The Post-PNoy President

The 2016 election is more than a referendum on Noynoy Aquino’s presidency. It represents a unique opportunity for us to reflect on the path our nation has taken and focus on the questions of poverty and underdevelopment that remain.

By 2016, it will be thirty years since EDSA People Power 1. This period would be book-ended on either side by a pair of Aquino presidencies. Except for a brief interlude under Pres. Estrada from 1998 to 2001, there has been a remarkable continuity of socio-economic policy. We can now speak of a post-EDSA ‘86 regime that will have been at the helm nearly a decade longer than the Marcos regime.

Of course the administration will claim that from 2005-10, the government was run by an apostate in Mrs. Arroyo; nevertheless, many of her policies, programs and cabinet members traveled along the same development path as her EDSA-I forebears and have persisted under the current administration.

The fall of Marcos after a debt-fueled spending spree in the 1970s marked a departure from the path the nation took since the mid-century. Until the 1980s, the Philippines was able to keep up with its rapidly growing ASEAN counterparts, but afterwards its path diverged. It took over a decade for our growth pattern to return to what it had been previously (see chart below).

The Lost Decade: The Philippine economy took over a decade to recover from the debt crisis of the 1980s that led to regime change in 1986.

From the time of Mrs. Aquino, presidents tended to accept the prescriptions of Cabinet technocrats on matters of socio-economic policy. Marcos only used them to sanitize his acts of plunder. Although some level of corruption has persisted post-EDSA ’86, it has not approached the same grand scale as under Marcos.

While Pres. Benigno Aquino’s record on economic growth has now surpassed that of Pres. Marcos’ in the 1970s, it is still less than the growth record of the 1950s when the nation’s industrial sector was protected by import substitution policies. Those policies, shallow as they were compared to our Latin American counterparts, were ditched in the 1980s at the behest of the International Monetary Fund (IMF) as a condition for bailing us out of our debt problems.

The Straight Path

The costly mistakes of the Marcos era forced our leaders to walk the straight path imposed by the IMF. This consisted of three prescriptions: liberalize markets, stabilize the monetary system and privatize national assets.

By the mid-2000s, the country exited from the IMF program, but continued to rely on the World Bank (WB) for assistance. The WB has made good governance a condition for this. It measures governance using six indicators covering control of corruption, rule of law, democratic accountability, regulatory quality, effective government, and political stability. Under Mr. Aquino, the country has recovered much of the ground lost on most of these indicators since 1998.

Yet poverty reduction under Pres. Aquino has been minimal. Solita Monsod, socio-economic planning minister under his mother’s presidency has observed that the first dozen years of the post-EDSA regime (from Cory Aquino to Fidel Ramos, 1986-1998) fared better in poverty reduction than the last dozen (from Gloria Arroyo to Noynoy Aquino, 2003 to present). Poverty incidence fell from 36.5% to 20.5% in the former, while remaining flat in the latter.

A fifth of households (20%) in 2014 still lived below the national poverty line, the same as in 2003. The proportion of workers earning less than $2 a day still stood at about 41% as of 2013, no better than in 2000. Even less developed countries like Cambodia and Vietnam are more successful at reducing poverty.

Should the country change its course? Stalwarts of the post-EDSA ’86 regime will disagree. They will claim that Pres. Noynoy Aquino has ushered in a “golden age” of reform. They tell us to hold out for two more presidential terms (until 2028) for our nation to achieve its true potential.

A Different Path

Empirical evidence suggests that good governance was not a precursor to rapid, inclusive growth among the “convergence club” of nations. At the initial catch-up stage, they scored just as poorly in WB’s governance indicators as the “divergence club” of countries who were lagging far behind rich nations.

What set them apart was their ability to craft a strategic vision and coordinate public and private agents to invest in productive areas in line with that vision. These states also secured agricultural property rights and contracts, and ensured the quality of basic health and education services. This resulted in more rapid, inclusive growth, from which the governing coalition also benefited.

At the next stage, converging nations opened up markets and expanded civil liberties and democratic institutions. Economic competition, social mobility, as well as democratic freedoms increased. Economic takeoff inspired confidence among “insiders” to allow participation in different sectors of the economy by “outsiders”.

At the final stage when the convergence club caught up with advanced nations, the formalization of, and compliance with rules, was achieved. Only then did the impersonalized institutions associated with “good governance” appear, resulting in efficient administration, control of corruption, independent regulatory agencies and strong democratic principles.

The Challenge

After nearly thirty years of instituting reforms in the Philippines with varying degrees of success, the current crop of post-EDSA ’86 leaders feel that economic nirvana through good governance is within reach. The emphasis has been on creating legitimacy by fixing the form of governance (what internal practices are observed) rather than the function (what the state is meant to do or accomplish).

The appropriate policy levers for our stage of development should now be obvious: asset reform that assigns full property rights for the poor to access formal credit markets, adequate delivery of basic health and educational services, including vocational and technical training, and a vigorous policy of industry engagement and coordinated action to encourage risk-taking, adoption of new technologies, and provision of complementary infrastructure and other “club goods”.

Mastering the functional capabilities to produce these outcomes should come first. “Good governance” will follow once inclusive growth and development have occurred.

At the next election we need to determine who has the better plan, managerial competence, and organizational skills to pull this off. We need to examine the policies and record of candidates to see if they embody proven solutions for old, persistent problems. This is not just about whether the last five years have been good, it is about how we can learn from the last thirty years, and open a new chapter in our nation’s history.