The Economics of the Quirino Grandstand Hostage-taking

1 Sep

Editor’s note: This article appeared on Sanggu’s Bantay Presidente 100 last August 30, 2010 and was co-authored by Bea Tanjangco (AB EC ’12) and Mikolo Ilas (AB EC ’12), Finance Deputy.

(By the way, this is where your taxes go…)

Last Monday’s hostage crisis at the Quirino Grandstand generated fallouts and repercussions to numerous sectors in the country. The disaster took the lives of eight Hong Kong nationals and the hostage-taker, a suspended police officer named Rolando Mendoza. Fingers have been pointed all over the country by concerned citizens and armchair activists alike. Manila’s Finest is under hell, fire and brimstone yet again for alleged sheer incompetence in every aspect of handling the hostage crisis. Philippine media is also held equally responsible for subverting protocol to get blanket coverage of the crisis, to the point that they actually aided the hostage-taker by live broadcast over the television on-board the tourist bus. Aquino Administration also shares the blame for “arriving at the eleventh hour, literally and figuratively, of the crisis”, only managing to address the public that an investigation shall take place. As the whole world had its eyes on the first real crisis test of the new leadership, it seems as if almost everything the people involved ought to do misfired like the teargas they managed to throw at the bus for unclear reasons.

Ripple effect scenarios like these, while guaranteed to affect government policy and sectors concerning security and the like, don’t usually cross the realm of economics. However, we must consider that every human action elicits an appropriate response depending on the incentives (or lack thereof) involved, which is one of the basic principles of economics. In recent years, this field of study seeks to expand beyond the conventional realm of monetary policy, markets and the like to more humanistic topics such as psychic income, externalities and the like. And from a seemingly disparate topic as a well-publicized hostage crisis that went too far, short and long term repercussions of the event can be inferred.

Short Term: Negative Externalities

In our day to day lives, our actions affect a lot of people – be it in a good or bad way. The building of a hospital can raise property value without intending to or a smoker can pass on harmful second-hand smoke to an innocent passerby. You can say no single action is isolated from the world. In economics, these unintended effects from an event are called externalities. There are two types of externalities, one positive, and the other, negative. A positive externality occurs when there is an overall societal benefit, and a negative externality occurs when there is an overall societal cost.

It is fairly obvious that negative externalities naturally arose from the recent Quirino grandstand hostage taking, resulting in downbeat repercussions for our country to face. Costs to society include strained foreign relations, criticisms of our military and media, the tainted image of our country, and the dip our tourism industry will eventually face. An externality with an immediate effect would be the affected relationship between Hong Kong and the Philippines. Hong Kong recently issued a total travel ban on the Philippines, advising its nationals to avoid travel to the Philippines by issuing a black travel alert. Other countries are also equally becoming extra wary over the safety of their nationals in the country. Reports of hotels receiving cancellations from their previously booked guests, cancellation of flights, and the withdrawal of travel insurance for Manila-bound passengers have even surfaced. It is notable to point out that as of 2008, 6.2 percent of the country’s GDP came from the tourism sector. How the incident could possibly affect the nation’s growth is yet to be known; but the Department of Tourism secretary Alberto Lim is said to be already rolling up his sleeves, preparing for the expected drop in the travel industry. All this, however, cannot overwhelm the anguish in the families of lives lost from this senseless massacre.

Externalities in general can affect a nation’s economy. Be it a country’s elections, the popularity of a new president, the price of oil in the world market, and so on. A country’s image is one; and it plays a big role because it’s what investor’s use as a measuring gauge for a country’s economic stability. No one wants a risky investment after all. Traumatic events, like wars or terrorist attacks, have a way of scarring a nation’s image, albeit temporarily. The recent hostage crisis falls under this category and investors may become a bit apprehensive when it comes to investing in our country, especially in the tourist industry. Either way, a negative impact on the Philippine economy can be expected, as the confidence levels of our investors decrease and as our tourism industry recovers. Though fluctuations are inevitable in times like these; the uncertain now lies in the magnitude and the duration of the flux.

Long Term: The Underlying Problem of Human Capital

S.W.A.T. – Sledgehammer Whacking Assault Team?

In light of the tragedy, the whole national security system, especially “Manila’s Finest” goes under intense scrutiny. As pundits would tell you, PNP’s SWAT unit takes on a whole new meaning in “Sorry, Wala Akong Training,” “Sugod-Wait-Atras-Tago,” or “Sledgehammer Whacking Assault Team.” What’s definitely not so funny is the revelation of a fundamental deficiency in human capital and technology in the system (or for any other system for that matter). Such was the lack of training and competence that a reporter (who wasn’t supposed to get so near to a hostage area) points out the back-door entrance of the bus to the police.

In defence of the new administration, the presidential spokesman pointed out that this dilemma of incompetence should be traced back to the previous administration’s lack of monetary allocations for the training and modernization of the police system. In spite of this response of blaming everything to Gloria and Co., this argument still doesn’t address the lack of leadership asked from the present administration during crunch times like these. If anything, this should ideally lead to an improvement of human capital in the police corps so that they’d never end up embarrassingly incompetent again.

When we say human capital, from a long-term economic perspective, it refers to the stock of competencies, knowledge and personality attributes embodied in the ability to perform labor so as to produce economic value. These are the attributes gained by a worker through education and experience – something our underfunded military has yet to acquire.

Applied to the SWAT crew who mishandled the crisis, this improvement in human capital should be realized by getting them the adequate training, including standard operating procedures and introduction of less invasive tactics, to mention a few, so as to prevent another media overpowering or the need to storm the bus. Technology-wise, a lot has to be done for the SWAT to be better-equipped during these times. As we could see from that night, sledgehammers, abaca rope, and teargas don’t really work. These changes can’t be certainly introduced overnight, as the folks handling national security have their hands full on other aspects of the job, but certain investments must be made, no matter how expensive, to prevent another fiasco of this magnitude.

What Now?

Prompt actions should be taken by our government to make sure this doesn’t happen again. In the short run, the government can start minimizing these externality effects from crippling vital industries such as tourism. By “investigation shall be made,” they must really mean it and not make it as a euphemism for letting this thing pass for a month or two and then forgetting it altogether, as we usually do. The investigation shall prove crucial since foreign relations are at stake, and improvements over the police systems rely on the analysis of what went wrong that Monday night.

From the results and recommendations of the investigation, the government can start its revamp of the national security system and make the necessary adjustments and allocations to these new priorities. We know that as of now, with the new 2011 budget proposal released, not a lot has been allocated to national defence. From the budget, a third will be going to the service sectors, and 4.7 % of that third will be going to Defence. That 4.7 % will be further divided; and a smaller amount will be going to the modernization and training of the armed forces and the police. Perhaps with these new events, in the future, the government will allocate more funds towards the training and development of our national defences. Besides, in order to maintain a democracy we cherish so much, we need to be confident that the men in uniform – who we trust our taxes and safety with – will do their duties and not end up taking another bus hostage or harming innocent people


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