twice about what our country really needs…and why we’re still stuck in the mud. While it’s true that many people choose Noynoy as their candidate, a better understanding of WHO REALLY BENEFITS from his presidency may just enlighten a few who ought to know better.

  19. Homer,

    Thanks for pointing those points out. You have just given me my homework. 🙂

  20. […] This post was mentioned on Twitter by nino gatdulan, AntiPinoy.Com. AntiPinoy.Com said: http://antipinoy.com/noynoy-wrong-on-corruption/ […]

  21. “Aquino’s oligarch backers are not interested in addressing systemic corruption because they are benefitting from it. PLDT, Globe, ABS-CBN are more interested in protecting market share and the bottom line by keeping foreign investors (and competition) out.”

    “The domestic market is not growing due to its oligopolic nature. The need to break the oligarchies chokehold on the economy becomes more imperative. As long as the oligarchs and their stooges are in control, there will always be massive poverty, thereby creating systemic pressure for corruption.”

    ==================================

    Although PLDT is partially owned by Salim (Pangilinan’s financier) and Globe.partially owned by Singtel,,Transco(Chinese)And with all those that used tricks to go around the antidummy law ,the point is Our laws would not yet allow Singtel to run on its own here,globe and the rest will be forced to shape up or packup.

    Our richest family henry sy’s would not allow Wal Mart to setshop here so what do we have? waltermart nga ba yon.

    Look at them diversifying spreading their meager resources too thin and trying to be everything for everyone. , we need foreign competition.

    We have a house speaker, proposing charter hange for economic provions and hell breaks loose.

    That is our current situation whether the oligarchs are aquino backers or not.

  22. Karl, Exactly. PLDT, Smart, Globe, and Bayantel wouldn’t be too happy if Singtel or Tmobile or Boostmobile sets up shop separately – provides higher wages, provides better benefits, provides superior service.

    Thanks to Philippine laws, specifically, the anti-investor provisions of the constitution – PLDT, Smart, Globe, Bayantel can get away with lousy service, low wages, and substandard benefits.

    Consider the following:

    Singapore Telecommunications – 45%
    Ayala Corporation – 34%
     Public stock – 21%

    The value proposition of the protectionist clause that is by forcing the issue of foreign investors going into joint ventures technology will be transferred. That is not always the case. In the Philippines for example – has such joint venture improved the services? My take is that it has not improved the service but has instead led to a diversification of marketing bundled products using the same lousy services. Yeah sure – Globe may have more cards for airtime available, but what’s the point buying those cards when your bandwidth sucks? Pinoys like Esposo, Margallo, and Buencamino must be so happy with inferior service. And that’s just for starters – consider our electric utilities. So much so that they want candidates who advocate charter change be junked.

    ***

    Also, consider the 7TH Foreign Investments Negative List

    LIST A: FOREIGN OWNERSHIP IS LIMITED BY MANDATE OF THE CONSTITUTION AND SPECIFIC LAWS

    No Foreign Equity

    1. Mass Media except recording (Art. XVI, Sec. 11 of the Constitution; Presidential Memorandum dated 04 May 1994)

    2. Practice of all professions1

        a) Engineering

            i. Aeronautical
            ii. Agricultural
            iii. Chemical
            iv. Civil
            v. Electrical
            vi. Electronics and Communication
            vii. Geodetic
            viii. Mechanical
            ix. Metallurgical
            x. Mining
            xi. Naval Architecture and Marine
            xii. Sanitary

        b) Medicine and Allied Professions

            i. Medicine
            ii. Medical Technology
            iii. Dentistry
            iv. Midwifery
            v. Nursing
            vi. Nutrition and Dietetics
            vii. Optometry
            viii. Pharmacy
            ix. Physical and Occupational Therapy
            x. Radiologic and X-ray Technology
            xi. Veterinary Medicine

        c) Accountancy
        d) Architecture
        e) Criminology
        f) Chemistry
        g) Customs Brokerage
        h) Environmental Planning
        i) Forestry
        j) Geology
        k) Interior Design
        l) Landscape Architecture
        m) Law
        n) Librarianship
        o) Marine Deck Officers
        p) Marine Engine Officers
        q) Master Plumbing
        r) Sugar Technology
        s) Social Work
        t) Teaching
        u) Agriculture
        v) Fisheries

    Isn’t it ironic that the country who sends professionals to work overseas – does not want professionals from other countries. Give and take people – hindi yung puro lang take, walang give.

    We are losing our professionals overseas, wouldn’t it make sense to allow other countries who have professionals, who are willing to put up with the Philippines subhuman compensation?

    (Art. XII, Sec. 14 of the Constitution; Sec. 1 of RA 5181)

    3. Retail trade enterprises with paid-up capital of less than US$2,500,000 (Sec. 5 of RA 8762)2

    Consider the lot of retired foreigners who have the capital, who got married to Pinays, who are actually bankrolling the Pinay’s retail operations. Ano ba ‘to – government sponsored huthutan? Don’t they need protection in case the Pinay and her families rip the foreign spouse up? There is an unaddressed segment that’s not being met – and the caps are not helping at all.

    4. Cooperatives (Ch. III, Art. 26 of RA 6938)

    What’s wrong with having foriegners invest in coopratives? here’s what – coops with members coming from poorer classes can go into joint venture with a foreigner. For example, PLDT’s terminated workers can set up a cooperative, go into joint venture with ZTE or Singtel – that creates jobs for the laid off workers and introduces more innovations.

    But, the oligarchs don’t want competition.

    Up to Forty Percent (40%) Foreign Equity

    17. Exploration, development and utilization of natural resources (Art. XII, Sec. 2 of the Constitution)4

    18. Ownership of private lands (Art. XII, Sec. 7 of the Constitution; Ch. 5, Sec. 22 of CA 141; Sec. 4 of RA 9182)

    Ownership of the land is an issue as pointed out in the OECD studies.

    19. Operation and management of public utilities (Art. XII, Sec. 11 of the Constitution; Sec. 16 of CA 146)

    If foreigners can do a better, cleaner, more efficient, lower costing service – why restrict them from doing so?

    Why put up with local utilities like the Lopez-owned Maynilad (owner of ABS-CBN, major Noynoy backer) or Benpres (another Lopez company) that deliver lousy expensive service?

    Instead of legislation, open up the market – If Lopez does not shape up, let him sink!

    20. Ownership/establishment and administration of educational institutions (Art. XIV, Sec. 4 of the Constitution)

    We’d like to improve our educational system and having foreigners to come in and invest even own a majority share will help upgrade our schools – and we don’t want them? So, we’d rather be stuck with the Jurassic educational institutions? Can’t have the cake and eat it too.

    21. Culture, production, milling, processing, trading excepting retailing, of rice and corn and acquiring, by barter, purchase or otherwise, rice and corn and the by-products thereof (Sec. 5 of PD 194; Sec. 15 of RA 8762)5

    22. Contracts for the supply of materials, goods and commodities to government-owned or controlled corporation, company, agency or municipal corporation (Sec. 1 of RA 5183)

    Same deal, if the foreign entity provides better quality at lower prices – why stop it from doing so? It pays taxes, hires people, creates economic velocity – and we don’t want it?

    Kasi po, ang gusto ni Maynilad (aka Lopez oligarchs that bankroll Noynoy) – sila lang!

    Go over the FINL and you will see that the industries singled out for protection are dominated by oligarchs. If Noynoy truly wants a level playing field – this FINL has to go.

    Obviously, Noynoy and his alipores don’t want that – so expect the same lousy service – pinoys get what they deserve.

  23. Have to agree with most. if not all.

    About that expats having to marry Filipinas just to be able to able to set-up business here, that may not be totally bad in some cases were it is done in good faith, but we know that is not the issue if they are done in good faith or not. The laws on investing are an open invitation for marriages of conveniences making us look like manhuhuthot, wittingly or unwittingly.

    About what you said before,if I recall,that it is also ok for mom and pop shops to be run by foreigners, maybe at first i thought it was overkill, but if smes want to grow and not stay small, competition can allow that to happen.

    If we are losing nurses,doctors,engineers, we can have expats,of course that can happen once we can afford to pay them, and that can happen if we also allow hospitalsand the like to be run by expats .

    The other issues that you raised (schools,etc)are also valid as far as i am concerned.

    PS

    Got to let this out of my chest early,

    I recognize all the issues you raised,but in my case i am still waiting for Noynoy to come up with a better platform and better performance on forums.
    because if he really is to win , he must also recognize valid issues that needs to be addressed.

    Oligarchs are here to stay whether Noynoy wins or not,but your beef is it is ok as long as they allow competition and shape up or perish.

    if he is to win, our discussions would continue and the way it could help is all the issues that needs to be recognized must be addressed.

    I am already used to your style(which is no bullshit the better), and I won’t dismiss them as fault finding,and wachamacolit, and of course those who can’t stand the heat must leave the kitchen.

  24. Karl:

    I’ll give you a good example of how letting foreigners into the micro- or small-business sector can help. I know a foreign guy over in Rizal, owns (through his wife’s name of course) a sari-sari store-cum-canteen-cum-local hangout. He not only has a well-supplied store for the neighborhood, he keeps at least 3 people employed (under strict guidelines and in minutely-exacting accordance with all applicable labor regulations), and has provided a safe, clean sort of social center for the neighborhood. As a consequence of presenting some stiff competition, everybody else has cleaned up their act; the sleazy videoke bars that attracted a lot of obnoxious drunks and fights have gone under, a few of the other neighborhood sari-saris have too, but the others he’s helped improve through offering business advice and serving as a fair wholesale supplier for some of their goods. After a couple years of this, the whole place is cleaner, quieter, and the people who are doing business are making a legitimate living from them, and not coincidentally, maintaining proper tax and business fee payments — which are in turn assessed correctly by the municipality, since the now happier and better-off community constitutes a formidable civic oversight entity.

    My point is, we foreigners tend to think long-term and in bigger spheres of influence than most people here, because we have to. There’s no making a quick buck in this country. Laws being what they are, any foray into a business enterprise is intimately tied to our personal circumstances — which, thanks to the absence of a divorce law, we cannot escape unless we are willing to utterly sacrifice everything. Even if we decide to go the more nefarious route and set up a dummy, personal relationships are still the linchpin of the whole thing, and maybe even more of a risk factor. Despite the ridiculous restrictions, there are still enough expats who are willing to do it on a small scale, if only they could do so in a relatively aboveboard manner.

  25. karl garcia · ·

    good points ben.

  26. Joe America · ·

    I agree with Karl. Very important perspectives here.

    Joe

  27. […] are – and the solutions Gordon brings to solve the raging issues of the day. Why settle for a limited solution when you can address the system-wide gap which are felt in all industrial sectors (for example the […]

  28. […] to explain in five step with the aid of visuals why Noynoy Aquino, his team, and his supporters are wrong on corruption. I will cut to the chase and keep it simple. You be the judge as to who really, is making […]

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