Why the Duterte Government’s “Build, Build, Build” Signifies a Recipe for a Crisis

Last weekend, I wrote

The NEDA just did NOT get the memo. Like the war on drugs, political mega deals with the Chinese government will be beyond the scope of edicts, legislation and mandates—or even the constitution.

Confirmed!

From the Friday’s proposed massive infrastructure spending program (Inquirer November 4, 2016)

“Build, build, build” is the battlecry of the Duterte administration as it intends to ramp up infrastructure spending to the tune of P8 trillion in the next five years, according to Transportation Secretary Arthur Tugade.

Cabinet members on Thursday called on Congress to grant President Duterte emergency powers on transportation projects as they presented the administration’s planned infrastructure program to spur development and ease traffic congestion in the country.

Without the emergency powers, the projects, which include new roads, bridges, railways, and the improvement of airports, will  be delayed, Tugade said.

Selective bidding

“Is the population willing to wait some more?” he said at a press briefing in Malacañang.

The emergency powers being sought for the President would allow him to conduct selective bidding, direct contracting, or negotiated procurement for materials or services for projects intended to deal with the transport problem.

The bill that would authorize these powers would also bar lower courts from issuing temporary restraining orders or injunctions against the projects. Only the Supreme Court would be given the authority to issue such an order.

First, emergency powers simply omit or bypass the check and balances provided by the extant institutional and legal framework. Through centralization, the executive imbues or absorbs MORE political control over the economy.

Short circuiting the defective check and balances would entail of even MORE abuses than less. Greater risks of abuses have been sidelined due to the populist embrace of the superhero syndrome. Or the public’s blind faith on the strong man government to deliver promises. Yet the public forgets that the leadership is NO god and is just a human being who is subject to mortal frailties.

Second, it is pretty much obvious that martial law would NOT be required at all for the current drift to an ochlocratic leftist dictatorship.

The executive only requires a stamp pad legislative branch and a supine supreme court to put in effect its pet projects.

By virtue of complete control over the other branches of government, the executive branch can unilaterally impose whatever it desires.

Third, transforming the consciousness of the society requires a strong command of language that gains popular acceptance.

And this has easily been attained by virtue of indoctrinating fallacies as reality.

Government infrastructure spending equals G-R-O-W-T-H has signified a shibboleth for the majority, including so-called experts.

Benefits are seen, but never the cost.

Mao’s China, USSR, Cuba and North Korea have all relied on government spending including infrastructure, but where are they now?

The Japanese government has embarked on a series of fiscal infrastructure stimulus since its bubble imploded in 1990s. Yet more than two decades after, the Japanese economy still wobbles from economic stagnation while the cost of such undertaking has catapulted its debt conditions to the largest in the world. It’s why Abenomics embarked on a grand NIRP experiment which also includes never ending infrastructure spending. So Abe-Kuroda’s grand experiment has now translated to greater risks of instability more than G-R-O-W-T-H. [I dealt with this in Philippine Peso Tumbles 1.4% the Largest Weekly Loss Since 2014; Why the Weak Peso Signifies a Long Term Trend September 18, 2016]

Modern day China or “Communism with Chinese characteristics” has been no different.

Even the Chinese government’s addiction to credit intended just to inflate GDP statistics has become so evident for the mainstream to ignore

From Bloomberg (November 2 2016; bold mine)

In the five fastest-growing provinces, total fixed-asset investment exceeded the sum of their gross domestic product in the first three quarters of this year, according to new data from 29 of 31 provincial governments. In Chongqing, Guizhou, Tianjin, Jiangxi and Anhui, combined total investment was 6.56 trillion yuan ($969 billion) versus their combined economic output of 6.37 trillion yuan, the data show.

Despite a transition toward services and consumer-led growth, investment by the government, developers, or companies is still the engine fueling the fastest expansion rates. While the economy looks resilient for now -- the latest evidence of strength coming Tuesday with data showing the official manufacturing gauge jumped to a two-year high -- the addiction to investment and rapid credit growth needed to fund it is a growing concern.

China’s government has vowed break its stimulus addiction by boosting services, which accounted for more than half of the overall economy’s output last year for the first time, and consumption, a major prop this year. But quitting the old build-it-and-they-will-come mentality is proving harder to do at the provincial level as it remains the quickest way to juice GDP.

The reason why the Chinese economy seems “buoyant” today has been due to the astounding skyrocketing of social financing costs to the tune of $2.6 trillion (Yardeni.com). Bank loans have shot to the moon with a stunning $1.9 trillion of credit growth in a YEAR! That’s T-R-I-L-L-I-O-Ns!

It’s a grand stimulus which has been DWARFED the 2008 (US $586 billion) scale. The IMF warned last August that China’s 254% debt to GDP is unsustainable and must "urgently address the problem." (CNN MoneyAugust 12)

Such massive infusion of credit has only stoked a runaway bubble in property that may spillover to stocks.

Yet the Chinese government cannot wean away from credit, because doing so would mean a collapse of the house of cards entirely DEPENDENT or built on credit expansion.

Government infrastructure spending does NOT represent the HOLY GRAIL.  

Since resources are scarce, government spending would entail resources taken away from the productive economy. The significance of the proposed “Build, build, build” project is the expansion of the government at the expense of the productive economy.

Another is that since the said infrastructure projects are political, then distribution of benefits would favor the politically well-connected parties from the private sector. Chinese and Japanese sponsors are likely to benefit from the administration’s doleouts.

Yet once China and or Japan will be engulfed by a crisis those deals with Philippine government can be expected to vaporize.

Third, with government growing faster than the private sector, this entails more debt, higher taxes and increased inflation which will all be manifested through a weaker peso. Yet more politicization would postulate to greater risks of instability and crisis.

Finally, all it takes to increase investments is to respect and uphold private property or property rights and its ramifications: promote voluntary exchanges and sanctity of contracts. The short of this is to implement Economic FREEDOM.

But since HUMAN LIFE is the ESSENCE of property rights, and since life has NOT been respected—having been subjected to political fetishes by playing the role of god—then NO amount of government spending will translate to an avalanche of investments.

That’s because investors would not only seek a Return on Investments (RoI), but more importantly, desire an assurance of the Return OF Investments as a fundamental feature of a commercial environment. If the latter can’t be secured, then there would hardly be any investments at all.

Philippine Political Theater: The Deepening State of War: From War on Drugs to Mining to Oligarchy!

A simple economic way to look at social policies is via the refinement of the law of demand:

When the cost of an activity rises, people will do less of the said activity. On the other hand, when the cost of an activity declines, people will do more of the said activity.

In other words, prices and costs determine people’s incentives for action.

For instance, when corporate taxes are reduced, this allows businesses to keep more of their income. Additionally, savings from untaxed income spurs the incentive to do more business (either by expansion or by putting a new one) or consumption (thereby encouraging others to do business)

On the opposite end, when taxes are raised on vices (tobacco and alcohol or sin taxes) this tends to reduce the activity (given all things constant)

The war on drugs is no different.  The intent is to raise the cost of doing drugs so as to discourage its use or trade.

But it is the means to the desired end that varies.

In the Philippine setting, the war on drugs entail that the end justifies the means. So extrajudicial murder or summary execution have been the elected populist political recourse to raise the costs of doing drugs thereby prevent its use.  

That is what is seen. But here what has not been seen.

When the cost of an activity declines, people will do more of the said activity.

The leadership has exhorted on the use of arbitrary executions. It has even encouraged this by use ofbounty (reward) for vigilante actions aside from bounty to police actions. Worst, with over 550 killed, 40% of which had been from the handiwork of vigilantes, there has been ZERO case where extrajudicial killing have been solved.

In short, when the cost of doing murder is reduced, then murder or killings will flourish.

It’s all about incentives.

So the government has only been substituting one vice and crime for another crime. Or the government has been subliminally promoting the replacement of drugs with murder.  The worst outcome is that we may have both.

And yet when the government promotes the use of violence to solve social problems and since violence transforms into a social appeal, then violence will be the preferred choice of action even by the common man.

As Gil Bailie wrote in Violence Unveiled: Humanity at the Crossroads

The people who burned witches at the stake never for one moment thought of their act as violence; rather they thought of it as an act of divinely mandated righteousness. The same can be said of most of the violence humans have ever committed.

Self-righteousness as justification to suppress freedom through violence

Henceforth, this creates more social problems through the proliferation of violence.

This is not a matter of public opinion. Rather it is the principle of causality—cause and effect—that will eventually prevail.

The ultimate consequence of a prolonged state of war will be to breed and foster tyranny, as well as to sow the seeds of revolution and or terrorism.

From the economic perspective, it is easy to see why this kind policy is self-defeating.

And contrary to popular delusions, violence has not signified a modern or sophisticated efficacious recourse on promoting civilization, but instead this represents an appeal to the primal instinct of dominance.

So when the political leadership uses popular appeal to suppress or undermine the institutions to promote its agenda, then it furthers the justification for an arbitrary rule anchored on violence.

For instance, last week’s name shaming officials where some turned out to be long dead or resigned or dismissed or discharged has only fueled divisions in the government. Worst, the intended trial by publicityhas exposed acute signs of intelligence failure—going to the public with wrong information.

Yet these are disturbing signs. If such intelligence fiasco has served as the basis of the conduct for summary executions, then it just reveals that many have died out of sheer witch-hunting and or with little or no relevance with drugs. Sadly, all these seem to have been intended to promote the political leadership’s popular appeal.

While this has been sold as moral duty to the citizens, such arbitrariness showcases the wanton disregard for institutions and political economic system through the use of populism.

This government continues to operate on a stunning set of self contradictions:

-Substitute drugs with murder in order to obtain peace. Like George Orwell’s dystopian novel 1984: WAR IS PEACE.

-The administration wishes to spend enormous amount of money yet pretend to call for lower taxes.

Last week the Philippine leadership promised soldiers hefty pay raises “which will be doubled come yearend”. Apparently, this seems designed to induce the military to join or support his crusade through financial perks.  There is politically correct or even legal term for this.

Again, the administration has been wooing force to back its agenda.

Yet the Budget Secretary not only denied that the government has enough funds for these, but refuses to resort to reallocation of budget due to technical restrictions. So how will the military take this? Will the leadership force the issue? How? Will taxes be raised? More borrowings? Will the leadership resort to unconventional ways of raising funds? Will civil forfeiture to be incorporated to the war on drugs, perhaps? Or could war on oligarchy have been grounded on this?

-The leadership calls for federalism but constantly urges for emergency powers or even threatens to use ofmartial law.  It’s a paradox between decentralization versus centralization. Martial law is defined as a rule of the military where all power from the previous executive, legislative, and judicial branches of government are removed.

The leadership even went on public to predict ISIS terrorism to reach the Philippines. It’s either he foresees the consequences of his own actions, which he might use to justify martial law, or that the ISIS will serve as another object for the administration’s penchant for war.

The leadership has even said that drug lords have been in cahoots with ISIS to have him assassinated. It’s like the administration has been conditioning the public for a false flag operation similar to Reichstag Firewhich was blamed on the communists but has led to the entrenchment of Hitler’s Nazi Germany.

-The administration proposes a business friendly climate. Yet war against businesses have only been ratcheting up.

Last week, the DENR chief went on to warn the Semirara mining on alleged environmental violations. The result of which has been to crush share prices of mining stocks. The mining index dived -8.476% week on week as Semirara shares plunged -13.85%. It’s not just Semirara, mining stocks in general got clobbered.

Additionally, the political leadership opened a new war front. Yes the only thing that this government seems to specialize in is war. Unfortunately war against their very own constituencies.

This time the war is focused on the “oligarchy” which the president “vowed to destroy”. He accused oligarchs of “making money at the expense of the poor”.

Curiously, how about government making money at the expense of the poor or even using poor as instruments to bilk the public?

The administration’s assault on the oligarchs was initiated with the citing of Mr. Roberto Ongpin. And like current developments, such accusations were channeled through media or trial by publicity.

The war on Oligarch #1 translated to the crash in Mr Ongpin’s Philweb. Philweb closed the week down 2.33% after a shocking 46% plunge at the week’s start. Philweb was down 62% year to date. Under fire, Mr Ongpinpublicly declared to sell his shareholdings on the company. Mr Ongpin’s pronouncements mitigated the crash in the firm’s share prices.

Yet the leadership has not provided any clear cut definition or qualification of oligarchs, except for the ambiguous: they “have connections” and “are embedded in government”. And because there is no definition or qualifications, no evidence is thus presented

But since the government is INTO every business, even among balot and fish ball vendors*, I hardly know of anyone or entrepreneurs who will NOT try to secure “connections” in order to ease the (regulatory or tax) burdens of unilateral repression by authorities on their operations. This is a matter of survival.

A taxi driver once told me that his operator ran and became a local official in order to protect the latter’s business interests from constant harassment from political agents.

*while the opposite of a guerilla economy or black market has been the shadow government, occasionally even small vendors can be harassed for violations they do not even know! Recently subsistence vendors have become objects of war!

The difference of political interventions and entrepreneurial responses and interactions has been on the level of operations. Small and medium businesses deal mostly with the local government, whereas national scale businesses deal with national government.

So the higher the business level, the greater the “connections” required at the national level. And so if “connections” and “being the embedded in government” constitute as vague qualifications for the repression of oligarchs, then this means that almost all national scale businesses will be guilty of being an “oligarch”!

Yet no one knows, except the leadership, what oligarchy means. Has this been a personal grudge or vendetta? Has Mr Ongpin been a supporter of the opposition? Has this been a war on online gaming, or gaming itself? Or could this have been an extension of the war on vices (cigarettes and liquor)?

As Catholic writer Thomas Merton once wrote,

The most awful tyranny is that of the proximate utopia where the last sins are currently being eliminated and where, tomorrow, there will be no sins because all the sinners have been wiped out

For the administration, sins will be cleansed through extermination, confiscation or repression.

It’s true that Mr Ongpin has recently been charged by the SEC with insider trading. But again, the publicly waged media war on Oligarch #1 says nothing of insider trading.

Such emerging Marxist class war has been predicated on demagoguery or through opaque motherhood statements.

Yet importantly, the leadership’s guns will be trained on whom next? Or who among the likely set of oligarchs who will be object of the leadership’s war?

Yet how will the businesses of the targeted oligarchy be treated? Will a new set of oligarchy replace them (ala Marcos era)? Or will these businesses be nationalized? Or will these be shut down?

And these constitutes as business friendly climate?

As previously stated, a low regard for life also means little respect for property rights, and where there is little respect for property rights, businesses or the economy will hardly prosper

A market economy ultimately stands on property rights. And the essence of property rights is LIFE through self-ownership. One cannot own property/properties without life or self-ownership. And it is from property rights where trade occurs (voluntary exchanges) and where the contractual regime (sanctity of contracts) emerges. If life is treated with little respect, then how much more of the individual’s property?

And what further wars will the administration be engaged in, aside from the above?

Russian novelist, dramatist and historian Aleksandr Isayevich Solzhenitsyn was right,

“A state of war only serves as an excuse for domestic tyranny.”