Editor’s note: This article appeared on Sanggu’s Bantay Presidente 100 last August 4, 2010 and was co-authored by Anthony Sabarillo (AB EC-H ’12), AVP for AcaRnDs and Mikolo Ilas (AB EC ’12), Finance Deputy.
Should the Government Partner Up with Profit-seekers?
“Like mother, like son.” That’s how some pundits refer President Benigno Aquino III’s economic policy (or as they further lampoon, the apparent lack thereof) presented at his recent State of the Nation Address last Monday. Amidst the lack of concreteness on his economic plans, ironic for a graduate of the Ateneo’s Economics program, he stressed a strategy that was a big part of the late Corazon Aquino’s economic policy: Public-Private Partnerships (from here on referred to as PPPs). He also emphasized the need for a streamlining process to speed up bureaucratic work and try to eliminate corruption, one of the new administration’s main goals.
PPPs are projects where the private sector and the government partner up. One form of a PPP is the Build-Operate-Transfer scheme (from here on referred to as BOT). It simply means a private company BUILDS a facility, say a train station, OPERATES it (runs the trains, maintains these and the stations, pays train operators, employees, and staff, and makes money along the way), and then after some years (usually a decade or two, though there are aims to shorten this), TRANSFERS the ownership of that facility to the government. Streamlining processes, meanwhile, are usually associated with how companies reduce operating costs by reducing the time and the complexity in accomplishing tasks. In other words, streamlining processes are ways to save time and money through more efficiency and productivity.
Same Old, Brand New Solutions
These solutions, while imposing a refreshing image along with the rest of the SONA, aren’t really as innovative as portrayed. As the chair of the League of Filipino Students, Teri Ridon, pointed out in an Inquirer article, the BOT scheme was already in place during Cory Aquino’s administration, and these were not immune to corruption. (But then again, there aren’t that many public assets left immune to corruption…) Mr. Ridon is also not so confident about putting government projects in the hands of the private sector whose number one goal is, well, to make money. According to Inquirer, Bayan Muna Representative Teodoro Casino has even graver concerns, warning that “Fundamentally, the government should not transfer its role in national development and delivering social services to the mercy of big corporations and foreign interests whose prime motive is profit. We are wary that if left unchecked, PPPs will lead to the rampant sell-out of the economy and the national patrimony.” Freedom from Debt Coalition Secretary-general Milo Tanchuling, in an interview by GMA News, also criticized the PPP, saying this scheme only creates more debt. “We are bothered that President Aquino has proposed a policy which the civil society has long opposed, particularly the public-private partnership as a palliative to the deficit problem,” Tanchuling said.
Much of the nay-saying about PPPs trace back from the time the elder Aquino assumed presidency in 1987. Arnold Padilla of the IBON foundation noted that incidentally, PPPs were among the legacies of the first Aquino administration. It was during the term of Noynoy’s mother, the late President Cory Aquino, that the first PPPs in the power generation sector were implemented. In 1987, she issued Executive Order (EO) No. 215 that allowed private corporations to construct and operate electric generating plants. As we all knew however, by the end of her term, the Philippines was plagued by hour-long power outages every night. Her successor, President Fidel Ramos then responded to the energy crisis by expanding privatization through Republic Act (RA) 7718 to allow for quicker establishment of additional power plants. Through this, the energy crisis was a thing of the past two years into the Ramos administration, but not without a caveat. In the succeeding years, the profit-seeking tendencies of these privatized power firms resulted to high electricity prices which resulted to the Philippines having one of the highest electricity rates in Asia, and NAPOCOR, the state power firm, being mired in a Php 200 billion debt. Aquino III actually lambasted NAPOCOR’s debt without actually realizing that the PPPs he is planning to pursue actually contributed, if not caused, the quagmire that NAPOCOR is in.
“Something Elementary School, a Project of Mr. Big-Wallet Tycoon…”
IBON Foundation’s Padilla further noted that “together with transnational corporations (TNCs) and other foreign firms, the country’s richest families who are also perceived supporters of Aquino like the Lopezes, Ayalas, Cojuangcos and Pangilinans among others have been aggressively investing in PPP projects including in energy, water, toll roads and other vital infrastructures.” This reality raises some concerns that the PPP system would end up perpetuating elite power and status quo, especially since the big companies gain control over services and goods that are ought to be public right in the first place. And that would go against the flow of social change that the administration promises to deliver.
However, let’s not judge these private investors right away. In the real world, profit can drive people to produce good products and services, and that includes public services. Some heads of state and government, like former British Prime Minister Tony Blair, trust private enterprises more than government bureaus in providing such services. In a BBC News web article, Mr. Blair “believes private companies are often more efficient and better run than bureaucratic public bodies.” The keyword here is efficiency. We have seen this word before. If there’s the top one driver of economic growth, it is technology, or efficiency, or productivity. He also mentioned adding two additional years of secondary education. In theory, the benefits of those additional years in school will outweigh the costs in the long run. A more educated workforce will be a more productive and responsible one.
Most people would agree with Blair’s statement on private companies and efficiency, especially when these people constantly deal with inept government offices. And private companies tend to give better service, at least in most cases, hence making privatization attractive. But juxtaposing the benefits of efficiency with the present realities of the big companies and investors as more of profit-seekers than social developers, there’s certainly a huge trade-off going on.
So Should We “Incorporate” the Government?
A certain Ateneo economics professor, when asked about the whole PPP deal in Aquino’s SONA, commented rather wittily that with this plan, former President Arroyo would actually appear (and be) more socialist than President Aquino, who is from the “Liberal” Party (though apparently, the PPP scheme is a “neo-liberal” approach as some experts would put it). And then he remarked about “trickle-down economics”, a kind of economic approach in which the government puts an effort to help big business grow faster, in the hopes that this fast growth (which is to be reflected in the GDP) translates to the marginalized sectors of the society eventually benefiting from it by some trickle-down effect. Apparently, both the former and the current President, disparately different they may seem, actually encourage the same trickle-down policy, albeit by different approaches. The previous administration strived to raise the economic growth level to encourage big businesses to invest in the Philippines, but apparently the trickle-down effect never materialized. Aquino’s strategy appeals to the same big business by getting a share at providing goods that are ought to be for public benefit for some business advantage involving that public utility. So it remains to be seen how different this trickle-down policy will be from his predecessor’s. And only time will tell if his version of the PPP will be more effective than his mom’s.
Admonitions and criticisms aside, if President Aquino is really sure to go the Blair way in his economic fix (which is not surprising since both come from supposedly left-leaning political parties), he ought to make sure that his plans for education and streamlining processes be carried out. Application processes for those who want to put up businesses, to have their company names registered, and other bureaucratic requirements should be implemented well. As he said, cutting the time to register a business from a year down to just six months will do some good. A four-to-eight-hour process just to register a company name is unthinkable so the administration should indeed shorten that to fifteen minutes. And with the help of the private companies, other sectors and processes in the government might also improve. So, it could be a good idea after all for profit-seekers to work with the government in producing public works if these and other improvements materialize.
However, in the real world, some companies want to earn “extra” profit at the expense of the quality of products and services they provide, and ultimately of the beneficiaries of such services: the Filipino people. Not to mention that, as the blogger 100 Araw remarked, “there are strategic areas of government and strategic services that, prudence and Constitution dictate, ought not be put under (financial) control of the private sector.” So Mr. Ridon’s distrust in the private sector is not unreasonable. We need concrete mechanisms to temper greed. We need concrete incentives for integrity. How can we allocate and use resources in order to make people do what they are supposed to do even when no one is watching? To achieve an economics of efficiency, we also need an economics of integrity or transparency. But these ideals may not always be compatible with the discipline. Well, at least not yet. And at least, as President Aquino says, “Puwede na muling mangarap.”