Contradictions
When I think of the Philippine economy, I can’t help but think of contradictions, i.e., internally inconsistent or opposing elements at the same time.
For example, think about this: The Philippines is a tropical country, i.e., it has a lot of sunlight. In the Philippines, trees grow to maturity faster than in temperate countries. Some species grow to maturity in 10 years, probably half of the time it would take in a temperate country. One forestry expert said that in Finland, they can only produce about five to a maximum of 15 MT of timber per hectare, compared to the Philippines, where it’s possible to produce 100 MT of timber per year.
But despite this advantage, the country is a major importer of wood. It depends on imports for 70% of its wood requirements. This anomaly is present, even though the country has about five million hectares of denuded land. The Philippines used to be a major exporter of logs and lumber but cannot even produce enough for its domestic needs. We have some of the finest furniture designers in the world (think Kenneth Cobonpue), but we can’t produce enough raw materials for the wood industry.
Another contradiction: The Philippines is an archipelago. It’s surrounded by oceans. But we are continually short of fish. Hence, we must resort to imports. This year, the NEDA (National Economic and Development Authority) predicts that a fish shortage would be a major contributor to food inflation. Why? Why? Why?
On the Philippines being an archipelago, I was made aware of this other contradiction: the Philippines now imports 93% of its salt requirements, even though the country has a long shoreline, and we have access to seawater. And we aren’t lacking in technology. Through the Philippine Chamber of Commerce and Industry, I met Johnny Kongkkun, who owns Salinas Foods, Inc., the country’s biggest salt producer. His company even produces the specialized, minute salt that’s needed to seed clouds to induce rain.
On the topic of water, have you wondered, as I do, why the billions of liters of water that pour into the country during rainy and typhoon seasons bring only death and destruction instead of being harnessed for industrial and agricultural use? While other countries are suffering from drought (China, Europe, and the US are suffering from record droughts), the Philippines has enormous amounts of water. It’s a huge natural resource. Only God can make water. It’s a vital component, not just for health, but also for advanced industries like oil fracking, steel manufacturing, and semiconductors. But here we are, we can’t harness water even for irrigation even though God gives us a lot of rain.
What is the source of these contradictions? My theory is the lack of well-defined and secure property rights.
Take the question of our inability to grow a forestry industry. Our natural forests got denuded in the first place because the government gave out short-term timber license agreements, with no incentive for loggers to replant. The government imposed a reforestation fee on loggers, purportedly giving itself the responsibility of replanting. And yet, no reforestation happened.
There’s also the matter of log bans. There have been 40 log bans since the 1970s. What decent investor will plant trees — which will take at least 10 years before one can harvest — only to be told afterward that they can’t harvest? This government policy of erratic and blanket log bans reached a crescendo during the time of former President Benigno Aquino III when he imposed a nationwide total log ban. No distinction was made between planted forests and natural forests. Regulations were imposed on the planting, harvesting, and transporting of trees, even if planted. The wood processing industry died. Tree farmers suffered.
Oh, yes, the tragedy of the commons can also be blamed for denudation. A major source of denudation is the clearing of the forests by kaingeros (slash and burn farmers). The state is incapable of policing the forests yet it wants to overregulate the cutting and transporting of trees.
On the matter of our fish catch being unable to match domestic demand despite our country being surrounded by oceans, I suspect it has something to do with the Constitutional provision reserving 10 kilometers of municipal waters for small fishermen. While the intent is good, the fact is that our small fishermen don’t have the capital and technology to increase fish yields. Perhaps the solution is for them to get a royalty to allow bigger, more modern fishing fleets to fish on their waters.
Security and clarity of property rights are also the source of the contradiction between what is possible, say harnessing our rainwater for irrigation and other purposes, and why nothing is being done about it. It’s also the source of the contradiction of why in a country where almost everything is scarce — good roads, power, good schools, etc., or in other words, public goods — few, if any, are stepping up to the plate to invest and produce them.
Think about it: a capitalist would welcome scarcity because he would see a business opportunity to fulfill a need. Despite the increase in interest rates, capital is still plentiful, especially in this age of global capital flows. Therefore, a PPP or Public-Private Partnership would make the most sense, especially if the government lacks the finances for these projects that fulfill a scarcity but generate a private and social return.
However, uncertain property rights can be the reason why the potential exists only on paper and the contradiction remains. The Duterte government’s refusal, for example, to abide by the arbitration decision over the water issue and unilateral changes in the contract with the private water operators, has caused a pall over Public-Private Partnership projects. To rub salt on the wound, the Duterte government issued a midnight Implementing Rules and Regulations (IRR) to the Build-Operate-Transfer law, which is perceived to be “anti-market” by placing the risks almost entirely on the private sector proponent.
The “midnight” — because it was hastily passed before Duterte left office — regulations absolve the government of any responsibility for project delays and remove the provision of an impartial arbitration forum in the settlement of disputes. When the counterparty — in this case, the government — can’t be trusted to adhere to contracts or submit to impartial forums, who will bother to invest, except perhaps those who have invested in the politicians running the government?
Part of the problem is this ideology that sees the private sector as an enemy and the government, therefore, resorts to unsmart, blunt policies to curb so-called abuses. Forest denudation happening? Ban all tree cutting. Are Manila-based oligarchs getting sweetheart deals? Shift away from PPPs. Chinese investors taking over strategic industries? Ban all foreigners from investing. In other words, instead of studying the problem and developing smart or targeted solutions, the government resorts to blanket bans or policies that see all private sector activity as abusive and therefore, creating uncertain property rights and deterring investment.
How do we resolve these contradictions — between the country’s enormous potential and the problematic realities on the ground? Our policymakers need to change away from the leftist-populist-statist ideology to the right ideological mindset — that the private sector is not an enemy but a vital partner in development.
Of course, enforcement is the other half of the problem, and therefore there’s also the need for good institutions. However, resolving these contradictions starts with smart laws and smart policies grounded in the right ideological mindset that is not leftist-populist-statist, which sees the private sector as an enemy and capitalism as inherently abusive. Otherwise, the Philippines will remain the land of contradictions: so full of opportunities and potential, yet so poor.
Calixto V. Chikiamco is a member of the board of IDEA (Institute for Development and Econometric Analysis).
