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Governance should dominate economics

eagle-watchDESPITE the overwhelming economic problems faced by the country, governance—or the set of processes in running a government—must continue to be the crucial issue in the coming elections. For us, this is disparaging since, for past five years, the government has implemented reforms to improve its operations and eradicate corruption.

The proof of success in this area is the remarkable trend in economic growth. It is difficult to identify the root causes of this growth, considering the inability of the state to address fundamental economic issues, like infrastructure and basic services.  Apart from the increases in remittances, the only clear factor seems to the improvement in investor confidence resulting in increases in both domestic and foreign investments, which, in turn, can be attributed to the current administration’s commitment for good government.

However, to sustain this growth, the next administration must focus on enhancing the country’s economic viability. In particular, infrastructure weakness needs to be addressed in order to create the environment for greater productivity and allow benefits to be more effectively shared to the poor.

In this context, why should governance dominate in the present electoral discourse?  The answer is simple: Vice President Jejomar C. Binay is relentlessly pursuing the presidency despite facing widespread and largely unrefuted charges of corruption. Binay’s candidacy alone is the single, most crucial governance challenge the country now faces.

Three questions will surface under a Binay government.  First, what will happen to the cases of Senators Juan Ponce Enrile, Jinggoy Estrada and Bong Revilla, all of whom are closely associated with the vice president? Second, what will now be the status of persons perceived to be part of the country’s dark history of corruption?  I refer here to former President Gloria Macapagal-Arroyo and Sen. Bongbong Marcos who have all openly supported Binay’s campaign. Finally, what will happen to the pending cases of Binay? It is laughable to even assume that a sitting president will expose himself willingly for investigation while in office.

Hence, a Binay presidency may repeat the type of governance that had ruined our economy since the time of martial law. More important, Binay’s strategy of playing the rich versus the poor, even when he was Makati City mayor, only signals the impending return of the patronage system where the poor would be indebted to key persons, their benefactors, instead of being supported by an established social- protection program.

Building on the set of connections created by his late predecessor Nemesio Yabut, Binay seemingly amassed wealth while giving “freebies” to the poor, both within and outside Makati City.  At the same time, he reportedly allowed institutions, which aimed to develop greater transparency and civil-society participation, to falter.  This is in contrast to the late mayor and Local Government Secretary Jesse Robredo, who led a participative style of management during his term in Naga City, institutionalizing citizens’ participation after pushing for an ordinance that required citizen representation in various city government committees.

The evolution of institutions conceptually begins with an absolute ruler who can confiscate any assets his subjects may own or any future income. However, because social policing and monitoring are costly, the ruler stands to gain by interacting with his subjects. If his subjects can own and accumulate wealth, he can get more income by letting the constituents keep a portion of their incremental income and offering them various gifts.

Consequently, the ruler continually faces a trade-off between the higher  income he can obtain by relaxing restrictions on constituents and the increasing threat to his security that the relaxed restrictions entail because his subjects have both more freedom of action and resources to overthrow him. Equally the constituents face the dilemma that the ruler, at some point, may withdraw his promises, confiscate the accumulated wealth of his constituents and terminate all forms of gifts. The solution is for the ruler to either structure society in a way that it is both in his and his constituents’ interests to abide by his rules, or to willingly renounce his power by giving over more power to the constituents.

Nations with a diversified culture and greater land area are expected to have rulers relinquishing their hold over power and providing greater rights and responsibilities to their constituents.  As the complexity of the environment increases because human beings become increasingly interdependent, more complex institutions are necessary in order for the constituents to capture the potential gains from development. Such an evolution also requires that the society develops institutions that will permit anonymous and impersonal exchanges across time and space.  This leads to inclusive growth as greater participation among the social agents are enhanced, while, at the same time, ensuring that merit (instead of favors) becomes the basis for promotion.  In particular, we cannot return to the culture of patronage. The Conditional Cash-Transfer Program was intended to supplant this practice, with an objective and politically detached national agency providing subsidies to the poor.

Voters then should focus on good government and its implications to the economy.  To cover-up his weaknesses in governance, Binay would often highlight his performance in Makati City. However, at best, his contribution to the progress of the city is questionable.  To smokescreen the corruption charges he is facing, he would also cite unfounded abuses by the Aquino administration, from practicing “selective justice” and using government funds for campaigns to instituting martial law.  What is undeniable is a high-ranking public official who is unwilling to take responsibility for the country’s institutional failures and lack of transparency, and who shamelessly sacrifices social interest for personal ambition.   

Leonardo Lanzona Jr. is director of the Ateneo Center for Economic Research and Development and a senior fellow of Eagle Watch, the school’s macroeconomic research and forecasting unit

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