The power of the Executive to cast a man into prison without formulating any charge known to the law, and particularly to deny him the judgment of his peers, is in the highest degree odious and is the foundation of all totalitarian government whether Nazi or Communist—Sir Winston Churchill
In this issue
The March to a Neo-Socialist Society; 2017’s Fiscal Deficit Down by 27% from Target
-“We are threatened by something worse than Martial Law”
-A State of War Justifies Mass Interventionism
-Policies of Good Intentions as Cover for Politicization Centralization
-The March to a Neo-Socialist Society
-Uprooting Democracy Through the Burning of the Nation’s Treasury; 2017’s Fiscal Deficit 27% Less than Expected!
-Did the Bureau of Treasury Inflate December Revenue Statistics?
The March to a Neo-Socialist Society; 2017’s Fiscal Deficit Down by 27% from Target
“We are threatened by something worse than Martial Law”
That’s an observation made by a religious personality during the 32nd anniversary of the EDSA revolution. The strong arm tactics or “creeping dictatorship” supposedly employed by the current leadership prompted for such warning.
Though the general perception seemed right, it, unfortunately, lacked substance, other than the “loss of moral fiber, the loss of respect for people, for life, for law”.
A more perceptive approach would be from the holistic standpoint or the direction of governance viewed from an ideological spectrum.
A State of War Justifies Mass Interventionism
The fact of the matter is that the present administration embraces a warfare mentality.
The war on drugs served as the staging point. As I have stated here from the start, the war on drugs signifies nothing but a diversion to expand political control over the economy. The war on drugs is a social war, or an implicit war on the citizenry, designed to impose draconian intrusions on the economy and on civil liberties.
“War is the health of the State” wrote the late writer Randolf Bourne in the State[1]. That’s because war “automatically sets in motion throughout society those irresistible forces for uniformity for passionate cooperation with the Government in coercing into obedience the minority groups and individuals which lack the larger herd sense. The machinery of government sets and enforces the drastic penalties. The minorities are either intimidated into silence, or brought slowly around by subtle process of persuasion which may seem to them really to be converting them”
Given that wars provide a sense of purpose and mission, it rallies the people around the leadership. So doing, justifications for the expansion of political power, redistribution, and control over the economy, finance, and resources are provided for by a state at war.
The administration’s social war has expanded DIRECTLY to encompass campaigns against mining, the “oligarchy”, media, gaming, telecoms andlabor “contractualization”.
As a side note, the war on labor contractualization is an assault against small and medium scale enterprises and the informal labor sector which benefits elite companies. Ironically, the largest exploiter of labor contractualization is the government!
The rapidly expanding dragnet of the social war has expanded to cover an indirect offensive against the consumers and in industries catering to the consumers (e.g. Coca-Cola and Sardine Manufacturing), as well as, the general economy through higher prices from tax hikes bourne out of the newly implemented tax regime.
And the implicit war against the minority groups has also been waged against public utility vehicles, Transport Network Vehicle Services, OFWs and the tourism industry.
On the side, in the name of the environment, the National Government plans to rehabilitate Boracay by closing it for one year. And this action is supposed to signal the embrace of “federalism”??? Paradoxically, having been blighted a “cesspool”, record number of tourists have only poured into Boracay! Have people become so dense as to find leisure and entertainment in a “polluted environment”??!! On the contrary, I have come to realize that the political controversies can serve as fantastic advertisements! And another irony, having been labeled by the NG as an environmental disaster, Boracay was named as the second best beach in Asia by an international travel site! Have cesspools become symbols of aesthetics??? Or is the international site an implicit protégé of the International Criminal Court, which the Philippine government withdrew fromlast week? Or could it be that the crackdown on Boracay had been intended to accommodate plans to build a grand $500 million casino on the island? Nevertheless, how ironic for a proposed $500 million investment from Macau’s Galaxy Entertainment and Leisure and Resorts on a property benighted as “cesspool”! Has everyone, but the government, become so blind? Other tourist spots such as Bohol and Palawan (Puerto Princesa, El Nido) have reportedly been the next targets of an environmental clampdown.
That’s just one side of the seismic transformation.
Policies of Good Intentions as Cover for Politicization Centralization
Good intentions have always served as foundations for political interventions or conflicts.
Security, environment, social stability, public service, equality and the economy are among the contemporary goals used to justify state interventionism or the war against the citizenry!
As an old saw goes, the road to hell is paved with good intentions
The real agenda has been to concentrate power and control towards a centralized political structure.
As the great Nobel Laureate Milton Friedman, wrote in Capitalism and Freedom, "Concentrated power is not rendered harmless by the good intentions of those who create it."
As a flashback, the Marawi war authorized the leadership to impose martial law in Mindanao.
Mindanao’s martial law has paved the way for the administration to call for the expansion of the police state nationwide. For some unknown reasons, the call for a nationwide martial law hit a wall. The military, most likely, hasn’t been amenable to it.
Yet…
The thrust to broaden the state’s role as a centralizing force has emerged in the form Revolutionary Government (RevGov), No elections (No-El) and to Charter Change (Cha-cha)
Though current activities have only been cementing this centralized agenda; the public has hardly been aware of this evolution much more its ramifications.
Paradoxically, instead of realizing the potential adverse ramifications from such changeover, it has even been serenaded by the populace as economically salubrious!
People hardly ever ask why Mr. Duterte’s predilection and repeated utterances for a “revolutionary government”? Has it not been because that the path to a socialist paradise requires the realization of the Marxist doctrine of “revolutionary socialism”, viz. a revolution as a precondition for the transition from capitalism to socialism?
While Mr. Duterte occasionally pays lip service to democracy, a revolutionary government, the repeated gripes over the democratic process and his calls for absolute virtuous obeisance or submission (“If people chose an SOB president, bear it and obey!”) to the state demonstrates hisdeepseated ideological persuasion.
Even the US government’s US Intelligence Community has recognized Mr. Duterte a threat to democracy.
This week, through a decree, the heads of the Philippine National Police and the director and deputy director of the PNP Criminal Investigation and Detection Group (CIDG) have been empowered to issue subpoenas which would authorize the police to bypass the judiciary. Yes, welcome to a police state!
The transformation of ideology into reality is being realized through radical changes in policies.
The March to a Neo-Socialist Society
The populist desire for political solutions on economic predicaments predicated on short-term fixes, has ushered in this transition towards socialism.
The previous dictatorship was mostly about entrenched statism than about the establishment of socialist institutions.
And to establish a socialist state, while interventionism is a necessary condition, it is not sufficient. Limited acts of interventions will not lead to such an outcome. It would require systematic interventions functioning as an integrated system for socialism to be attained.
Current developments have hardly been about isolated acts of interventions.
To identify the path of the transformation of the political-economy, incorporating critical aspects of political science should be helpful in one’s analysis
The generic or pristine form of socialism is the ownership of the factors of production by the state which the bureaucratic apparatus operates. As the Soviet Union chief Vladimir Lenin once wrote, “An entire society will be one office and one factory with equal work and equal pay”.
The other form of socialism allows for private ownership or enterprises. This method represents the “Hindenburg plan” used by the Hitler’s Germany, which operated on the ideals of central planning as to substitute for private enterprise[2]. Because the state controls and directs the actions of every firm, the owner was no longer an entrepreneur but a “shop manager”.[3]
The second method had another strain. While the private sector was allowed to operate, the political economy has mainly been organized under a system of cartels and tightly controlled environment through regulation, licenses, subsidies and protectionism[4].
Moreover, it exalts the police state as the source of order, thereby denying fundamental rights and liberties to individuals, which makes the executive state the unlimited master of society[5].
This variant socialist method is known as Fascism or “Corporativism/Corporatism”.
Italian dictator and fascist leader Benito Mussolini once said that fascism would “lead inexorably into state capitalism, which is nothing more nor less than state socialism turned on its head. In either event, [whether the outcome be state capitalism or state socialism] the result is the bureaucratization of the economic activities of the nation"
The short of it is that methods of fascism constitute the cog of “State capitalism” where the means of production are organized and managed by the state through state-owned enterprises or through corporatized government agencies, or through publicly listed corporations or a combination thereof. Ultimately, State Capitalism is about state control of the private sector.
Let us see how state capitalism applies to domestic conditions
-“Cartelizes the private sector”: NAIA 'super consortium' submits P350-billion airport proposal February 13, 2018
-“Centrally plans the economy to subsidize producers”: Dutertenomics: ‘Golden age of infrastructure’, April 19, 2017
-“Exalts the police state as the source of order”: Philippine police return to war on drugs, cannot promise to avoid bloodshed January 29, 2018and Duterte Signs Police Subpoena Law March 10, 2018
-“Makes the executive state the unlimited master of society”: Duterte declares Martial Law in Mindanao May 23, 2017 and Nationwide martial law? Duterte says all options on the table December 13, 2017
And a functioning example of state capitalism would be China’s political economy. Mr. Duterte’s economic goal of “Matatag, Maginhawa andPanatag na Buhay” seems to have been taken from a page of China’s Socialist Harmonious Society. Mr. Duterte has unabashedly adored China. Mr. Duterte recently even joked about making the Philippines one of China’s province!
One of his first acts was to visit the Chinese leadership and business community to promote the Philippines, which his team followed up last year.
Part of Mr. Duterte’s deal reportedly had been about excessively price loans which were backed by natural resources which of course, the Chinese government has denied. Such deal has been known as China’s debt trap diplomacy. And it seems that when it comes to foreign policy, China and the US share the same imperialist goals.
China’s President Xi Jinping has been reappointed with no term limit. Mr. Xi as President for life will likely inspire Mr. Duterte to be upfront on the present push for Charter Change to include either the extension or suspension of his term limits.
These events, developments and circumstances exhibit the seismic shift of the Philippine political economy towards a fascist/corporatist state capitalism. This should be coined as Neo-socialism.
Uprooting Democracy Through the Burning of the Nation’s Treasury; 2017’s Fiscal Deficit 27% Less than Expected!
Since interventions require resources and financing, another manifestation of the transformation to a neo-socialist state would be the scale of government spending
Uprooting democracy would be best done by burning the nations’ treasury.
The great Austrian economist Ludwig von Mises warned[6] (bold mine)
The prime means of democratic control of the administration is the budget. Not a clerk may be appointed, not a pencil bought, if Parliament has not made an allotment. The government must account for every penny spent. It is unlawful to exceed the allotment or to spend it for other purposes than those fixed by Parliament. Such restrictions are impracticable for the management of plants, mines, farms, and transportation systems. Their expenditure must be adjusted to the changing conditions of the moment. You cannot fix in advance how much is to be spent to clear fields of weeds or to remove snow from railroad tracks. This must be decided on the spot according to circumstances. Budget control by the people’s representatives, the most effective weapon of democratic government, disappears in a socialist state.
Thus socialism must lead to the dissolution of democracy. The sovereignty of the consumers and the democracy of the market are the characteristic features of the capitalist system. Their corollary in the realm of politics is the people’s sovereignty and democratic control of government. Pareto, Georges Sorel, Lenin, Hitler, and Mussolini were right in denouncing democracy as a capitalist method.Every step which leads from capitalism toward planning is necessarily a step nearer to absolutism and dictatorship.
National Government activities played a critical role in the shaping of 2017’s GDP.
The National Government reported a fiscal deficit of Php 350.64 billion in 2017.
Because of the stunning avalanche of revenues across the board, December’s deficit recorded a lower than expected Php 107.15 billion.
According to this Philstar article, the reported deficit accounted for a whopping 27% shortfall from the projected Php 482.1 billion! Wow!
By measuring the actual fund flows with a model derived GDP, the notion is that such deficit would have little or no adverse impact on the REAL economy! Because 2017’s fiscal deficit to GDP was a paltry 2.2%, the NG has now targeted 3%. So if the Nominal GDP expands by 9% similar to 2016, NG’s projected deficit would accrue to a staggering Php 516.6 billion! A 3% deficit based on 2017’s GDP would translate to Php 473 billion!
If the NG attains the deficit target relative to 2018 NGDP, this would account for a 47% increase! Or, if the deficit hits the level based on 2017 GDP that would still tabulate to a 35% increase!
It is shocking to know how the NG sees virtually no risk from their endeavors! And the like the BSP, such projections are so optimistic that leaves no margin for errors.
The NG is clueless on the crowding out effect from such gargantuan deficits. And like the BSP they have come to believe in the perpetuity of free lunches.
As Keynesian zealots, it is the spending that is of paramount importance! That’s because spending or transfers from the private sector is what nourishes the government.
The more the interventions, the bigger the spending required to finance such actions. Therefore more problems must arise to justify even more interventions!
Thus, 2017’s spending target gap must be remedied!
With that in mind, expect the NG to ramp up spending significantly in 2018! Concealed behind the headline “build, build and build” is the key essence of “Spend, spend and spend”!
Did the Bureau of Treasury Inflate December Revenue Statistics?
2017’s lower than expected deficit was a result of the outsized gain in revenues
Total Revenues rocketed by a colossal 35%! The Bureau of Internal Revenue and the Bureau of Customs absorbed gigantic 29.03% and 29.39% increases in collections. Amazingly, non-tax revenues more than DOUBLED (105.4%)!
The DoF, BIR, BOC and the BoTr were blessed with an enormous largesse from Santa Claus!
And the profusion in revenue collections virtually eclipsed spending! Public spending hiked by only 16.5%. Nevertheless, nominal numbers exhibit the acceleration in spending.
I do not BUY the Bureau of Treasury’s revenue data.
First of all, 4Q real GDP fell to 6.6% from 7.0% in the 3Q. Yet, 4Q revenue collections zoomed by 22.03% compared to 14.54% in the 3Q or an increase of 51%. The variance between revenue collections and RGDP in the 4Q at 15.5 was the largest since the 1Q of 2011.
Second, the government and hardly the private sector was the instrumental force behind the 2017 GDP. So if the tax-paying segment of the economy underperformed, who filled the gap?
Third, bank credit expansion (production plus consumer loans) and tax collections (BIR plus BOC) went in opposite directions, which is a rarity.
Fourth, NG borrowed a gigantic Php 233.03 billion in December, accounting for 46% of the year’s domestic borrowing of Php 507 billion! Since the 11 month deficit at Php 243.5 billion was more than fully covered by the Php 274.1 billion debt issuance over the same period, why borrow so much?
Was the NG unprepared for the avalanche of revenues for them to borrow massively? If true, given the humungous two-month debt surplus of about Php 156 billion, the NG should refrain from tapping the debt market for at least a quarter.
But the NG raised Php 74 billion mostly in foreign loans last January!
However, if revenues were inflated, then the annual budget deficit had been understated. Because the Philippines can’t show signs of weakness, boosting the topline which undervalues the budget deficit may have been designed to prevent the peso from a freefall.
The BSP liquidated its Net claims on the NG by Php 21 billion in December and by Php 10.8 billion in January 2018. Nevertheless, for the year 2017, a net Php 31.94 billion had been added.
With so much money raised from the capital markets and from the BSP relative to the declared deficit, just where has the surpluses been channeled to?
The NG’s aggressive target for 2018 fiscal deficit means that either the capital markets or the BSP will fund this.
If the NG taps the capital markets, a tight race with the private sector for the access to the public’s savings will ensue. The private sector, mainly the publicly listed companies, will be raising funds through either debt or equity. The deluge in the supply of credit is likely to siphon off liquidity from the system! Thus bond yields will continue to soar which will eventually reflect on interest rates. And the massive draining of liquidity will pose a crucial menace to the domestic equities
If the BSP funds the NG’s requirements, prices in the real economy will soar, which should likewise reflect on bonds and on the peso.
The BSP has been terrified to raise rates even by just a token because of the above. The other reason could be that the BSP sees easy money as contingent against any adverse effects from the TRAIN edict. It could be both.
This “all or nothing” policies from the NG and the BSP places the entire system at a tremendous risk!
You never let a serious crisis go to waste. And what I mean by that it's an opportunity to do things you think you could not do before.
An economic downturn would provide a fertile ground for Mr. Duterte to implement his ideological utopia.
[3] Ludwig von Mises, 3rd Lecture: Interventionism, Economic Policy: Thoughts for Today and Tomorrow Mises.org
[6] Ludwig von Mises, Omnipotent Government: The Rise of the Total State and Total War [1944] p.53-54
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