One Source of Wealth Inequality: Government Owned Or Controlled Corporations (GOCCs)

Those promoting class schism by presenting misleading arguments on wealth-tax inequalities deal with superficial analysis, instead they should rant about is this:

GOVERNMENT WASTAGE AND INEFFICIENCY THAT LEADS TO HIGHER TAXES.

Today’s news headlines provides a magnificent example.

This example from the Inquirer,

Another government-owned and -controlled corporation (GOCC) has been found to have granted its officers and employees millions of pesos in unauthorized allowances, bonuses and other benefits.

Despite owing the government over P7 billion in concession fees and other liabilities, Philippine National Construction Corp. (PNCC) last year gave its board of directors, officers and employees over P57 million in allowances that lacked legal basis, according to the Commission on Audit (COA).

PNCC whose president is Theresa Defensor also gave some P261.33 million in unauthorized cash advances to its employees, the audit agency said in its latest report on the GOCC.

The COA said the corporation should have first settled its obligations with the national government before improperly providing “huge” allowances to its personnel.

On Sept. 8, President Benigno Aquino III ordered the suspension until Dec. 31 of all allowances, bonuses and incentives of board members of GOCCs and government financial institutions (GFIs).

Here, media’s framing of government’s wastage seem to be angled only from the morality aspects.

Yet one noteworthy statement from the same article…

The COA said these disbursements had no authority from the DBM or the Office of the President.

My comments:

1. Legality seems to be determined according to the unilateral political discretion of the incumbent leadership, where arbitrary rules equate to subjective actions by the regulators or administrators.

As Ludwig von Mises pointed on the inherent weaknesses of bureaucratic organizations… (bold emphasis mine)

There are, of course, in every country’s public administration manifest shortcomings which strike the eye of every observer. People are sometimes shocked by the degree of maladministration. But if one tries to go to their roots, one often learns that they are not simply the result of culpable negligence or lack of competence. They sometimes turn out to be the result of special political and institutional conditions or of an attempt to come to an arrangement with a problem for which a more satisfactory solution could not be found. A detailed scrutiny of all the difficulties involved may convince an honest investigator that, given the general state of political forces, he himself would not have known how to deal with the matter in a less objectionable way.

This also means that since the administration of these organizations are mainly politically determined, management actions may be directed at the rewarding or dispensing of favors to political allies or adherents, or trying to attain high approval ratings by projecting control, or other non-market based actions.

2. Spending someone else’s money has always been the easiest thing to do. And that’s what bureaucracies essentially stand for.

This from GMA TV,

Government-owned and –controlled corporations (GOCCs) got P15.95 billion in subsidies in the 10 months to October, up by 54 percent from P10.36 billion a year earlier, the Bureau of Treasury (BTr) reported Wednesday

3. Bureaucracy isn’t concerned with profitability, but with fulfilling regulatory, or as stated above, specific political goals for the benefit of the political leadership.

This from ABS CBN

Goverment owned and controlled corporations (GOCCS) are bracing for a major shakeup as the state plans to abolish some of these agencies.

Budget Secretary Florencio Abad said on Monday that some of the 14 GOCCs being monitored by the goverment, may have to be folded up.

The abolishment of losing and redundant GOCCs is part of the government's overall strategy to trim the bureacracy and stop the bleeding of its coffers through huge subsidies to these agencies.

There seem to be little concerns, except for paying lip service, on the trimming the leviathan. Also there seems hardly any discussions on the justifications for the continued existence of these political enterprises, aside from looking at financial conditions.

In addition, there also seems hardly any reckoning on the adverse impact on the economy by, not only misallocation of resources, but as privileged competitor at the expense of the private sector (yes, some GOCCs are profitable. That’s because they are monopolies of strategic sectors, e.g. Bangko Sentral ng Pilipinas, Government Service Insurance System, Social Security System, Philippine Deposit Insurance and many more).

Yet these enterprises represent anti market or totalitarian tendencies by the state.

Again from the great Professor von Mises (bold emphasis mine)

Those who criticize bureaucracy make the mistake of directing their attacks against a symptom only and not against the seat of the evil. It makes no difference whether the innumerable decrees regimenting every aspect of the citizen’s economic activities are issued directly by a law, duly passed by Congress, or by a commission or government agency to which power has been given by a law and by the allocation of money. What people are really complaining about is the fact that the government has embarked upon such totalitarian policies, not the technical procedures applied in their establishment.

Bottom line: Finger pointing on the rich is one wrong way to address equality issues. Instead we should deal with the system that promotes on such inequality. The system where politics has been empowered at the expense of the markets, and a system that encourages waste, inefficiency, corruption and wealth redistribution from the economic-productive class to the power hungry political class.