The Cost of Cronyism

Over 30 years have passed, but still, cronyism remains in the Philippine Government. Nothing has changed as reforms haven't been institutionalized through legislation. Any reforms made has been embodied by the crony class of oligarchs.

The water crisis besetting the service area of the Manila Water Company has again brought to fore the issues of cronyism, regulatory capture, and economic protectionism.

The ouster of Ferdinand Marcos in 1986 was supposed to have eliminated cronyism but it remains up to today. It's only the faces which have changed over the years subject to the fates of the crony's political patrons or the reverse when the cronies are powerful enough to maintain political proxies in government.

A World Bank study released on March 4 had this to say about the Philippine economy;

"Data show that the Philippine economy is more concentrated than other economies in the region, with a higher proportion of monopoly, duopoly, and oligopoly markets. While concentration might naturally result from the market conditions, these structures can be more prone to collusion and abuse of market power – abetted by a plethora of restrictive regulations and other restrictions.

These restrictions include state ownership and involvement in business operations; complex regulatory procedures and administrative burdens on start-ups; as well as barriers to trade and investments, including foreign equity investments."

"The study notes how these restrictions constrain the economy and negatively affect millions of Filipino consumers:

Electricity costs are high, and capacity is limited. This is largely due to the slow implementation of reforms, such as the open access provisions and retail competition, under the Electric Power Industry Reform Act (EPIRA) of 2001.

Limitations on foreign direct investments prevent the development of electricity infrastructure.

The prices of mobile phone services in the Philippines is the highest of all East Asia region, and four times higher than the average price in rich countries.

Restrictions in transport sectors, particularly cabotage rules and limits to foreign participation, impairs logistics in the Philippines, creating bottlenecks.

Lack of competition is one of the main reasons why domestic shipping in the Philippines is more expensive than in Malaysia or Indonesia."

In essence, nothing has really changed since 1986 as reforms haven't been institutionalized through legislation and whatever has been done has been co-opted by the crony class of oligarchs who have managed to keep their hold on industries they control along with the new cronies who have climbed up the ladder of political and economic power.

The public pays the cost of continuing cronyism. These are in the form of limited business opportunities for the rest of society and the lack of genuine competition fostering inflated prices of consumer goods and agricultural commodities.

It also deters foreign investors because of the absence of a level playing field, regulatory capture and a justice system which favors those who are in power in politics and the economy.

The truth is the country's growth rate could be higher and inclusive if only the practice of cronyism had been effectively eliminated.

“Ensuring that government policies and regulations do not create barriers to entry or distort the playing field is necessary to enhance private participation and unlock more investment opportunities for all businesses big and small,” said Mara K. Warwick, World Bank Country Director for Brunei, Malaysia, Philippines and Thailand. “The Philippines needs an even more competitive and vibrant private sector to generate the types of jobs and economic opportunities that can lift more people out of poverty, at a similar pace to its neighbors in East Asia.”

The water crisis could've been prevented if only there was coordination between the government and its concessionaires about the need to fast-track the construction of the additional water supply source to meet the increased demand.

The government should've also addressed the deficiencies in the penalties clause of the concession agreement with regard to non-performance and non-compliance with the terms of service. The Congressional inquiry into the matter has revealed that it is more of a sweetheart deal than a professional concession agreement protecting the public interest.

The way it looks now the public has again been made to suffer from being left holding the bag despite their bearing the burden of the continuing upward adjustment of water rates from 1997 up to the present.

About the Author
RG is a seasoned international trade and sales and marketing professional who also dabbles in writing. He was a contributor to Business World in the mid-90s and is also a tech geek.
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