It is proper that we give special attention to the impact of the global financial meltdown on the Philippines. At the same time, this should not distract us from focusing on the main binding constraints on Philippine growth.
In the article titled Populism and Being Anti-Business (BusinessWorld, 16 June 2008), I said that Gloria Arroyo’s populism, while pandering to the masses, is ultimately anti-poor as well as anti-business. It is a brand of populism that weakens macroeconomic fundamentals and productivity and therefore harms the whole nation.
Her being anti-business is politically partisan, and the economic consequence of this antagonism is damaging.
In 1985, the Congress of the United States (US) passed the Gramm-Rudman-Hollings Law (GRH) establishing a process of gradually reducing the Federal government’s budget deficits to eventually balance by fiscal year 1991. Among other things, the law contains targeting the budget deficit to US $172 billion for 1986, US$144 billion for 1987, and henceforth reducing the deficit by US$36 billion per year. That is: $108 billion for 1988, $72 billion for 1989, $36 billion for 1990 and $0 or balanced budget in 1991. To make these reductions possible, the law states that Congress and the Executive branches would select and agree on specific spending cuts and tax increases every year that they formulate the national budget. If they did not agree, an automatic across-the-board reduction of expenditure on certain eligible categories would apply.
Economists agree that institutions are a deep determinant of long-term
economic growth. Some economists, William Easterly (2006) for example,
are more provocative by arguing that national policies are not a “sure
and principal determinant of growth.” What has to be avoided is
“extremely bad policies,” which is simple common sense. Well, it is
apparent that the Philippine government both past and present, is
capable of making “extremely bad policies.”
Nevertheless, good policies can lead to good institutions. Effective
tax administration and policy can curb tax evasion behavior. A
competitive exchange rate can change the behavior of investors and
The central question, however, is: Do we have now in place good
institutions that will create the conditions for long-term growth? Are
there institutional reforms being carried out that are responsive to
What do we call a priority bill that has to give way to other priority measures? Second priority? Third priority? Fourth priority? Gabby Claudio enumerates the other priority measures: the anti-terrorism bill, the General Appropriations Act of 2007, the bio-fuels bill and the restoration of perks to certain economic zones.
It is striking to note that one priority bill that intends to restore perks to some eco-zones is the opposite of the rationalization of fiscal incentives. Senator Rectoâ€™s bill calls for the repeal of numerous laws that grant overgenerous incentives to investors, resulting in huge foregone revenues for a cash-strapped government.
John Kenneth Galbraith died on April 29, 2006 at the age of 97, having led a life filled with honor and accomplishment. Unfortunately, his ideas are largely ignored by today’s economics profession. His death marks an occasion for spotlighting the continuing relevance of those ideas and the ideological narrowness of a profession that makes no space for them.