Economic performance – what do the experts say?

In a major newspaper, three economic experts gave their reviews of the Philippine economy since 2001. Supposedly, this is to educate ourselves ahead of the annual ritual called SONA.

ECONOMYcartoon2One, Tomas Africa, said that the government did well in sending Filipinos to jobs abroad, but failed to provide good-quality or high-paying jobs in the local economy.

Another, Cielito Habito, said that a fiscal crisis was avoided by a substantial increase in the value added tax in 2005.  Still, the “efficiency” by which the government collects tax has reportedly not improved.  The end result was an inability not only to pare down foreign debts of the government but also to fund crucial expenditures for education, health, agriculture, and infrastructure.

A third, Cayetano Paderanga, Jr., said that economic performance was good in terms of GDP growth (because of OFW remittances), a lowering of the inflation rate, and a relatively strong peso.  But the record in job creation and reduction of poverty was not as good.

So, there you are.  Three wise men have pronounced the patient to be somewhat sickly but not terminally ill.  And the government hasn’t done very well but can take credit for the OFW phenomenon, the VAT, and GDP growth.

Here’s what I think, for what it’s worth.

First, it is not the government’s role to send Filipinos abroad to find jobs, and I even believe that the government has found many ways of “taxing” the OFWs through fees paid to government agencies and, of course, through the VAT which is collected on consumables bought by resident families paid for by inward remittances.  So, the OFW phenomenon should not figure as a “good” grade for economic performance, even if it contributes to domestic economic growth.  The economy as a whole was just plain lucky that the world outside needs workers from countries like ours, as well as Mexico, India, Bangladesh, Turkey, etc.

Second, the VAT has helped to improve the country’s debt ratings because it is easier to collect than income tax.  The government can borrow more cheaply, and that is not such a bad thing.  But I believe the VAT rate can be lower than 12 percent if only the government were more careful with its spending.

Third, whether the government has spent wisely is perhaps the most important criterion for  economic performance.  Much is hidden by the aggregate numbers, and even if, for example, the share of education in the government budget is declining, it is possible that education as a public service has improved.  Unfortunately, the opposite is most likely the case.  There is evidence of deteriorating quality in the end result of the educational system (the mistake-ridden textbooks in public schools is probably just the tip of the iceberg that hides the serious rot within).  I believe that health and infrastructure indicators are almost passable.  The country muddles along in terms of infant mortality and life expectancy, but suffers from having too high a price for medicines because the generics market is underdeveloped.  Roads and other infrastructure seem reasonably adequate for a third world country, but inadequate if we aspire to compete with the likes of Singapore or Thailand.

By way of an aside, it seems that none of the pundits explicitly point to the problem of graft and corruption, perhaps because we have little by way of concrete measures of how the economy is affected, and how large a problem it is.  However, one did point to “governance and related issues,” while another to “poor governance,” and these words appear to be code for graft and corruption.  The third pointed to “daunting amounts” of public monies lost to corruption when the government spends, and to the unjust burden imposed on “honest” taxpayers.

Fourth, none of the pundits point to factors that are not the fault of whoever has the political power.  One of these is our antiquated labor laws that hinder rather than promote productivity.  Another is the negative impact on agricultural productivity of “land reform” (I put that in quotes because it is not really “reform” but is instead a grab-what-you-can contest among farmers, landlords, and government officials).

Yet another is the generally prevailing attitude that government has to interfere in the workings of the market so as to prevent the rich from getting richer, and the poor poorer.  The real story is that It Depends.  The market works well when we talk of private goods produced by many rather than a few, such as rice, for example.  Yet, we allow the government to step in to do the importation of rice because we are perennially not “self-sufficient.”

The market does not work well when we have goods produced by a few (telecom services or electricity, for example), or when the goods are public goods (roads, national defense, legal systems, etc.).  But our regulatory institutions often suffer from “capture,” where those who are supposed to be regulated seem to get what they want anyway.

These negative factors, like Mona Lisa’s smile, cannot be laid at the doorstep of government officials alone.  The enemy here includes the collective public who has some kind of public policy myopia.  They do not see that the “social justice” they demand is a miasmic dream if the economic institutions are “wrong.”

So, how did the Philippine economy perform since 2001?  I submit that that is the wrong question to ask.  We should ask instead why we hobble the economy with bad institutions.  Is it because, as Manuel Quezon is supposed to have warned, we prefer a country run like hell so long as we can blame only ourselves?  Unfortunately, I don’t have a good answer.  I really don’t.

Maybe the talking heads at Bloomberg know.

31 thoughts on “Economic performance – what do the experts say?

  1. Economic efficiency is used to refer to a number of related concepts. It is the using of resources in such a way as to maximize the production of goods and services.[1] A system can be called economically efficient if:

    * No one can be made better off without making someone else worse off.
    * More output cannot be obtained without increasing the amount of inputs.
    * Production proceeds at the lowest possible per-unit cost.

    how does vat help the economy when it is not efficient in the firs place

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      1. A system can be called economically efficient if:

        * No one can be made better off without making someone else worse off.
        vat did not accomplish this
        * More output cannot be obtained without increasing the amount of inputs.
        output meaning projects input as vat is increasing yet we never see out put from unless its election time again
        * Production proceeds at the lowest possible per-unit cost.
        the projects are not at the lowest possible per-unit cost.

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  2. i recently came across a theory of john nash the game theory and it helped me explain your statement “that will not happen because if the govt stops stealing, it will disappear. Stealing is the true nature of govt.” man acts upon it own self interest because man is rational. if the people’s self interest is projects and the govt self interest is money then the only way to balance or to make a it equilibrium is through graft and corruption where we can have infrastructure and they gain from it. i thank you to those who replied to my question it helped me a lot in school.

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  3. How does VAT help the economy? It doesn’t. It just APPEARS to help, but it really doesn’t.

    Firstly, the govt is an extremely inefficient entity. It’s the absolute money pit. You give it money, the money is wasted.

    There’s nothing that the govt does that the private sector cannot do at lesser cost and with better quality. So when taxes are extorted from the people, it is money taken from private hands and wasted in the govt rat hole.

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    1. Here’s a thought experiment, based on the movie The Magnificant Seven. Suppose we were invaded by Martians. Would you prefer to be defended by private security guards? Or by a well-trained army of ex-cowboys and ex-military? Suppose your neighbor stole your nice BMW? Would you prefer a private detective to arrest him? Would you prefer a private mediator to determine his guilt and punishment?

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      1. how many tax are there? is vat the only tax implemented by the government? is vat the only means of funds the government can gain from? if given that i were to pay taxes can i assure that i am saved from the martians that are trying to invade us? im just curious hehe

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  4. The VAT law in this country was legislated just to satisfy the IMF bec it thinks that increasing taxes is a good way of balancing govt budgets. Of course, the best way to balance the govt budget is to shut it down so it stops spending.

    Just like any company or household that’s gone beyond its financial means, cutting down expenses is the normal option. Most companies or households cannot just increase their income overnight.

    But govt can increase its income instantly by legislating taxes, so it does it, and gets away with it. Thanks to govt propaganda (paid for by taxes) and everyone else who consents to it (like your college professor who teaches taxation classes).

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