Why Fighting Corruption is not Enough
By Walden Bello
Corruption, however, has become the explanation for all our ills, and this brings with it the danger that, after the elections, campaign rhetoric might substitute for hard analysis on the causes of poverty, leading to wrong, ineffectual prescriptions for dealing with the country’s number one problem.
Let me be more explicit: Corruption must be condemned and corrupt officials must be prosecuted because being a violation of public trust, corruption undermines faith in government and leads to an erosion of the moral bonds among citizens that serve as the foundation of good governance. Corruption, however, is unlikely to be the main cause of poverty. Wrongheaded policies are, and clean-cut technocrats have been responsible for more poverty than corrupt politicians.
The complex of policies that have pushed the Philippines into the economic quagmire over the last 30 years might be summed up in that formidable term: structural adjustment. Also known as neoliberal restructuring, it involved prioritization of debt repayment; conservative macroeconomic management that involving huge cutbacks in government spending; trade and financial liberalization; privatization and deregulation; and export-oriented production. Structural adjustment came to the Philippines courtesy of the World Bank, International Monetary Fund, and the World Trade Organization, but it was internalized and disseminated as doctrine by local technocrats and economists as doctrine.
Prioritizing Debt Repayment
Corazon Aquino was personally honest and her contribution to the reestablishment of democracy was indispensable, but her submitting to the International Monetary Fund's demand to prioritize debt repayment over development brought about a decade of stagnation and continuing poverty. Interest payments as a percentage of total government expenditures went from 7 percent in 1980 to 28 percent in 1994. Capital expenditures, on the other hand, plunged from 26 percent to 16 percent. Since government is the biggest investor in the Philippines—indeed in any economy—the radical stripping away of capital expenditures goes a long way toward explaining the stagnant one percent average yearly growth in gross domestic product in the 1980’s and the 2.3 per cent rate in the first half of the 1990’s.
In contrast, our Southeast Asian neighbors ignored the IMF’s prescriptions. They limited debt servicing while ramping up government capital expenditures in support of growth. Not surprisingly, they grew by 6 to 10 percent from 1985 to 1995, attracting massive Japanese investment while the Philippines barely grew and gained the reputation of a depressed market that repelled investors.
Trade and Financial Liberalization
When Fidel Ramos came to power in 1992, the main agenda of his technocrats was to bring down all tariffs to 0 to 5 percent and bring the Philippines into the World Trade Organization and the ASEAN Free Trade Area (AFTA), moves that were intended to make trade liberalization irreversible. A pick-up in the growth rate in the early years of Ramos sparked hope, but the green shoots were more apparent than real, and they were, at any rate, crushed as a result of another neoliberal policy: financial liberalization. The elimination of foreign exchange controls and restrictions of speculative investment attracted billions of dollars in the period 1993-1997. But this also meant that when panic hit the ranks of foreign investors in Asia in the summer of 1997, the same lack of capital controls facilitated the stampede of billions of dollars from the country in a few short weeks in mid-1997. This pushed the economy into recession and stagnation in the next few years.
The Estrada administration did not reverse course, and under the presidency of President Gloria Macapagal-Arroyo, neoliberal policies continued to reign. New liberalization initiatives in the next few years were initiated on the trade front, with the government negotiating free trade agreements with Japan and China. These pacts were entered into despite clear evidence that trade liberalization was destroying the two pillars of the economy, industry and agriculture.
Radical unilateral trade liberalization severely destabilized our manufacturing sector, with textile and garments firms, for instance, being drastically reduced from 200 in 1970 to 10 in recent years. As one of Arroyo’s finance secretaries admitted, “there’s an uneven implementation of trade liberalization, which was to our disadvantage.” While he speculated that consumers might have benefited from the tariff liberalization, he acknowledged that “it has killed so many local industries.”
As for agriculture, the liberalization of our agricultural trade after we joined the World Trade Organization in 1995 transformed the Philippines from a net food exporting country and consolidated it into a net food importing country after the mid-1990’s. The year 2010 is the year that the China ASEAN Trade Agreement (CAFTA) negotiated by the Arroyo administration goes into effect, and the prospect of cheap Chinese produce flooding our markets has made our vegetable farmers fatalistic about their survival.
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In the absence of a corruption-free governance in a society (corruption-free, in a deeper sense, free from spiritual corruption, that the divine principles of righteousness bring), no governmental and societal reform could ever succeed. No matter how strong and complex a structure may be built but if it sits on a weak foundation, it will just be a matter of time and the whole structure will fall miserably as soon as its weak foundation is crushed by its weight. The very heavy demands of genuine reforms' structural framework alone (click the figure above to enlarge and see the diagram) will already need the support of a very strong and most stable foundation.
[Luke 6:47-49] Everyone who comes to me, and hears my words, and does them, I will show you who he is like. He is like a man building a house, who dug and went deep, and laid a foundation on the rock. When a flood arose, the stream broke against that house, and could not shake it, because it was founded on the rock. But he who hears, and doesn't do, is like a man who built a house on the earth without a foundation, against which the stream broke, and immediately it fell, and the ruin of that house was great.
Right reforms work for the accomplishment of the divine principles of righteousness because they emanate from the intellect of man -- intellect that the Lord blessed man with which enables him to choose to do the good and right things that bring prosperity and blessings to his fellowmen.
[1 Corinthians 3:10-13] According to the grace of God which was given to me, as a wise master builder I laid a foundation, and another builds on it. But let each man be careful how he builds on it. For no one can lay any other foundation than that which has been laid, which is Jesus Christ [the Divine Righteousness]. But if anyone builds on the foundation with gold, silver, costly stones, wood, hay, or stubble; each man's work will be revealed. For the Day will declare it, because it is revealed in fire; and the fire itself will test what sort of work each man's work is.