Dismantling the Post-EDSA order

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Calixto Chikiamco 081417


President Rodrigo R. Duterte deliver his speech during the Eid’l Fitr celebration at Rizal Hall, Malacanang Palace on June 27, 2017. KRIZJOHN ROSALES/PHILIPPINE STAR

A friend recently asked me, “What’s Duterte doing? Why is he going against the Prietos and Inquirer and the Lopezes and ABS-CBN?”

He was referring to the government ejectment of the Prietos from the Mile Long property and the subsequent sale of the Philippine Daily Inquirer to SMC president Ramon Ang. As to the Lopezes, they have recently been on the receiving end of President Duterte’s attacks regarding unpaid debts to government institutions. President Duterte has also vowed to oppose the renewal of the ABS-CBN franchise in 2020.

The answer to my friend’s question is simple: President Duterte is trying to dismantle the political infrastructure of the “yellow faction,” or the elite faction that led and took power after the Edsa people’s revolt in 1986. He’s “de-yellowing” the Philippine political structure if you will, in the same way that the Americans “de-Baathized” Iraq after the downfall of Saddam Hussein.

Both ABS-CBN and PDI, and the families behind them, are linchpins of the Yellow political infrastructure. For example, they were instrumental in the ousting of former president Joseph Estrada in Edsa Dos, and more recently, in tarring former VP Binay in the run-up to the last presidential elections.

As I wrote last year when the dark horse candidate from Davao surprisingly won in the presidential elections (despite, or because of, his “politically incorrect” curses and tirades), the vote for President Duterte was a vote for systemic change. It was a vote against the post-EDSA order, or the political and economic order established in 1987 with the downfall of Marcos and the assumption of former President Aquino into the presidency.

Nearly 30 years after the establishment of the post-EDSA order, except for the trappings of elite democracy, nothing much has changed: poverty remains endemic, thousands still look abroad for better opportunities, the public is bereft of basic public services, the bureaucracy remains dysfunctional, and the government is rife with corruption.

In the political sphere, President Duterte blamed the overconcentration of political power in Metro Manila as the source of these ills. Hence, his call for federalism. He also saw a weak state that is easily penetrated and influenced by either the growing drug trade, or yellow rent-seekers in business, who are taking advantage of their political influence to gain economic benefits from the state. Hence, his campaign against drugs and the Lopezes and Prietos.

In my analysis, however, the weak state and the rent-seeking are the result of the anti-people and anti-development economic foundations of the post-EDSA order. These economic foundations are: the 1987 Constitution, which sought to protect “yellow businessmen” from foreign competition (hence the restriction on foreign operation of public utilities and the 100% requirement for ownership of mass media) and the 1987 Comprehensive Agrarian Reform Program, the landmark legislation passed under former president Aquino.

The protective, anti-foreign investment provisions in the Constitution, however, only fostered monopolies and oligopolies in the strategic sectors of the economy: communication, transportation, ports, etc. deemed as “public utilities.” The result has been high cost and poor services both to the public and other sectors of the economy. Fed up with the poor services they were getting, from telecom to transport, an angry public voted against the administration candidate and for Rodrigo Duterte.

There was a growing recognition that these restrictive provisions of the Constitution are harmful to the economy. Former House Speaker Feliciano Belmonte, Jr. tried to lead Congress to lift those provisions during the last administration until the reactionary former president Aquino, defending the post-EDSA order established by his mother, killed it.

While President Duterte has expressed support for removing those economic restrictions in the Constitution, Constitutional change may take a long time. Fortunately, there is another initiative, supported by the administration, which included it in their priority legislative agenda, and that is to amend the Public Service Act and to let Congress define what the term “public utilities” is under the Constitution that is subject to the 40% ownership limit to foreigners.

Recently, the Public Service Act Amendment, under House Bill 5828 sponsored by Economic Affairs Committee Chair Art Yap, Congressman Joey Sarte-Salceda, former president and Pampanga Congresswoman Gloria Macapagal-Arroyo, former speaker Feliciano Belmonte, Jr., Quezon City Congressman Kit Belmonte, and Makati Congressman Monsour del Rosario, passed the House on third and final reading.

If this bill also passes the Senate and becomes law, it will be the most significant and consequential economic legislation ever in the history of the Republic. It clarifies the distinction between “public services” and “public utilities,” which terms are often confused and makes “public utilities” only a subset of “public services.” It states that only the following industries may be deemed “public utilities”: electrical distribution, electrical transmission, water pipeline and sewerage distribution. For an industry to be classified a “public utility,” it must pass a criteria, which includes being a natural monopoly, distribution to the public of a commodity or service through a network, the commodity or service must be necessary for the life and occupation of residents, and the commodity or service must be provided to the public on demand.

A consequence of this amendment would be to remove telecommunications and transport from the list of “public utilities,” and therefore no longer subject to the Constitutional provision restricting ownership and operation to companies or entities with a majority Philippine ownership.

The economic benefit will be huge. It will improve competition in ownership and operation of strategic industries; facilitate technology transfer; increase efficiency, reduce costs, and improve service of telecom and transport companies. Also, it will greatly improve the foreign investment climate. This would lead to increased foreign investments that will generate jobs, promote innovation, and more importantly, finance the growing current account deficit.

It will also promote good corporate governance since the restrictions would no longer result in “adverse selection,” wherein only those foreign investors willing to skirt the law, will come. (It’s an open secret that the telco duopoly are effectively owned and controlled by foreign companies using legal legerdemain.) Furthermore, those foreign companies that were scared to tie up with local companies because of their host countries’ strict foreign anti-corrupt practices laws, will finally come.

On the other hand, the other linchpin of the post-EDSA order, the Comprehensive Agrarian Reform Program, may be ripe for dismantling. President Duterte’s naïve overtures for peace talks with the Left and subsequent appointment of the leftist Rafael Mariano as Department of Agrarian Reform Secretary, made this previously impossible.

To recall, the Cory Aquino administration passed CARP soon after gaining power to quell the rural insurgency. However, it sacrificed middle-class landlords by subjecting them to land redistribution while it exempted big landlords with schemes like stock distribution or conversion into non-agricultural uses. CARP failed because its focus was on land redistribution (cutting up the land and giving them to tenants) rather than on productivity.

More significantly, CARP substituted a corrupt and inefficient government for the landlord, with the tenant farmer obligated to pay amortizations to the government for 20 years with a prohibition to mortgage and sell it within 10 years. It glorified small landholdings and prevented efficient farmers from buying out inefficient ones. (Average size of farmlands has fallen to less than a hectare.) While even “socialist” China has been promoting land consolidation to increase efficiencies, the country has been moving in the opposite direction.

With the removal of the leftist Rafael Mariano as DAR Secretary, the Duterte administration has an opportunity to dismantle this other leg of the post-EDSA order, which has been responsible for continued poverty in the countryside, low agricultural productivity, and the persistence of rural insurgency.

The Duterte administration should abolish the Department of Agrarian Reform, which has been mainly rent-seeking as it tries to control all transfers and conversions of agricultural land. It should free the land market and improve the investment climate in the countryside in order that capital, technology, and management can be injected into our inefficient farms.

It’s interesting that both the Yellows and the Left are united in opposing moves both to remove the foreign ownership restrictions in the Constitution and in dismantling CARP. In Congress, Congressman Lagman and other leftist congressmen opposed the passage of HB 5828 or the Public Service Act amendment. Apparently, they want to keep strategic industries in the hands of Filipino oligarchs and to keep out foreign competition. (The leftists call their oligarchic sponsors, the “nationalist bourgeoisie.”)

As for CARP, former DAR Secretary Rafael Mariano has been trying to implement it, despite the law having expired last year. He and his leftist colleagues have been agitating to continue it with a “genuine agrarian reform” bill, the main content of which is a populist demand to condone CARP farm beneficiaries’ amortizations. It’s interesting that former Cory Aquino administration officials are most vocal in calling for continuing CARP and opposing removing the foreign ownership provisions in the Constitution.

In sum, President Rodrigo Duterte’s election was a repudiation of the post-EDSA order. It would be wrong for him to solely focus on the drug war if he were to fulfill his mandate. In fact, his blunt execution of that war (with his faulty assumption of an honest and efficient PNP) is threatening other parts of his economic and political agenda.

It would be well for him to dismantle the economic foundations of the post-EDSA order, which is fueling most of the public unrest and dissatisfaction we see today. Even the over-concentration of political power in Metro Manila, which he riles about, is the result of over-concentration of economic power wielded by protected monopolies and oligopolies. It’s also in the interest of monopolies and oligopolies to have a weak state with captured regulators and corruptible bureaucrats. The same weak state is being penetrated by drug lords and the criminal elite.

President Duterte, pursue the drug war, but intelligently, without sacrificing the rule of law and without slaughtering the innocents. Most of all, fulfill your mandate of dismantling the post-EDSA order, not by rehabilitating the Marcoses, but by liberalizing foreign investments and dismantling CARP.

Calixto V. Chikiamco is a board director of the Institute for Development and Econometric Analysis.