Rationalization
Rationalization
Updated 11:44pm (Mla time) Jan 15, 2005
By Randy David
Inquirer News Service
Editor's Note: Published on page A15 of the January 16, 2005 issue of the Philippine Daily Inquirer
THE WORD has crept in quietly in recent discussions about administrative and fiscal reforms. If taken seriously, it could spell the beginning of political modernity in our country. The vigor with which it is being opposed is an indicator of the staying power of obsolete interests. It shows us that corruption in our society is not a cultural flaw, but a basic ingredient of our political system.
Rationalization simply means altering existing policies and procedures in order to make them more efficient in the attainment of the state's avowed goals. Its most important objective is the elimination of sources of unearned income from the national life. "Rents," as these incomes are sometimes referred to, are of many kinds, but the most prevalent are those that are extracted and dispensed at will by public officials at all levels of the state. The German thinker Max Weber called rents "the economic basis of all aristocracies." In our own time, rents are the social basis of "crony capitalism."
When a friend or ally of a public official is given an accommodation such as a huge loan from a government financial institution, we call that a rent. "Behest loans," as they were once called, did not end with Marcos. Like logging concessions, they continue to be dispensed as part of the spoils of politics. When some favored ally is given exclusive rights to import a certain commodity, that too is rent. When the president orders the government's social security agencies to invest public pension funds in shares of stocks owned by a friend, and then collects commissions, that is rent-seeking.
Money given by gambling lords to authorities so they won't be touched is also rent. When budgetary allocations are released in exchange for favors, that is rent-seeking. When political donors are exempted or given special treatment by revenue laws, rent is also created.
Rent is what we may also call tax breaks or tax incentives that are given to the well-connected, independently of performance, and almost without expiry dates. There are presently more than a hundred existing Philippine laws that grant such duty and tax exemptions to a large assortment of enterprises and individuals. They are very costly in terms of taxes foregone. This is not to say that such special incentives or exemptions are all bad. Indeed, some of them are necessary to encourage investors to develop sectors of the economy that are either very risky or require enormous amounts of capital. The perks are given in exchange for enduring contributions to society's development objectives. But for these incentives not to degenerate into rents, they must be time-bound and linked to performance.
It is ironic, but not unexpected, that the recent legislative deliberations on the bill seeking the rationalization of such special incentives became the occasion for intense lobbying by congressmen on behalf of the particularistic interests they represent. We earlier saw this behavior in the debate on the cigarette and liquor tax. The same kind of lobbying is likely to mark the discussion of the bill seeking to raise the VAT by 2 percent and remove the exemptions from its coverage. Unless the voices of reason prevail-and one doubts this very much given the composition of the congressional majority-these attempts to set things right will eventually succumb to the overwhelming power of rent. The event will thus confirm Thomas McHale's 1959 description of the Philippines as a country where "business is born, and flourishes or fails, not so much in the market place as in the halls of the legislature or in the administrative offices of the government."
"Booty Capitalism," a book published by the Ateneo Press (1998), takes off from this insight. In it, the author, Paul Hutchcroft, identified the basic elements of this phenomenon as it exists in the Philippines: "(1) the high degree of favoritism, as when oligarchs and cronies plunder the state apparatus for particularistic advantage-a feature some have characterized as 'rent-seeking gone wild'; and (2) the capacity of those oligarchs currently holding official position to inflict punishment on their enemies." Hutchcroft provides a useful distinction between bureaucratic capitalism, in which "bureaucratic elite extracts privilege from a weak business class," and booty capitalism, where "a powerful business class extracts privilege from a largely incoherent bureaucracy."
The word "booty" emphasizes both the plunderous ways of Philippine capitalism and the violence that usually marks the scramble for booty. The principal protagonists in this struggle are the family-based oligarchies that have an economic base outside the state but need the resources of the state to accumulate wealth. They are the main sources of political contributions during elections, and in many ways, politicians and public officials are nothing more than their paid agents. As a captive institution, the booty capitalist state can play neither a regulatory nor a developmental role.
Under these conditions, Philippine politics is reduced to a cyclical struggle between the oligarchical "ins" and the oligarchical "outs," with the masses and the middle classes serving as their cannon fodder. Rationalization is the state's desperate attempt to distance itself from the oligarchy, an idea whose time has come, but, without a constituency, is bound to fail.
Updated 11:44pm (Mla time) Jan 15, 2005
By Randy David
Inquirer News Service
Editor's Note: Published on page A15 of the January 16, 2005 issue of the Philippine Daily Inquirer
THE WORD has crept in quietly in recent discussions about administrative and fiscal reforms. If taken seriously, it could spell the beginning of political modernity in our country. The vigor with which it is being opposed is an indicator of the staying power of obsolete interests. It shows us that corruption in our society is not a cultural flaw, but a basic ingredient of our political system.
Rationalization simply means altering existing policies and procedures in order to make them more efficient in the attainment of the state's avowed goals. Its most important objective is the elimination of sources of unearned income from the national life. "Rents," as these incomes are sometimes referred to, are of many kinds, but the most prevalent are those that are extracted and dispensed at will by public officials at all levels of the state. The German thinker Max Weber called rents "the economic basis of all aristocracies." In our own time, rents are the social basis of "crony capitalism."
When a friend or ally of a public official is given an accommodation such as a huge loan from a government financial institution, we call that a rent. "Behest loans," as they were once called, did not end with Marcos. Like logging concessions, they continue to be dispensed as part of the spoils of politics. When some favored ally is given exclusive rights to import a certain commodity, that too is rent. When the president orders the government's social security agencies to invest public pension funds in shares of stocks owned by a friend, and then collects commissions, that is rent-seeking.
Money given by gambling lords to authorities so they won't be touched is also rent. When budgetary allocations are released in exchange for favors, that is rent-seeking. When political donors are exempted or given special treatment by revenue laws, rent is also created.
Rent is what we may also call tax breaks or tax incentives that are given to the well-connected, independently of performance, and almost without expiry dates. There are presently more than a hundred existing Philippine laws that grant such duty and tax exemptions to a large assortment of enterprises and individuals. They are very costly in terms of taxes foregone. This is not to say that such special incentives or exemptions are all bad. Indeed, some of them are necessary to encourage investors to develop sectors of the economy that are either very risky or require enormous amounts of capital. The perks are given in exchange for enduring contributions to society's development objectives. But for these incentives not to degenerate into rents, they must be time-bound and linked to performance.
It is ironic, but not unexpected, that the recent legislative deliberations on the bill seeking the rationalization of such special incentives became the occasion for intense lobbying by congressmen on behalf of the particularistic interests they represent. We earlier saw this behavior in the debate on the cigarette and liquor tax. The same kind of lobbying is likely to mark the discussion of the bill seeking to raise the VAT by 2 percent and remove the exemptions from its coverage. Unless the voices of reason prevail-and one doubts this very much given the composition of the congressional majority-these attempts to set things right will eventually succumb to the overwhelming power of rent. The event will thus confirm Thomas McHale's 1959 description of the Philippines as a country where "business is born, and flourishes or fails, not so much in the market place as in the halls of the legislature or in the administrative offices of the government."
"Booty Capitalism," a book published by the Ateneo Press (1998), takes off from this insight. In it, the author, Paul Hutchcroft, identified the basic elements of this phenomenon as it exists in the Philippines: "(1) the high degree of favoritism, as when oligarchs and cronies plunder the state apparatus for particularistic advantage-a feature some have characterized as 'rent-seeking gone wild'; and (2) the capacity of those oligarchs currently holding official position to inflict punishment on their enemies." Hutchcroft provides a useful distinction between bureaucratic capitalism, in which "bureaucratic elite extracts privilege from a weak business class," and booty capitalism, where "a powerful business class extracts privilege from a largely incoherent bureaucracy."
The word "booty" emphasizes both the plunderous ways of Philippine capitalism and the violence that usually marks the scramble for booty. The principal protagonists in this struggle are the family-based oligarchies that have an economic base outside the state but need the resources of the state to accumulate wealth. They are the main sources of political contributions during elections, and in many ways, politicians and public officials are nothing more than their paid agents. As a captive institution, the booty capitalist state can play neither a regulatory nor a developmental role.
Under these conditions, Philippine politics is reduced to a cyclical struggle between the oligarchical "ins" and the oligarchical "outs," with the masses and the middle classes serving as their cannon fodder. Rationalization is the state's desperate attempt to distance itself from the oligarchy, an idea whose time has come, but, without a constituency, is bound to fail.
posted by Dante at 2:13 PM
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