Proponents of the proposed “Bayanihan” Constitution of the Duterte administration argue that under federalism, the widening wealth gap in the country will be reduced. To achieve this, regional governments shall be created and empowered to address the specific needs of the communities with constitutionally mandated distribution of resources.
The mechanism is twofold. First, the proposed constitution requires the Federal Government to allocate 50 percent of its collected taxes to the regions, which, in turn, will each receive an equal from this fund. This ensures that the regions will receive a higher share of all collected tax than the present Internal Revenue Allocation system. Second, an equalization fund is to be established and to be distributed to the more depressed regions through the supervision of a Federal Inter-government Commission (FIC) that will “formulate programs and policies in regard to grants-in-aid and fund transfers that will address the specific economic needs of the regions.”
The proposed constitution, thus, recommends an additional layer in the governance structure to deal with poverty and wealth distribution. Because effective execution requires a host of activities, governance is both costly and difficult. Unfortunately, the extra layer of governance in the proposal—the regional bureaucracy—makes governance even more costly and difficult to implement. Many economists, including members of the administration’s economic management team, have pointed out the huge costs of this proposed constitution. The main challenge then for its proponents is to prove that this additional cost, running into billions of pesos, is necessary or justified.
Consider, for example, the current Conditional Cash Transfer (CCT) Program that was designed under the present Constitution. This originates from the national government and is managed by its agency, the Department of Social Welfare and Development. In this program, no major element, specifically the funds, are coursed through the local government units. Instead, the transfers have been given directly to the beneficiaries who had been chosen objectively by means of econometric model that estimated the household’s income. Because the program is run directly by the DSWD, without any LGU intervention, the program has been sustained over a number of years, and, based on varied monitoring and evaluation studies, has achieved their long-term objectives. This program, with roughly 2 million beneficiaries, survived without any major corruption and is generally free of unnecessarily large administrative costs.
Under the proposed constitution, programs with governance structures like the CCT will be considered unconstitutional. Any transfer program of the prospective Federal Government will first have to be approved by the FIC, and the regional government. Usually, the greater the bureaucracy involved, the greater the transaction costs, and the greater the costs will be. In addition, the greater the transaction costs, the greater room there will be for corruption and extortion.
Under the proposed constitution, all executive programs relating to poverty and distribution will, by law, have to pass through the regional government and other associated agencies. This will create a greater impasse as programs that were run previously independently and broadly by executive departments with adequate budgets will now have to be transferred to the regional governments, thereby creating a bigger burden to regions with limited resources.
Nevertheless, proponents of federalism argue that the changed governance structure will create a new set of incentives that will reduce political opportunism and corruption. Presumably, the dynasties at the local level existed because they did not have to compete with other dynasties from other provinces in the region. With the establishment of regional governments, greater competition between parties and within parties will be expected. In effect, political economy issues can be handled better if a regional government were to manage the politics of the local governments, instead of a distant national government. This then constitutes the main benefit of the proposed constitution.
The main problem is that political economy is driven, not by competitive individuals, but by the uncoordinated selfish behavior of persons who use their privileged control over resources. A wide range of political economy strategies can be at play—including rent-seeking interests, inadequate political capacity (e.g., unwillingness or inability to push for difficult reforms), clientelist structures, state capture, as well as more micro-political factors such as the relationship between particular stakeholders. Frequently, the strategies for maintaining corrupt local governance arrangements are related to wider sociopolitical interests. For example, the kickbacks generated from public procurement may be used to finance election campaigns; or regulation of the financial sector remain weak because members of the governing coalition enjoy informal privileged access to credit, which, in turn, is part of the elite arrangements which help to maintain political stability.
Therefore, the varied problems of political economy cannot be solved with new governance rules of another constitution. As seen in the CCT governance structure, the presence of a committed unitary government was a key to limiting the choices and strategies of political dynasties. This limitation forces them to cooperate for the country as whole and share in what may be perceived as an “inefficient” system but which, in turn, can prove to be beneficial for the system as a whole. The ills of political economy are best solved through legislation, executive orders and specific programs that work within a proper context, not by a permanent change in constitutional provisions. The Constitution should last forever, and its governance provisions should be flexible enough for the country to respond to new challenges here and abroad.
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Leonardo A. Lanzona Jr. is professor of economics at the Ateneo de Manila University and a senior fellow of Eagle Watch, the school’s macroeconomic research and forecasting unit.