Jose Almonte on Economic Liberalization & Political Freedom

February 9, 2005

What follows is a  speech read by Gen. Jose T. Almonte, National Security Adviser in the Ramos Administration, to a gathering of the Foundation for Economic Freedom Fellows last January 18. The Foundation for Economic Freedom is a not-for-profit, nongovernment organization that has relentlessly advocated for good governance and market-friendly reforms in the last eight years. Its fellows are among the country’s most notable economists, political analysts, business practioners, and public officials.

Can the Philippines deal with its problems democratically?
By JOSE T. ALMONTE AN ONSET OF CULTURAL PESSIMISM?
Three and a half years into her rule, President Arroyo has yet to relieve Filipinos of their despair about our country’s prospects, which had befallen them during the Estrada Administration.

So far, she has failed to deploy the moral power latent in the Presidency, which alone can elicit the civic commitment of citizens.

So far, she has been little more than the consummate politician — whose first obligation is to those who had paved her way to power. And, since her support in the May 2004 elections had come mostly from the poorer, more patronage-oriented regions of the archipelago, Mrs. Arroyo has accumulated many political debts indeed.

Meanwhile, we Filipinos seem so overwhelmed by our political and economic crises that some among us no longer believe we could overcome them. Particularly, our young people seem to feel this nation lacks the capacity — and the will — to win the future, so that their overwhelming ambition seems to be only to migrate to some less benighted country; while some of their elders — who should really know better — are beginning either to call for armed revolution, or to voice their longing for an “honest [!] dictatorship.”

Even the Philippine Church now describes Filipinos as a “wounded people.”  
Indeed, I’m beginning to discern among us the beginnings of “cultural pessimism” –the moral exhaustion and hopelessness about the communal future that makes people indifferent to anything else but their own salvation.

Something similar befell Ireland during the “potato famine” of the middle 1840s, in the course of which two million Irish — out of a population of some eight million — migrated to America.

Not incidentally, Filipinos are projected to become the largest Asian-American community any time now, overtaking the Chinese. Roughly one in three Filipinos already has a relative in America.

What are Filipinos pessimistic about?

As you know better than I do, our economy is being left behind by its vigorous neighbors in the world’s fastest-growing region. There has apparently been virtually no improvement in living standards for the average Filipino since the 1970s.

And instead of goods, we’re exporting work — people — to become hewers of wood and drawers of water (as well as dancing girls) for more fortunate peoples. Perhaps close to a tenth of all Filipinos are overseas as migrants and contract workers — at social and economic costs certainly higher than the dollars they send home.

Japayukis are bad enough. But I think Filipinos are dismayed even more by the way politics is carried on in our country — given its utter lack of a sense of the national interest.

Certainly the faultlines in our electoral democracy are widening.

The Philippine State is too weak, whether to defend people’s constitutional rights or to prevent their abuse. We still cannot take for granted the supremacy of civilian authority over the military. Even petty bureaucrats enjoy wide discretion, whether to award advantage or to inflict penalties. Poverty levels remain high and a great gap in their lifeways makes “two nations” of our rich and our poor. These economic and political failures will have unavoidable security implications. Millenarian movements of various types, ideological banditry, ethnic separatism, military mutinies — and high crime rates
– these social plagues will all continue to be endemic among us.

Meanwhile cultural pessimism will induce a tidal wave of migration among our best and brightest — as the rich countries strive to fill in the technological gaps among their own work people.

While those of us who stay home will more and more harbor an inward-looking kind of nationalism.

We Filipinos will tend more and more to blame our frustrations on the intrigues of foreigners — and to define our uniqueness in opposition to whoever becomes the dominant power.

Renewed spells of strongman rule will always be a liability. But, in my view, the more immediate problem is “democratic exhaustion” — the erosion of confidence in elected government.

Recent history suggests people in the new countries can easily tire of “electoral democracy” that brings no relief from mass poverty, social inequality, and lack of opportunity.

For instance, last April, the United Nations reported that Latin America — having at last freed itself from coups and dictatorships — faces a fresh challenge to its political stability. All over the continent, deep, popular disenchantment with democratic government is apparently breeding nostalgia for strongman rule.

So often am I struck by the similarities between the Philippines and the Latin American states that I sometimes feel God may have absent-mindedly dropped our archipelago in the wrong hemisphere.

II. OUR BASIC PROBLEM IS A FAILURE OF GOVERNMENT
The competitiveness surveys of the Swiss International Institute for Management Development (IIMD) suggest how low our country has fallen in recent years. In 2004, the IIMD ranked the Philippines the second least-competitive country in Asia. Only Indonesia came out worse. Malaysia, Thailand, Singapore, Hong Kong, Taiwan — even India — all registered steady improvements in their rankings. This has been the fifth straight year of decline for our country, which started (in 2000) with a ranking of 35 in a field of 60 countries. In 2002 it was number 40. In 2003, it dropped to 49.

The Philippines is ranked the worst of the 60 countries in terms of basic infrastructure — particularly in teacher-pupil ratio, pollution control, and in the ability to transport goods to market.

Government efficiency has fallen from 38 to 42. This item measures the extent to which government policies and practices are favorable to competitiveness. The Philippines ranked 52nd in business legislation and institutional framework — meaning its rules and policies are not as investor-friendly as those of other countries in the survey.

But what is really worth your attention is what the IIMD Report reveals about our country’s curious combination of strengths and weaknesses.

The Report says our competitive strength lies primarily in our work-people.
The IIMD rates us no. 1 — among all the 60 countries — in the availability of skilled workers. And it rates us third in the availability of senior managers; fourth in people skilled in information-and-computer technology; 10th in accounting and financial skills; and 12th in qualified engineers.

Our competitive weaknesses lie in the prevalence of tax evasion; our poor infrastructure; and the level of corruption in government. In corruption, the IIMD ranks us second from the bottom.

In short, the IIMD Report confirms what every Filipino knows full well. Our country’s strengths are people’s strengths. But our country’s weaknesses are government’s weaknesses.

Our workpeople, our senior managers, and our information-and-computer technologists are among the best in the world. The block to our global competitiveness is government. And it is government which must shape up if we Filipinos are to compete successfully in the world.

Government’s crucial role in “late industrialization”
In Italy, during the postwar period, revolving-door governments came and went with little effect on the economy. (Our own economy’s performance in 2004 suggests something similar may be starting to happen here.)

But in the developing world — among the new countries striving for “late industrialization” — the State must necessarily assume a vital role. And our country’s key failing is that the Philippine State has been too weak to carry out the interventionist policies that South Korea, Taiwan, Singapore — even Malaysia and Thailand — all managed successfully.

In our country, dirigiste policies have merely facilitated rent-seeking and political corruption.

Protectionism, for instance, has played only to the oligarchy’s interests — although generations of left-wing ideologues, from Pedro Abad Santos to Walden Bello, have supported it in the hope of nurturing a “national bourgeoisie.”

All of us who are in this country to stay must worry about the quality of our country’s governance, for it has become the crucial element in our economy’s competitiveness.

Nowadays, physical, financial, and even intellectual resources no longer hold the key to competitiveness, since countries which lack these resources can now “import” them.

If countries need iron ore, finance capital, or nuclear physicists, they can nowadays “outsource” them.

The only thing that countries cannot outsource is good government itself.
And if we cannot import good government, neither can we export our politicians and our oligarchs — even if we may occasionally be tempted to do so!

Good governance must be homegrown. And we cannot underestimate the importance of sound political institutions and sensible policies in improving the lot of a poor nation like our own.

Simple guarantees such as safe property rights — secure business contracts — and predictable economic policies can make all the difference between wealth and poverty.

The lack of these guarantees in our country explains why Filipino workers’ productivity rises astonishingly once they migrate to a better-governed country. The answers to our problems we must find from within ourselves

Building up the authority and effectiveness of government will be both difficult and protracted.

The truth we cannot ignore is that the status quo is good for a few wealthy, strong-willed, and politically powerful families.

Latin America’s example — and our own historical experience — tell us that parasitic public institutions — and self-serving ruling classes — can perpetuate themselves indefinitely.

Nor should we take for granted the irreversible nature of the democratic process. Throughout recent history, democracies have reverted to authoritarianism; states have failed; and the realms of liberty have contracted for citizens.

Nowadays — with the economy in crisis — all too many Filipinos long for a leader strong enough to knock heads together and point the country in the right direction. But authoritarianism — no matter how relatively benign — is unworkable in a dual-society like ours.

As we know only too well, the Philippines is modern enough for people to demand their political rights, yet still feudal enough for many of our politicians to regard government as just a means of distributing patronage.

Power is slippery and hard to grasp in a fractionalized polity like ours, because it is broadly and equally dispersed.

Like India — the Asian country it most resembles — the Philippines cannot probably be anything but a “democracy.”

The answers to our difficulties we must find from within ourselves. For, “a feeble nation,” as Adlai Stevenson said, “is the result of self-inflicted wounds.”

III. LET US USE THE ECONOMY TO REFORM POLITICS
So what are we to do? There are no quick fixes for the things that ail our country.

To my mind, the key question is: “Can we resolve our problems democratically?”
I would say “yes” — tentatively.

Our democracy may be far from perfect, but it can still work well enough for us to improve our situation incrementally.

Not stubborn courage but an excess of patience must be the reformer’s greatest virtue. He must be willing to settle (in the meantime) for limited political goals — while keeping faith with a political vision.

In this spirit, I suggest that, to compensate for the weaknesses of the Philippine State, we harness the power of the market to the public interest.

I see our highest priority as working to free the economy as far and as fast as we can — so that the more impartial market can begin to make the decisions our all-too-fallible politicians and bureaucrats cannot do. Over this last generation, the spread of the market economy throughout East Asia has brought not only higher living standards. It has also had a liberative political effect.

Just as early capitalism had subverted feudalism in Western Europe, so has the commercial way of life eroded authoritarian regimes in our part of the world. Considering how foreign investment is forcing even China to adopt the rule of law by bits and pieces, I feel the open market should become just as strong medicine for our recalcitrant polity.

Opening up the economy will confront our oligarchy with international competition. The entry of multinationals and new joint ventures — apart from bridging our finance gap — will dilute the oligopoly enjoyed by national corporations.

Only by cutting down its power to monopolize markets can we force our oligarchy to compete and innovate.

Harnessing the market to the public interest
But how do we “open the economy” in the teeth of opposition from those who benefit from the status quo?

The struggle against statism will be a long one. But it is a struggle that can be won.

Intelligent reformers should learn to exploit the particularistic interests of our oligarchic families.

They should also learn to tap the power of middle-class opinion.

As you will recall, reformers have actually had some piecemeal successes over this past decade or so.

President Ramos, for instance, managed to open the banking system enough to let in 10 global banks. That single, limited reform has forced domestic banks to become more efficient, to focus on their market niches, and to depend less on relations-based banking practices.

Similarly, the forced dismantling of the PLDT monopoly has made the Philippines one of the most vigorous telecommunications markets. The retail trade too is beginning to stir, because of increased competition.

I think the struggle must come down to our militant espousal of specific, “sensible” policies that will cumulatively move our country toward economic and political modernization.

Right now, “open skies” — the cause the Freedom to Fly coalition has bravely taken up — merits the most of this Foundation’s all-out support.

Let us not underestimate the spread effects of even simple microeconomic reform.

In this effort, let us also use our country’s commitments to the WTO, ASEAN, the East Asian Economic Grouping, and APEC — just as Italy did its commitments to the European Union — to infuse discipline and raise productivity in our economy. Nor should we belittle the effectiveness of specific political reforms.

In Mexico, it was a single reform — the creation of an autonomous electoral agency, with its own status and resources, and its power to regulate party finances and access to the media — that recently brought down 71 years of one-party rule.

Similarly, I have high hopes for the bills filed in Congress by Speaker de Venecia and Sen. Angara — mandating public financing for political parties in the context of their thoroughgoing reform. Now to sum up and conclude.

IV. WE MUST MEASURE OURSELVES BY WORLD STANDARDS
Our country is at its hour of letdown. And we have no time to lose. Already tomorrow’s winners and losers are being decided by the investments that individual states are making right now — in education, technology, research — and in the efforts of governments and corporations most everywhere to raise productivity and open markets.

The hour is late. But, for as long as there are good people like you
– who continue to come together to think and act on what they can do together, for our country’s sake — I am certain we can raise the national spirit enough to reverse our situation.

There are two things I think we need to do. First, we need to focus government’s activities to match its capabilities. Weak states typically try to do too much — with too few resources and too little capability. We must get government focused on the core public activities crucial to development.

And the second is to stimulate competition — which stimulates productivity — by opening up the economy and leveling the playing field.

So far, liberalization — because it has often been timid and tentative — has been relatively easy for oligarchs to block. Consider, for instance, how the flag carrier’s nominees dominate the agency charged with regulating airline practices. Meanwhile, even the economic crisis has benefited the oligarchy, by enabling the great corporations to swallow up smaller ones. In recent years, we have also seen a regression to protectionism in key industries.

Over the longer run, we need to propagate a self-confident, outward-looking kind of nationalism — a nationalism unafraid to measure itself by world standards. In the 1950s, economic nationalism had been promoted by a politically powerful industrial class that emerged under the stimulus of the policy of import-substituting industrialization.

Its basic objective was “Filipinization.” Economic nationalists argued it was “useless to amass wealth which is not ours to dispose of.” They did not hesitate to seek economic control even at the expense of economic growth. That kind of nationalism doesn’t work anymore — if it ever did.

We as a people should act — not out of anger or frustration — but out of mature reflection.

In this reflection, groupings like yours obviously have a crucial role.

Do not underestimate your intellectual authority.

Note how much of an impact the paper by the “UP Eleven” has had, even on everyday Filipinos — and on our lackadaisical lawmakers.

Do not default in the media debate, whether to the Walden Bellos or to the hacks who serve the oligarchy.

Continue to speak out on issues as they arise. Explain. Teach. Preach. Get public opinion on your side. And keep our rulers honest by analyzing their every move from the viewpoint of the national interest.

Despite all the failings and weaknesses of our representative system, I continue to be hopeful of its future. For all our fecklessness, we Filipinos have shown ourselves capable of taking control of our own fate at critical political junctures — and peaceably to enforce the collective decisions that must be made.

Twice in the last 20 years, ordinary Filipinos have responded to the plunder of their resources and the violation of their civic rights — decisively, spontaneously, and peacefully.

“People Power” has now become something of a Filipino invention — direct action to correct our own political mistakes — which other peoples have resorted to in their own need.

For as long as we can exercise this power, we Filipinos cannot fail — as a free state and a self-conscious nation. Because there are no failed nations; there are only those which can no longer make a revolution.