The Politics of The Rice Scam

This from today’s Inquirer

An NFA audit found that 8 of the 10 awardees of the rice importation quotas in Luzon were all cooperatives with offices in Pangasinan province, said a source privy to a Malacañang probe of the previous administration’s massive rice importation program that the NFA said was overpriced....

In his report to Mr. Aquino last week, Banayo said the private importation deals were given to favored contractors supposedly through a questionable first-come-first-served scheme.

“Among the findings were: fictitious cooperatives and corporations were given the quotas, and qualifications standards were extremely liberal,” Banayo said in his executive summary submitted to the President.

Some comments...

In politics, the basic objective for the politicians is to grab credit (aimed at attaining high approval rating for election purposes) at the expense of another. This is usually coursed through the virtuosity (I am clean, the other is dirty) route. It represents crab mentality at its finest.

This issue is actually a revival. We dealt with this here: Government Failure: Imported Surplus Rice

The above news account exemplifies-special access or political privileges, privatizing gains while socializing losses or importantly the fundamental symptoms of the maladies of political distribution empowered or enabled by arbitrary laws. This maybe called either crony capitalism or rent seeking (state capitalism) or both.

Since it is the state who determines “who gets what” or the politically picking winners and losers (and not via the market forces through the price mechanism), the obvious result is inefficiencies, distortions, wastages (overpricing), and corruption. And who pays for all these? Obviously, the taxpayers.

Once politics is involved, economic calculation is set aside, as politics become the driver of the attendant actions by the leadership to redistribute resources. “Overpricing” thus becomes a politically subjective factor. (Based on which price level? As determined by whom? And when?)

This of course, is related to the problems of time consistency or the political sustainability of the policy over changing circumstances. The rice scam was an urgent issue during the Typhoon days of Pepeng and Ondoy. Today, with the urgency lost, wrong and questionable political decisions become a fodder for politicking.

This also represents as the knowledge problem, where the political leadership don’t know the costs and consequences of their actions (since they are just human) and the where unintended consequences of politically based actions extrapolate to a huge negative externality (side effect) on the populace.

The point is the problem isn’t mainly based on the virtues of the political leadership, but on the system that encourages such errant actions and malfeasances. Personality based politics won't solve the problem.

Lastly when the political leadership says “Let us reform the NFA. Let us reform its mandate so it will be much better”, the answer shouldn’t be in the direction of more political concentration and distribution of resources, but economic liberalization from the clutches of power hungry politicians.

In short, let the markets decide!