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Transcript of Angara Centre Press Conference - August 3, 2012

Transcript of Angara Centre Press Conference - August 3, 2012

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Press conference: Angara Centre for Law and Economics inaugural conference, August 3 1. Senator Edgardo J.

Angara (SEJA)

2. Dr. John V.C. Nye, Executive Director of the Angara Centre for Law and Economics; Frederic Bastiat Chair in Political Economy at the Mercatus Center at George Mason University 3. Dr. Tyler Cowen, plenary speaker; General Director of the Mercatus Center at George Mason University; Holbert C. Harris Chair of Economics at George Mason 4. Dr. Felipe Medalla, Monetary Board member 5. Dr. Arsenio Balisacan, Director-General, NEDA

Why is it important to have all these minds under one roof? SEJA: This is a small, initial step towards trying to open the Filipino mind to the outside world. As all the speakers have said, we try to create new ideas, new insights so that we can join the global conversation. Will these insights be about politics? Corruption? Economic growth? SEJA: Yes, all of that, and more. Since the 70s, when I was still active in the Bar and the ASEAN Law Association and in the 80s and 90s when I entered public service, I’ve seen the poor quality of policy making in this country. We have really good research and researchers, but we have no organized research on strategic areas— research that will support lawmaking and administrative and executive policymaking. This was a painful realization back in the 90s, 1992 to be exact, when I tried to put together a universal healthcare system in the Philippines and I only had a handful of economists from UP to help. Moreover, we had very little knowledge about health insurance. It was embarrassing for me to have to go to the US ambassador and ask for assistance. He contacted the Harvard School of Public Health, and they sent two professors who stayed with us for six months until we had a working draft of what is now PhilHealth. I thought then, I’m luckier than most solons because coming from the University and the academe, I know who the experts are and I have more access to them than most. However, even with the knowledge of these experts, we were still having a hard time putting together a research-based law that will be acceptable to the public. Q: What seems to be lacking in the Philippines…? NYE: As I’ve said before, I think the most important change is the mindset of protection and nationalism. There are good reasons to protect the Philippine economy but there are also bad reasons too. And for the most part, we have inherited a tradition going back fifty, a hundred years of overly protecting the Philippine economy. One of the things I’ve emphasized is that we’re overly scared. If you look at Philippine laws, they seem as if they’re written by people whose main function is to make sure that foreigners don’t exploit of profit from Filipinos. The problem is, business will not occur unless there is some profit to be made. One of the ironies is that these laws are so restrictive that firms don’t want to open in the Philippines. So what do we do? We send Filipinos abroad where then they work for companies that pay no taxes, follow no regulations and abuse these Filipinos far worse than if they were in the Philippines. Isn’t there some compromise where we loosen up these laws a little bit? I’m not talking about removing these laws, just opening up enough to attract more investments, more development, more decentralization so we can hire more of those workers here in the Philippines.

Secondly, we have many barriers in developing the industrial export sector. The agricultural regions are maintained in the low productivity net of protection. The focus again is on protecting agriculture by subsidizing, preventing imports, but there’s not enough focus on improving productivity and increasing market competition. Also, there’s no way of talking about developing the agricultural sector without allowing agriculture to become commercial. All over the Philippines are land of marginal productivity, around centers that are potentially commercially developed. However, there are huge restrictions on turning those agricultural lands into commercial lands. As a result, the country which should have multiple major urban centers basically has only one and a half. We have this huge area, NCR or Metro Manila, and then there’s Cebu—a small second city. That’s why I call it a half, instead of a second major center. In a land of 90 or a hundred million people, we should have three or four San Franciscos and Los Angeles’. For example, for California’s population of 30 million, they have two major cities. By that metric, the Philippines should have six. But we don’t. and the reason for that is that we don’t allow it, we make it very difficult to transition from the agriculture industry. If you look at China’s development, a lot of their developments over the part forty years boils down to helping more people move from the countryside to the city and turning more cities into development areas. They did not just try to develop Beijing and Shanghai. There are many cities that like Shenzhen and Xiamen that serve as major cities. If three minor cities that no one thinks about today, after 20 years turn into modern, more important centers more progressive than Cebu—let me put it this way: you’ll know you’re successful if a city no one has heard of suddenly attracts graduates from the top universities. Just like what happened to Silicon Valley. In the 80s no one cared that much about Silicon Valley. By the 90s, top graduates from the East Coast schools were flocking to Silicon Valley. Think about how mobile the United States is. Think about the fact that the Filipinos are not mobile within the country but are more mobile abroad. It’s easier for Filipinos to get a job in Dubai or California or Hong Kong than it is in another city in the Philippines. I don’t know which specific laws are hindering that, but these need study. The point is, until these change we will constantly have this problem: having young, vibrant, active and high-skilled population leaving. Q: In this highly politicized society, what is the value of a neutral think tank like the Angara Centre? NYE: Good question. The reason I chose these people to accompany is and to speak today: If you notice, we had no previous coordination, no initial planning. We did not coordinate our talks. But you can see even in pure academic work you can see the overlap in our ideas and the potential impact is obvious. Secondly, imagine now that this kind of talk, this kind of conference preceded a more serious policy discussion among Philippine analysts asking for help from foreign analysts. This kind of workshop will set the stage on how to frame the debate. Rather than jump right away to very specific issues like the RH bill, Cha-Cha, first let’s think of the broader questions so we know how to strategize it. Then let’s talk about the specific problem at hand. Moreover, by doing that, you can get the benefit of the fact that while Tyler might not know this specific fact about the Philippines, once you mention a problem he can say where the literature development is. So that will help inform us. For example, Tyler can help you see the bigger picture while Arsi Balisacan can inform you about the Philippine situation. Maybe a political scientist or a lawyer tell you the specific constraints the Filipinos face, what are the political limits on what you can do, stakeholder conflicts, etc. Now we have the academic, intellectual resources to frame that debate. COWEN: You can think of ideas as an extremely leveraged way to improve the world. There are ways to improve the world through sheer obligation of human labor. That can be effective but it requires a lot of human labor. But if you have a good idea that takes a lot of debate, scrutiny, careful, reasoned consideration—if you have a good idea that can spread and multiply really at zero or very low cost. And that’s what we mean by leveraged.

If you’re in an economy which is not the wealthiest in the world, and you’re looking to make improvements, I would say to look for a highly leveraged way of making improvements and that means looking at and investing in ideas. Q: Re: your views on the RH Bill MEDALLA: Well, I would really side more with the President. The RH bill is sometimes associated with compulsory sex education, etc. whereas the President’s point of view on this is more on responsible parenthood actually more aligned with what the bishops are saying. Except that the bishops are saying that the only acceptable method is natural family planning. The problem with that is from personal experience, it’s difficult. So, limiting the poor to this method with which PHDs are having difficulty, I think will mean that the poor will having more babies than they would want. A very, very possible theory is that the poor just want sex, not babies. But under the current setup, the only way you can have sex is if you want babies. De-linking sexual pleasure from sex has its own payouts. Like the next generations of Filipinos will be taller, smarter and better fed. Especially in a fiscally challenged government which does not have enough money for public health education—in a setting where the government has very little funds for the poorest families, I think this is a very important investment. Now I understand the concern of the religious groups. The last think we want is a jail sentence for anybody who, in good conscience, does not want to be part of the program. That’s why I think the President sent a very very good message of responsible parenthood rather than using the term reproductive health, which everybody knows is a signal for the war between two big groups. Unfortunately, some bishops reacted negatively—we must remember that “responsible parenthood” is the term preferred by Catholic bishops of the CBCP. I hope that we can have a good compromise on this one. For instance, I think that it’s good to have sex education. For example, I am the last person my kids want to talk about sex with. So I’m glad that the school with do it for me. However, if there is a parent that thinks differently, he or she should be able to opt out. I think we have to look in that bill and take out anything that is coercive. Every family should have the chance to opt out if their kids are being exposed to something that is against their religious beliefs. When we look at Philippine statistics, families who rely on natural family planning is about two percent. That may say something about how difficult the method is. There are women who happened to be married to responsible husbands. Should we condemn these women for having more children? Statistics show that a typical woman wants fewer children than a typical husband. For obvious reasons, the woman bears a big part of the cost of having children. Angara: Maybe we can ask John to explain some more about this idea of employment zones to absorb the many who are unemployed and underemployed in our country. We can talk about the very high incidence of poverty and the very high incidence of unemployment in our country. Nye: I cannot tell you the specifics of how to do this. But what I’m saying is that the discussion must begin to how to improve structural transformation. Structural transformation is just a buzz word for moving people out of poor or underperforming agriculture into faster performing industry especially export promoting industry. That involves moving the people out from the countryside into developing cities. But we have lots of things, anything from problems of capitalists, to competition, to monopoly, to poor infrastructure, to overly rigid commercial labor law, to complicated taxation, to constitutional restrictions. Plus, zoning needs making very hard to convert agricultural land into commercial land. You add that all up, almost all studies of development say that the fastest way to grow is to move people from low productive sector to high productive sector. And yet, the bulk of Philippine rules, regulations and laws work against that. The best evidence for that is we have all these OFWs – these highly skilled, highly desirable workers who cannot get jobs at home. Why is it so easy to employ Filipinos abroad? How do you employ Filipinos in the Philippines? That’s the simple question I ask. If it’s easier to employ them abroad

than in the Philippines then there must be something preventing you from opening factories and businesses in the Philippines. You need to understand why that’s the case. Balisacan: It is capital shortage that makes it hard to employ people. So when an economy is exporting more people and capital then there must be something else that makes both the capital and the labor hard to employ in the Philippines. Nye: That’s why I want to emphasize that it is not just one pulse but there are two pulses. I can’t tell you if it’s the Constitution or this network of policies that just add up. If you ask me right now which one to move, I cannot tell you. That has to be the focus of the debate. Balisacan: The big challenge facing our economy is that we can’t seem to create high quality jobs for the unskilled labor force. Creating these jobs to match the skills of the population of the poor must be high in the agenda while investing in the human capital in the Philippines. For me, the revival, the resurgence of the industry is critical to create these jobs. But at the same time, we should also promote the jobs for the skilled. It is true that we are creating employment. If we look at the employment statistics, the employment rate is increasing and the unemployment rate is declining. But if we look at the underemployment, it remains very high and worse, it’s the very low quality jobs that are created. It comes down to the observation of Dr. Nye especially the institutional ones. I don’t understand why one who opens a business must go through the DTI personally to pay for the registration or renewal. You expose these entrepreneurs into physical and direct contacts to bureaucrats. Those are very easy things to do and can be done quickly. Also, we have discovered that we are the only country in this region that collects P200 domestic flights. These are inconveniences that are otherwise piling up and the cost of creating business in this country. I think there are a lot of those small things we can do to improve the environment. Even if we move fast now, only to be bugged down later on by institutional or legal issues, that might create even longer problems. We do know a better appreciation now of the issues and we have gained much experience of how to deal these issues. SEJA: I’m very obsessed with the issue of lack of income because that’s the root cause of many social problems in this country – unable to go to school, unable to take care of the sick, rampant malnutrition. How do we create employment in this country? We have to think very simply. We will now start creating employment zones in Samar, Leyte, Davao Oriental, along the pacific coast, Palawan up in Cagayan and Aurora. Those are underserved, very poor areas. Then we can bypass all these maze of regulatory tapes, all these things that we’re complaining about. We can now create a zone, especially an economic zone, where we can bypass this regulatory maze and start giving immediate employment. I think that’s our concern now, not five years from now because five years from now, we will be 115 million; 10 years from we will be almost 120 million then it will be harder for us to cope with those demographics. Clark, because all the infrastructure in Luzon are to connect Clark to the south as Felipe is suggesting which I think is good. But the other zones in underdeveloped areas have no access at all. They have to be connected. Then we bypass all these complaints about doing business issues, how difficult it is to get permits. So many hands and fingers involved in the permit system, and therefore the temptation to do graft is higher. I’d like to ask Dr. Cowen. Sir, you said earlier that in your research, welfare programs like the CCT was pretty effective in alleviating poverty. Our government is using a lot of money in CCT. Others say other government projects have suffered because of this. What do you think our policymakers must do to bridge the gap or come up a win-win solution? Cowen: What I like about the CCT is it’s a nation investing in its young people. And the gains from CCT will carry forward for many decades. There are very few programs where you can say that. So most poor countries should be looking to do CCT. When it comes to the Philippines, I cannot speak to which are your relative alternatives, your relevant alternatives. I would just say, ask this question, those alternatives, whatever they maybe, will they give you ongoing gains for 40, 50, 60 years for the dollars you’re spending. And keep in mind, a healthier, better-educated child will, in due time, also have healthier, better-educated children. So there’s a kind of multiplicative effect. Of course, we do need to compare this to whatever

alternatives you may be referring to. But the returns are really quite high, and I would just say keep that in mind when making the comparison. And very durable. Medalla: And besides, the amount involved is not that big. Less than one-half percent of our GDP? SEJA: What’s the effect? Balisacan: There is already a study undertaken by an independent group. The preliminary results of the current CCT appear to be quite positive. This confirms what we have observed in many other countries in Latin America. I haven’t gotten myself the full study yet. I have that limited update on that study. I did find the results so far quite positive. Cowen: It’s striking that there are relatively cheap programs, and even what may appear to be fairly modest incentives, have a significant effect on human behavior. So they don’t have to break a budget. Balisacan: And I suppose you also have to take CCT in the context of the other direct poverty-reduction programs in the past. Many of those were quite poor, in terms of high leakage and the achievements of the desired outputs. Medalla: CCT will look even better if you compare it with all the failed government-directed programs. The bankruptcy of Quedancor…by the way, with all due respect to Sen. Angara who used to be Secretary of Agriculture, I think we can close down half the DA and transfer that money to CCT and we’ll be doing better. Especially the way fertilizer was distributed under GMA where fertilizer was overpriced by 900 percent? And they brought the wrong fertilizer, the fertilizer for orchids. And the distribution of seeds, the seeds don’t sprout because the moment they supply the spade, he can walk away. There are so many programs we can cut down on. If you look at the scale of things and all the terrible programs we have in government, there’s plenty of room. I think we should expand it further. I think the danger in CCT is it becomes a traditional patronage program. It gets captured and the identification of beneficiaries becomes driven by local politicians and warlords. But from what I’ve seen so far, although there are cases exposed by media, people who got the benefits they shouldn’t have, on the whole the batting average of the program is quite good. Dr. Cowen, you talked about the Philippines taking advantage of this global recession right now… we can get more opportunities. Can you be more specific? Cowen: I think a lot of buyers from abroad are looking to cut costs because there are, or will be liquidity squeezes, coming. So if a country can step up with new interesting products at low cost, including in the service sector, I think there’s actually a lot of room for growth. In every recession there is a growing sector. If you look at the history of the United States, one of our most dynamic decades actually was the 1930s. That was our Great Depression. But a lot of new ideas came along, a lot of seeds for future progress were laid. And there’s the potential to do the same in today’s world as well. There are new challenges. But the Philippines, with a relative protected fiscal position, a relatively protected position vis a vis China risk, is in a better position than other countries to do this. It will not happen automatically though, I would stress that point. Whatever institutional changes you need to make, and I really cannot speak to that, but you need to make them. To NEDA, why is it that the Aquino government is focused on medium-term plans? Are there any longrange plans? Balisacan: It’s good that you asked because we have been also talking about this. We are setting in motion, getting ready a long-term vision and strategy for the country because we want to make sure that the medium-term plan would lead us to a long-term that Filipinos would want to see or are seeing for ourselves. That we hope to be able to produce soon but I should also note that we are currently updating and reviewing the Philippine Development Plan so we can better inform the actions of government next year, particularly as we approach the mid-term of this administration. We hope that when the President goes back to the SONA next year, we’ll have a better assessment of what we have accomplished in the first

half of the administration. The updated plan will provide our directions for the remaining part of the administration and at the same time allowing us to see that it is consistent with what we want to see for the long term. So that process is ongoing. We hope to complete the updating early next year, and the longterm vision later. Can you give us a glimpse of what it will contain? Balisacan: We are still trying to get some very highly competent experts to first guide us on how to identify that vision. And then we’ll go into a series of consultations. After that, once we agree on what we want to see for ourselves, we will then develop the strategy that the government needs to put in place to get there. Medalla: Can I add something being a former NEDA director-general. If you cannot do the five-year plan, don’t waste too much time on the 30. That has been the typical Philippine problem. But what are the areas that require long-term plan. One, actions that you do take now that have irreversible consequences 10, 20 years down the road. That will apply to investments in our children. Because the children we don’t educate in the next five years, they will be very, very hard to educate, especially if they’ve all dropped out of elementary schools. It’s so hard to go after them after they have dropped out. The other one is infrastructure. For instance one of our biggest problems is Manila International Airport has only one runway. You can look at the congestion, delayed flights. I asked former PM Virata why during their time, 30 years ago, they didn’t add the runway when it was easy to do so. And he said we were trying to except that Gen. Ver, the chief security of President Marcos, saw that the flight paths of the second runway would be right on top of Malacanang. And Virata said it’s a lot easier to move Malacanang than the airport. Unfortunately Gen. Ver won. Now we have a one-runway airport. We were not able to make the right decisions 30 years ago and now we have a problem we have to solve. Now the next question is, now that we blew planning of the airport, where is the next airport? To me the obvious next airport is Clark because there’s no other alternative. These are the important long-term plans to look at. We have to look at infrastructure and investment in the next generation. SEJA: The other alternative is decentralize the entry points, Davao… Medalla: Yes, on top of that. SEJA: Final question, Bernadette. To Cowen, Philippines as the next rising star. Cowen: I would reword that. I don’t wish to say it will emerge. I would say maybe it has the best chance. It really depends on human agency and human volition and making right choices. If you’re asking what should we look for in a country to be a future winner, I would say look for a rising growth; look for a relatively stable fiscal situation; I think skills in English will become increasingly important; a belief in education even though a country’s educational institutions may have problems. Ask yourself, does that country have a lot of belief in education. And those would be some starting questions. And if I ask myself those starting questions, and then I look out there in the world, and I look at the globe and turn it around, guess which country my eyes stop on. But I don’t want to suggest that this is some kind of absolute prediction. It’s not. You’re not saying that because you’re in the Philippines right? Cowen: Well I put this in print some time ago, and you can google to it if you like. But I think it’s just common sense. Again there’s no guarantee, but if you consider the Eurozone, the problems there, the problems in China, countries which would be dragged down by China, you could make a case for some

parts of sub-Saharan Africa such as Rwanda or Ghana. I would actually be more optimistic about here but they would be plausible contenders, I think for that designation. Nigeria is too unstable but has some factors operating in its favor. So Indonesia, arguably again another good candidate. SEJA: Good. On that hopeful note, we will now retire to lunch. (30)

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