On President Aquino’s SONA: The More Things Change....

I have not heard or read the entire transcript of the First State of the Nation (SONA) address by President Noynoy Aquino yesterday. Thus I’ll be basing my comments on the content or quotes of the President Aquino by mainstream media.

Fundamentally the Inquirer ‘We can dream again’ article seems to give alot of weight on Mr. Aquino’s penchant for public-private partnerships arrangement.

So what is a public private partnership? It is basically government project/s outsourced to the private sector.

This from Wikipedia.org, ``PPP involves a contract between a public sector authority and a private party, in which the private party provides a public service or project and assumes substantial financial, technical and operational risk in the project. In some types of PPP, the cost of using the service is borne exclusively by the users of the service and not by the taxpayer. In other types (notably the private finance initiative), capital investment is made by the private sector on the strength of a contract with government to provide agreed services and the cost of providing the service is borne wholly or in part by the government. Government contributions to a PPP may also be in kind (notably the transfer of existing assets). In projects that are aimed at creating public goods like in the infrastructure sector, the government may provide a capital subsidy in the form of a one-time grant, so as to make it more attractive to the private investors. In some other cases, the government may support the project by providing revenue subsidies, including tax breaks or by providing guaranteed annual revenues for a fixed period.” (bold emphasis mine)

In other words, PPP’s signifies as politically privileged economic rent/concessions to favoured private entities that will undertake the operations in lieu of the government. They will come in the form of monopolies, cartels or subsidies that will benefit only the politically connected.

Since the private partner partnerships aren’t bound by the profit and loss discipline from the consumers, the interest of the private partners will most likely be prioritized or aligned to please the whims of the new political masters.

And because of it, much of the resources that go into these projects will not only be costly or priced above the market to defray on the ‘political’ costs, but likewise, they will be inefficiently allocated.

Moreover, PPPs risk becoming ‘milking cows’ for these politically entitled groups and could be a rich source of corruption.

Hence, PPPs are no less than emblematic of the status quo, which I had been predicting, that highlights on the legacy of crony capitalism, which seemingly, the new administration is headed for.

Of course one may argue that these projects will be transparently offered to the public. But that would be a non-sequitur. As we should know, there are many stealthy ways to maneuver the process or to ‘skin the cat’.

Going back to the SONA it is further a wishful thinking for President Aquino to assume government knows best in allocating resources,

From the same article,

``To put a stop to the wasteful use of funds, the government would eradicate “wrong projects” and adopt a “zero-based” approach to crafting the national budget, the President said.

“What used to be the norm was every year, the budget merely gets reenacted without plugging the holes,” he said. “Next month we will be submitting a budget that accurately identifies the problem and gives much attention on the right solution.”

When resources are allocated politically, they become impervious to market pricing thus, are always subjected to waste.

Even to the most well-meaning politician, it is hardly the interest of the public that comes into play, but the interest of the public as perceived by the political leaders.

Yet these perceptions can be skewed by biases, familiarity, networks, vested interest groups, and many other influences.

Lastly, not everything is bad news though, we hope that the new president will indeed not only streamline processes “to make them predictable, reliable and efficient for those who want to invest” on the PPPs, but we hope that this will be applied to the broader businesses environment.

So there you have it, more proof that the more things change, the more they stay the same.