Urgent tasks (2)

For better or for worse, the principal criterion for success or failure of the incoming President has been set way before his time, in the mill of public expectations and the various doctrines of developmental regimes. That criterion is poverty alleviation.

The bad news here is that poverty cannot be completely alleviated in our lifetime. Not only is over half of our people poor, they are also trapped in a culture of poverty that seems resistant to every effort at emancipation.

The good news is that we have the science to track the incidence of poverty quite accurately. The tools of economics tell us exactly where the poor are and what they do or do not do. But there is no silver bullet to end poverty. Only plain and transparent demagoguery will claim to have that silver bullet.

The specific discourse of our politics has always been keyed to alleviating poverty — or, if not, making people less poor for a day. Politicians run for public office not on the promise of modernizing governance but on offers to “help” the disadvantaged. Congressmen win reelection not on their legislative records but on their ability to bring pork back to their constituencies.

Joseph Estrada, in 1998, tapped into a rich well of public support when he guised himself as savior of the poor. Manuel Villar, in 2010, tried to tap into the same well but had to split its contents with Estrada. Both lost.

Noynoy Aquino, in the last campaign, linked poverty to poor governance. “Kung walang corrupt, walang mahirap” proved a brilliant pitch — although it rests on a lot of oversimplification.

Corrupt government is one thing; weak governance another. Note that LP candidates Ed Panlilio in Pampanga and Grace Padaca in Isabela lost their bids not because they were corrupt leaders but because they provided weak governance.

In our part of the world, the Philippines lags behind nearly everybody else not because we have the most corrupt government but because we have a weak state. This is not to say corruption is not a problem that must decisively be addressed. This is to say that curing corruption will not, by itself, produce the dynamic governance needed to bring our economy to optimal performance.

The accounting for whether poverty has been reduced or not is an exercise performed at the end of each presidential term. The basis for reducing poverty needs to be set early in the term. Producing that basis will require some expenditure of political capital.

The most urgent task for the new President is to ensure fiscal stability in a world that has suddenly entered into an episode of great volatility. The deficit must be contained to prevent our economy from incurring unsustainable debt. If we cut spending, that will produce misery. We have to raise revenues instead.

In a major policy speech during the campaign, Noynoy Aquino declared there will be no new taxes in his administration. In the national interest, he will have to take that back. The IMF, the credit rating agencies and many of our economists are now suggesting that we raise the VAT rate to 15% as soon as possible. If we do not, we will go the way of Greece.

In addition to raising the VAT rate, the tariff on oil imports will have to be restored. Removing those tariffs was a bad idea. It brings down the price of fuel only 16 centavos a liter and yet takes away billions in public revenue. The long term consequences on our fiscal profile are horrible.

Both raising the VAT rate and restoring the oil tariffs will be politically costly. But if they are not done, there will be trouble down the road.

The basis of widespread poverty in our society is the gross under-productivity of our agriculture. Here the politically correct approach clashes with the economically correct strategy. Political correctness dictates we redistribute the land and thus court the inevitable loss in economies of scale. The more adequate strategy is to capitalize our agriculture, which will require consolidating production and devoting more scarce land to higher-value crops.

For years, we followed what was politically correct, producing the tragedy of low value-added agriculture and therefore widespread rural poverty. The urgent thing to do now is to build a constituency for integrating and capitalizing our agricultural production. That will bring the new President in confrontation with diehard groups married to old orthodoxies.

All great civilizations prosper by accruing assets, building for the long term and deriving wealth from built-up facilities. To this day, Egypt draws revenues from the pyramids built thousands of years ago. China evolved a thriving civilization from building dikes and viaducts to tame the raging rivers and support agriculture.

For our economy to prosper, we have to increase investments in infrastructure. We have a large infra gap and meager financial resources to close that. Government must continue perfecting an infra blueprint that will draw private investments to help close the gap.

The new President must push strongly for an infrastructure investment program. That will provide the asset base for our economy to grow. It will create jobs and have lasting multiplier effects on the domestic economy.

Noynoy must immediately reconfigure our educational system so that it truly performs the leveling role it traditionally does as well as provide the skilled manpower to drive future growth.

What is clear is that all the needs to be done will likely involve contentious issues. The new President must realize that, from the first day in office, he must wisely expend political capital. He must not fear doing so. –Alex Magno (The Philippine Star)