We’ve been told that elections would usher in important positive socio-economic changes.
But where things matters most, particularly economic freedom, there appear to be little signs of progress.
Here is the newly released Economic Freedom Index scorecard from the Heritage Foundation on the Philippines.
As one would observe, the Philippines falls BELOW the world average, and whose score has been nearly STATIC from the past administration until the present.
The Scoring Methodology: (all bold highlights mine)
Business Freedom
Potential entrepreneurs face severe challenges. The overall regulatory framework is burdensome, and the legal framework is ineffective, holding back more dynamic and broad-based expansion of the private sector.
[my comment:
These are symptoms of too many arbitrary laws and regulations which results to the onus of red tape, that increases the incidences of corruption and inefficiencies.
All these add to the business risk premium which raises the costs of doing business and the subsequent required investment hurdle rate.
Ever wonder why investment in the Philippines has lagged the region? And how unemployment rates remain high despite high level of educational attainment by the population?]
Trade Freedom
The Philippines’ weighted average tariff rate was 3.6 percent in 2007. Some high tariffs, import and export restrictions, quotas and tariff rate quotas, services market access barriers, import licensing requirements, restrictive and non-transparent standards, labeling and other regulations, domestic bias in government procurement, inconsistent and non-transparent customs valuation and administration, export subsidies, widespread corruption, and weak protection of intellectual property rights add to the cost of trade. Fifteen points were deducted from the Philippines’ trade freedom score to account for non-tariff barriers.
[my comment: protectionism results to inefficiency of resource allocation and crony capitalism]
Fiscal Freedom
The Philippines has relatively high tax rates. The top income tax rate is 32 percent. The top corporate tax rate is 30 percent. Other taxes include a value-added tax (VAT), a real property tax, and an inheritance tax. In the most recent year, overall tax revenue as a percentage of GDP was 14.1 percent.
[my comment: a double whammy for investments]
Government Spending
In the most recent year, total government expenditures, including consumption and transfer payments, held steady at 17.3 percent of GDP. Fiscal stimulus and restructuring of public enterprises have widened the fiscal deficit, which had almost reached balance in 2007.
[my comment: orthodox Keynesian policies for the benefit of the entrenched rent seeking political-economic class at the expense of society]
Monetary Freedom
Inflation has been moderate, averaging 4.7 percent between 2007 and 2009, and was holding steady in 2010. The government influences prices through state-owned enterprises and utilities and controls the prices of electricity distribution, water, telecommunications, and most transportation services. Price ceilings are usually imposed on basic commodities only in emergencies, and presidential authority to impose controls to check inflation or ease social tension is rarely exercised. Ten points were deducted from the Philippines’ monetary freedom score to account for measures that distort domestic prices.
[my comment: global inflation has been moderate and this has camouflaged or masked the imbalances from local state interventionism. Once global inflation rises meaningfully the ramifications of such imbalances will be magnified.]
Investment Freedom
Foreign investment is restricted in several sectors of the economy. In many industries where foreign investment is allowed, the level of foreign ownership is capped. All foreign investments are screened and must be registered with the government. Regulatory inconsistency and lack of transparency, corruption, and inadequate infrastructure hinder investment. Dispute resolution can be cumbersome and complex, and enforcement of contracts is weak. Residents and non-residents may hold foreign exchange accounts. Payments, capital transactions, and transfers are subject to some restrictions, controls, quantitative limits, and authorizations. Foreign investors may lease but not own land.
[my comment: embedded anti-competition policies all designed at propping up the economic interest of the elites combined with a legal system that is vulnerable to the influences of the same vested interest groups.
This should be a great example of what the great Frederic Bastiat’s calls as “legal plunder”
“Legal plunder can be committed in an infinite number of ways; hence, there are an infinite number of plans for organizing it: tariffs, protection, bonuses, subsidies, incentives, the progressive income tax, free education, the right to employment, the right to profit, the right to wages, the right to relief, the right to the tools of production, interest free credit, etc., etc. And it the aggregate of all these plans, in respect to what they have in common, legal plunder, that goes under the name of socialism.”]
Financial Freedom
The Philippines’ small financial sector is dominated by banking. In general, the financial system welcomes foreign competition, and capital standards and oversight have improved. Consolidation has progressed, and non-performing loans have gradually declined. The banking sector is dominated by five large commercial banks. Two large state-owned banks account for about 15 percent of total assets. Credit is generally available at market terms, but banks are required to lend specified portions of their funds to preferred sectors. The non-bank financial sector remains small. Capital markets are centered on the Philippine Stock Exchange. The impact of the global financial crisis on banking has been relatively small because of the sector’s very limited exposure to distressed international financial institutions.
[my comment: like all banking arrangements around the world a central bank led banking cartel. Only that this privileged industry has been fortunate enough to escape the latest crisis out of the bad experience from our own crisis episode.]
Property Rights
Although the Philippines has procedures and systems for registering claims on property, including intellectual property and chattel/mortgages, delays and uncertainty associated with a cumbersome court system continue to concern investors. Questions regarding the general sanctity of contracts and the property rights they support have also clouded the investment climate. The judicial system is weak. Judges are nominally independent, but some are corrupt or have been appointed strictly for political reasons. Organized crime is a serious problem. Despite some progress, enforcement of intellectual property rights remains problematic.
[my comment: similar to my outlook in Investment freedom]
Freedom from Corruption
Corruption is perceived as pervasive. The Philippines ranks 139th out of 180 countries in Transparency International’s Corruption Perceptions Index for 2009. A culture of corruption is long-standing. The government has worked to reinvigorate its anti-corruption drive, but these efforts have been inconsistent. Reforms have not improved public perception and are overshadowed by high-profile cases frequently reported in the Philippine media.
[my comment-that’s the outcome of a political economic structure which relies mostly on political distribution of economic opportunities]
Labor Freedom
The labor market remains structurally rigid, although existing labor regulations are not particularly burdensome. Many of the country’s skilled workers have migrated to other advanced economies.
[my comment-similar remark on business freedom]
Overall, on the hype of change from a new administration, developments appear to be turning out as we predicted: the more things change the more they stay the same.
It is important to remember that any major reforms must not emerge only in terms “personality based politics” or the illusion of good government but a change that espouses a society of entrepreneurs or economic freedom
As Ludwig von Mises once wrote,
Prosperity is not simply a matter of capital investment. It is an ideological issue. What the underdeveloped countries need first is the ideology of economic freedom and private enterprise.
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