POLITICAL ECONOMY & THE CONVERGENCE OF ADVOCACIES FOR REFORMS

Transcription

1 POLITICAL ECONOMY & THE CONVERGENCE OF ADVOCACIES FOR REFORMS The Economic Man produces, earns and spends Expenditures stimulate production PRODUCTION Produces Production provides income Spends Earns Presented by: Hon. ROMULO L. NERI Socioeconomic Planning Secretary and Director-General National Economic and Development Authority EXPENDITURES INCOME Incomes finance expenditures THE EXPANDED MODEL TOTAL SUPPLY IM P LOCAL PRODUCTION O R T S Imports expand supply THE TOTAL ECONOMIC MODEL PRODUCTION/SUPPLY IM AGRICULTURE P O INDUSTRY R T SERVICES S TOTAL DEMAND LOCAL DEMAND EXPORTS Exports expand demand for products TOTAL FINANCING LOCAL INCOME FOREIGN FINANCING Foreign financing supplements incomes to finance expenditures expand production CONSUMPTION INVEST- MENTS EXPORTS GOV T. SPENDING EXPENDITURES/DEMAND Savings finance investments Taxes finance government expenditures Productivity provides income CONSUMPTION SAVINGS INCOMES TAXES FOREIGN SAVINGS GDP = 4.5% GNP = 5.5% NFIA = 18.9% expand production PERSONAL CONSUMPTION 5.1% INVESTMENTS GOV T. SPENDING 4.8% - 2.8% EXPORTS 3.3% EXPENDITURES/DEMAND THE TOTAL ECONOMIC MODEL PRODUCTION/SUPPLY AGRICULTURE Agri = 3.9% INDUSTRY Ind = 3.0% SERVICES Svc = 5.9% Incomes finance expenditures Imports Imps 10.3% Productivity provides income CONSUMPTION SAVINGS INCOMES TAXES FOREIGN SAVINGS AS = AD = AF AS = Y + M AD = C + I + G + X AF = Y + X + S f 1

2 Accounting for poverty reduction Growth I. STRATEGIC FOCUS FOR THE PHILIPPINES Redistribution For every 10 percent increase in average real income (consumption) of the population, poverty incidence (i.e., the proportion of the population deemed poor) falls by approximately 17 percent FROM 1. External Sources of Growth 2. Demand Side Stimulus 3. Macro-Economic Reforms TO Internal Sources of Growth Supply-Side Productivity and Efficiency Micro-Economic Reforms II. INTERNAL, SUPPLY-SIDE, MICROECONOMIC MEASURES TO STRENGTHEN PHILIPPINE ECONOMY A. Agriculture 1. Remove QRs for Tariffs (Rice, Sugar and Corn) 2. Efficiencies in the food supply chain 3. Agro Processing 4. Strengthen Property Rights to Stimulate II. INTERNAL, SUPPLY-SIDE, MICROECONOMIC MEASURES TO STRENGTHEN PHILIPPINE ECONOMY B. Industry 1. Support for SMEs 2. Housing Construction 3. Revive Mining Industry II. INTERNAL, SUPPLY-SIDE, MICROECONOMIC MEASURES TO STRENGTHEN PHILIPPINE ECONOMY C. Services 1. Railway Development 2. Airline Liberalization for Tourism, and OFW s 3. Demonopolize Ports and Modernize Shipping III. FUNDS MOBILIZATION 1. Government - BIR as center of excellence - Jailing Tax Evaders 2. Private Sector: - Resolve Bank NPL thru SPAVs - Securitization Law 2

3 IV. STRENGTHEN STATE INSTITUTIONS Justice System - Discourage TROs and Judicial intervention in business decisions - Incentives for the judiciary Political Party System - State, taxpayers financing for political parties Bureaucracy - Limit political appointments - Credible merit system for appointments and promotions V. REFORM POLITICAL ECONOMY - Control Vested Groups - Mechanisms to Assure Integrity of Policies - Constitutional Reforms Vicious Cycles of Booty Capitalism, Poor Governance, Poverty and Social Chaos Election Financing Vicious Cycles of Booty Capitalism, Poor Governance, Poverty and Social Chaos High Risk Policy Distortions Weak Institutions Corrupt Bureaucracies Domination by Oligarchic Elite Influence on Policy, Appointments Policy Distortions Weak Institutions Economic Powers Capture of Economic Rents CURRENT CONDITION: Vicious Cycle of Booty Capitalism and Poor Governance Economic Growth High Cost Impact on Poor: High Unemployment Income Poor Education Poor Health Respect for Law Sale of Rules Diversion of Expenditure, Limited Social Services, Bribery, Tax EFFECTS: Weak State, Poverty and Social Chaos Vicious Cycles of Booty Capitalism, Poor Governance, Poverty and Social Chaos Election Financing CURRENT CONDITION: DR. PAUL HUTCHCROFT S MATRIX Domination by Oligarchic Elite Influence on Policy, Appointments High Risk Economic Powers Capture of Economic Rents Policy Distortions Weak Institutions Corrupt Bureaucracies Vicious Cycle of Booty Capitalism and Poor Governance RATIONAL/ LEGAL STATES STATE > BUSINESS II DEVELOPMENTAL STATE BUSINESS > STATE I LAISSEZ-FAIRE REGULATORY STATE Economic Growth High Cost Impact on Poor: High Unemployment Income Poor Education Poor Health Respect for Law Sale of Rules Diversion of Expenditure, Limited Social Services, Bribery, Tax EFFECTS: Weak State, Poverty and Social Chaos PREDATORY STATES III BUREAUCRATIC CAPITALISM IV OLIGARCHIC STATE (BOOTY CAPITALISM) 3

4 THE POWERLESS STATE & THE CIRCLE OF PREDATION (Dr. Raul Fabella) pay Bribes for cheating officials Funds Diverted Businessmen Evade Taxes Insufficient Fund Tax payment perceived wasted Contractors cut corners, Deliver bad roads The Predator/Prey Social Contract Insufficient operating funds respect for Gov t. Officials do not protect businessmen from kidnappers Countries with good economic policies and stronger institutional capability grow faster Growth in GDP per capita (percent per year) High Capability Capability Policy Distortion High Policy Distortion Index of Bureaucratic Capability Depth of Political Appointments Philippines 0.6 Other East Asia Philippines Secretary Undersecretary Asst. Secretary Bureau Director Regional Director Service Director Division Chief Other East Asia Minister Level 2 Level 3 Division Chief Political Appointees High and unpredictable corruption hurts investments Good government helps explain the income gap between East Asia and Africa Gross investments to GDP ratio (percent) High Level of corruption High Predictability of payments and outcomes GDP per capita (thousands of 1995 international dollars East Asia Sub-Saharan Africa Contributors to East Asia s additional growth Policies State size and capability Unexplained Initial Income Gap 4

5 HOW WE ARE NOW Senate Workshop House Workshop Plan 747 MTPDP Socio-economic Summit Political Summit PCCI Nat l. Conference Convergence of Advocacies PGMA s 8-Point Agenda Cabinet Workshop STRONG REPUBLIC HOW WE WOULD LIKE TO BE 1. Stock Valuation Formula FRAMEWORK FOR NATIONAL WEALTH CREATION D 1 P o = k e -g 2. Firm Valuation Formula V = A EBITDA K - g A W = (P C) (R G) APPLIES TO: Total Economy Industry Firms Households P = Productivity C = Cost of Production R = Risk Factor G = Growth Potential/Expectations WHY ARE WE POOR? P : Productivity C : High Cost of Doing Business R : High Risk, Multiple Risks G : Growth Potential/Expectations (P C ) HOW DO WE INCREASE PRODUCTIVITY AND REDUCE COSTS? Microeconomic Reforms Support to SMEs, Mining, Tourism, IT Improve Supply Chain Management Stimulate Competition Knowledge Diffusion thru ICT 5

6 (R ) HOW DO WE MINIMIZE RISKS? Law and Order Political Stability Consistency of Regulations and Policies TROs, Supreme Court Decisions Macroeconomic Stability Institutional Strengthening (G ) HOW DO WE INCREASE GROWTH POTENTIAL? Right Public and Private Investment Choices Human Resource Development Improved Knowledge Diffusion (G ) INVESTMENT HURDLE RATE HOW DO WE INCREASE GROWTH POTENTIAL? As R, G As P, C,G NATIONAL WEALTH CREATION! RETURN = f (P, C, G) C INVEST! INVEST B A x INVEST NOT INVEST INVESTMENT HURDLE RATE 90% Due to Growth 10% Due to Redistribution Poverty Reduction RISK INSULATOR The Economic Man produces, earns and spends MARKETS Investors: Risk? Return? Producers Consumers POLICIES ACTIONS INSTITUTIONS Presidency Senate House Judiciary Civil Service POLITICS President Senators Congressmen Local Officials Expenditures stimulates production PRODUCTION Produces Production provides income SOCIETY Political Parties Military/Police Media Church NEGATIVE ELEMENTS Vested Interests Criminal Syndicates Spends Earns Civil Society EXPENDITURES INCOME FACILITATORS AMPLIFIERS Income finances expenditures 6

7 Profiting From the Poor In the poorest parts of rural India, ITC, a business giant is boosting the earning power of peasant farmers. But this is not corporate philanthropy. It s part of a plan to sell its own and other companies products right back to them. ITC is using technology to deliver more profit to farmers. At the same time, it taps Into farmers rising incomes that it has helped grow. Profiting From the Poor ITC first aims to help improve farmers incomes by: wiring rural communities with computer access to its e-trading platform offering better on-line prices than traders for their produce providing quality seeds, on-line agricultural and weather advice, etc. to improve farm yields Next, it aims to help its own business by: gaining access to rural consumers selling goods and services back to the farmers ITC: USING TECHNOLOGY TO DELIVER MORE PROFITS TO FARMERS PRODUCTION (5-10% up) Farmers: ITC PROFITS ITC Provides: buys from ITC seeds, internet enabled fertilizer, supplies, etc. Produces computer terminal (6% savings) soil tests services upgrades house advice on fertilizer buys appliances, application motorbikes, insurance, online price info etc. Spends gets weather data Earns EXPENDITURES RISKS INCOMES FRAMEWORK FOR NATIONAL WEALTH CREATION W = (P C) (R G) APPLIES TO: Total Economy Industry Firms Households P = Productivity C = Cost of Production R = Risk Factor G = Growth Potential/Expectations The PhilRice IPM Experience Onion Pest Sex PheromoneTrap W = (P C ) (R G ) Wealth creation formula applied in the farm P = Productivity increased (>100%) C = Cost of Production reduced with 50% less pesticides required R = Risk Factor reduced with lesser use of pesticides & fewer pest population G = Growth Potential/Expectations rises with higher incomes (P30K to 80K/ha.) INTELLECTUAL CAPITAL KNOWLEDGE NETWORKING FOR PRODUCTIVITY productivity enhancing technologies STRUCTURAL CAPITAL knowledge networks SOCIAL CAPITAL Goal: Higher Incomes Through Value Creation and Higher Productivity Beneficiaries = farmers = workers = entrepreneurs 7

8 IMPORTS IMPORT PAYMENTS The Elephant Analogy Rate FX rate GNP / GDP GNP/GDP EXPORT EXPORT RECEIPTS RECEIPTS The Elephant Analogy CIRCULATORY: BANKING SYSTEM DIGESTIVE DIGESTIVE: SYSTEM: CORPORATES -provides sustenance BRAIN: POLICY && GOVERNANCE MONETARY FISCAL FISCAL INVESTMENTS INVESTMENTS SAVINGS END OF PRESENTATION THANK YOU! 8