Bernardo M. Villegas
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A Dialogue With the Presidentiable (Part 1)

             I have been following very closely the major action plans and positions being presented by the presidentiables and some of those running for the Senate. Through this series of articles, I would like to dialogue with them about what they have been presenting as their strategic plans for the Philippine economy.  I will leave out declarations about non-economic issues such as what they intend to do with the ROTC program or whether or not they are in favor of absolute divorce or same-sex marriage.  I will touch on these equally, if not more important issues, in separate columns in the future.

            My first commentary is that I would like them to clearly state the exact balance that they will strike, as potential national leaders, between market forces and state action as they pursue the common goal of sustainable and inclusive development.  As there seems to be a preference of voters, especially among the CDE segments, for strong national leadership, it would be helpful to know just exactly what role they see for a strong government in bringing our country to First World status in the next two decades or so, i.e. to attain the goals stipulated in NEDA’s Ambisyon 2040.  My unsolicited advice to them is to follow the dictum “As much free market as is possible, and as much state intervention as is necessary.”  It has become clear from the last thirty years of world economic development that untrammeled market forces never resulted in the promised “trickle down” to the poorest of the poor.  In fact, unregulated market forces have resulted oftentimes in the poor becoming poorer and the rich richer. All our potential national leaders can learn much from the experiences of China since the market-oriented revolution unleashed by Deng Xiao Peng in the late seventies all the way up to the 1990s. Abandoning the socialist slogans of his predecessor Mao Zedung, Deng allowed a great deal of private enterprise especially in agriculture through his famous responsibility system which gave a lot of leeway to small farmers to sell 70 % of their produce to the free market.  Free market forces were also allowed to stimulate the micro, small and medium enterprise sector.  By finally recognizing that there is a human right of individual free enterprise, China over the last twenty to thirty years liberated some 600 to 700 million Chinese from dehumanizing poverty.  This is a reminder to the few of our candidates who have retained some elements of socialist ideology that batting for free enterprise as much as is possible has nothing to do with worshipping the free market.  It is just recognizing what is known as the principle of subsidiarity, that you get to actualize the greatest potential in human beings by giving them maximum freedom to exercise their human spirit of economic initiative.

            China, however, still has some 700 million of their populations living in precarious economic conditions.  These are those who deserve to be protected by strong and decisive state action.  That is why I was glad to note that practically all of the Presidentiables mentioned the need to continue the Build, Build, Build, program that characterized the Duterte Administration which saw spending on infrastructures climb to over 5% of GDP from less than 3 % as an average in previous Administrations.  I would also would want the Presidentiables to state clearly that they plan to follow the example of the Government of President Duterte that the great bulk of government spending on public works should be in the countryside and not in the urbanized areas like Metro Manila and Metro Cebu.  Those Presidentiables who were in favor of involving the private sector in the improvement of infrastructures through the Public Partnership Program (PPP) mode should explicitly state that these PPP projects should be the ones that will improve the quality of infrastructures in the urban areas, such as toll roads, subways, airports, and LRTs.  Also, explicit reference should be made to the greater role of foreign direct investments in telecommunications, transport, airports and the other public services in which 100 percent foreign capital can now be invested, thanks to the amendment of the Public Service during the last months of the Duterte Administration.

            To banish once and for all the “Filipino First” mentality, which has done a great disservice to the poor In the past from economic policy making in the Philippines, I would like to read categorical statements from the Presidentiables that foreign equity capital is very much welcome in all strategic sectors of the Philippine economy, especially in the post-pandemic period when the Philippine Government has very little borrowing capacity left after having been forced to borrow billions of dollars to help millions of Filipinos survive the economic crisis brought about by the COVID-19 pandemic.  The next two Administrations (and possibly more) will be very fortunate that the Philippines will be at the epicenter of the most dynamic economic region in the world for decades to come.  This region will attract the bulk of long-term investible funds from all over the world, especially from the U.S., the EU and Japan.   The domestic market of the Philippines, with its 110 to 150 million consumers in the next two decades, will be among the most attractive for all types of industrial products and services (especially those associated with Industrial Revolution 4.0).  It would be unwise to limit the long-term capital needed for investment in these industries to Filipino individuals or Filipino majority-held corporations.  This would be tantamount to depriving Filipino workers employment opportunities in their own country and Philippine industry the opportunity to acquire the most advanced technology transfer.  We have to once and for all learn what I have often repeated (almost ad nauseam) that at bottom, “Filipino First is really Rich Filipinos First and never mind what happens to the rest of us.”   By limiting majority ownership to Filipinos, we have actually allowed the rich Filipinos to have monopoly control of public services and public utilities oftentimes to the detriment of Filipino consumers.

            The next President and his fiscal managers will have to do everything possible to keep our taxes to GDP ratio at 17% or more so that we can service the huge loans we incurred during the pandemic and continue the Build, Build, Build program as well as realize two big fiscal challenges:  increase significantly the budget for education and health.  That is why there is no need to reinvent the wheel:  just implement rigorously the CREATE law, a significant contribution of the Duterte Administration.  Don’t listen to some of the Presidentiables who want to remove the sin taxes and who want to tax the assets of the wealthy.  The sin taxes (on cigarettes and liquor) have achieved their purpose, i.e. raise large sums of money to support the spending priorities of the Government.  Also, the wealth of the rich—as long they are investing their wealth in developmental projects--should not be taxed.  What should be taxed are the conspicuous consumption expenditures of the wealthy, i.e, luxurious homes and beach resorts, private planes, expensive cars, frequent world tours, etc.  Wealth, if invested in productive enterprises, generating employment especially in the rural areas, should not penalized.    The wealthy should also be encouraged to channel their excess funds to charitable and development projects of NGOs through generous tax-deduction incentives.

            On the expenditure side, the increase in the percentages of the budget on both education and health proposed by a good number of the Presidentiables should be focused on significantly increasing the salaries of public school teachers and health workers.  Figures ranging from P30,000 to P50,000 monthly pay are not unreasonable, considering the work load and demands on quality service for both teachers and health workers.  Given the very tight supply of these types of workers in the developed countries as well as some emerging markets like China who are suffering from demographic suicide, these higher salaries are also needed to prevent a massive exodus of these essential workers from the Philippines.  Because the government’s budget for education will be practically exhausted in improving the quality of basic education (which has dropped to very low levels considering how poorly our grade school and high school students perform in internationally administered tests)., there will be scarce funding for our state colleges and universities.  We should focus our efforts on the U.P. network and a few prominent state colleges and universities and avoid proliferating these public universities.  There should be an educational version of the Public Private Partnership model in infrastructure development by channeling public funds invested in higher education partly to granting generous scholarships to deserving high school graduates who are children of underprivileged families who can enroll in the quality institutions of higher education in the private sector.  These private universities could also receive generous grants from the Government to fund research institutions especially in science, technology, engineering and mathematics.  To be continued.