Populism and being Anti-Business

Sta. Ana coordinates for Action for Economic Reforms. This piece was published in the Yellow Pad column oof the BusinessWorld on June 16, 2008, pages S1/4 to S1/5.

The soaring prices of oil and food, which can ignite political unrest, have led Mrs. Gloria Arroyo to undertake populist measures.

The list of populist proposals from Mrs. Arroyo and her allies in Congress is long. The measures include bringing down electricity rates, making SMS (short messaging service) or text messages free, ordering the lowering of toll rates charged by the North Luzon Expressway (NLEX), granting food and cash subsidies to the poor, and passing the legislative bill that raises the income tax exemption to a generous level.

The current populist rhetoric and actions are similar to those taken by Mrs. Arroyo before the 2004 elections.  Recall that she reduced the Napocor tariffs and set about a spending binge for her to look handsome and secure partisan support before the elections.  Which leads some to ask: Is Mrs. Arroyo setting her sights on the 2010 elections?

One adverse consequence of unsound populist measures is the aggravation of the fiscal situation.  Thus, after the 2004 elections, the Philippines suffered a fiscal crisis. Government had to cut spending on health, education and infrastructure and impose higher taxes such as increasing the rate of the value-added tax from 10 percent to 12 percent.

The fiscal problem continues to haunt us.  Tax effort remains low, and some taxes—those on sin products—are not adjusted to inflation. The brand of populism that Mrs. Arroyo promotes is exacerbating the problem.

The string of populist measures attempts to accomplish multiple objectives.  Appease the economic discontent of the masses and prevent them from pouring out into the streets. Stem the growing political isolation of Mrs. Arroyo. Punish the businessmen who are critical of her.  And divert public attention from the corruption scandals that can lead to her unseating.

It is a kind of populism that has gone berserk, to borrow the phrase of law professor and Inquirer columnist Raul Pangalangan.

Take the case of lowering power rates.  Instead of addressing the real causes of high electricity rates, Mrs. Arroyo is more obsessed in controlling Meralco and destroying its owners, the Lopezes.  Although Meralco is part of the problem, taking over the utility firm is not the key to significantly lower the electricity rates.  This is even deceiving because we are drawn away from tackling the institutional and policy factors that frame the problem of high electricity costs.

As an extension of her war with the Lopezes, Mrs. Arroyo ordered the Lopez-controlled NLEX to reduce its toll rates.  But the political spin was to show that Mrs. Arroyo was responsible for lowering the rates. In fact, in October 2007, the NLEX had already informed the regulators that it was ready to reduce the toll rates.  The NLEX management said it could pass the gains from lower foreign debt servicing arising from the appreciation of the peso to the NLEX users. Many months passed without any action from the regulators.  Out of the blue, Mrs. Arroyo ordered NLEX to lower the toll rates.  She has presented herself as the redeemer at the same time that she has made the Lopezes appear as the demons.

Making others the villains has been a tack of Mrs. Arroyo to make herself look pretty and to demolish her enemies in business. In the case of the government proposal to remove the charges for SMS, it was unnecessary for Mrs. Arroyo or Transportation and Communications Secretary Leandro Mendoza to intervene and apply pressure on the mobile phone companies. The truth is, the competition among the telcos has resulted in lower charges for SMS and calls as well as better services and more innovations.  Because of the competition and the need to preserve or gain market share, telcos are offering packages that provide lower fees or unlimited free calls and text messages within the network.

That Mrs. Arroyo and Mr. Mendoza needlessly instigated the fray would suggest that they were out to harass some businessmen.  These are businessmen who do not belong to their faction.   It is not irrelevant to point out that Smart and Globe opposed the National Broadband Network deal and that the Ayalas and Manny Pangilinan were spotted attending an anti-Arroyo in the business district.  If it is too crude and brazen to punish the Ayalas by blaming them for the Glorietta blast, then let them suffer by penalizing their profitable business venture.

Arroyo’s populism is thus a disguise for her being anti-business.  That this has gone berserk is likewise manifested in how her allies—the three stooges in the Senate, as my colleague Manuel Buencamino calls them—have insulted and bullied the foreign chambers of commerce.

Yes, she has her set of business cronies, but that doesn’t make her pro-business.  To be pro-business is to apply the rules fairly to all businessmen, regardless of their political sentiments.

Worse, unlike Hugo Chavez who is seen as anti-business but pro-poor, Mrs. Arroyo is both anti-business and anti-poor.  Unemployment, poverty and inequality have become the trademark of her economic performance despite the growth.  Even the subsidies that she is ostensibly offering to the poor are anti-poor.  The subsidies do not reach those who deserve most the subsidy.  Rice for the poor is scarce in Mindanao where there is a large concentration of poor, while it is abundant in Metro Manila, which has the least number of absolute poor.  A power subsidy for small electricity users totaling two billion pesos will not benefit the poor either because in the first place the absolute poor have no access to electricity.

But why should we care for a leadership that is pro-business?  Because being pro-business, if properly done, encourages investments and employment and is therefore good for the workers, for the unemployed, and for the poor.

We can devote another essay as to how being pro-business can facilitate the transition to a higher level of development that is beneficial to the whole nation.  Meantime, both business and labor have to act in concert to fight their common nemesis.

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