A Critique on Eduardo Araral’s The Political Economy of Policy Reform in the Philippines: 1992-1998

A Critique on

Eduardo Araral’s The Political Economy of Policy Reform in the Philippines: 1992-1998

I. Introduction

“When and why do policy reforms happen and what explains the scope, pace and sequencing of their implementation?” This is the research question that Eduardo Araral tries to answer.

His discussion splits into two camps. The economists, on one hand, dig into why good economics is not seen as good politics. They look at the weaknesses of past policies, its partial nature of reform, and its inferior outcome. The political scientists, on the other, inquire on the political feasibility of policy reforms. They examine the sources of opposition, political prerequisites, and political difficulties of a successful economic policy reform.

Going back to the research question, Araral finds out that most of literature and scholars tend only to explain why things are the way they are rather than to predict how or when policy reform occurs. Policy reforms describe significant and fundamental changes in a sizeable number of economic policies (Araral). He also suggests that in explaining policy reforms, one should look into the essence of political leadership, attributes of the policy agenda, and political rules of the game.

In his analytic narrative, Araral takes into account the rational choice assumption that defines self-interest as the basis for political action, which leads to pessimistic conclusions about the potential for change and the ability of policy elites and citizens to conceptualize and act upon some broader vision of public interest.

II. Contents

The Case of the Philippines: 1992-1998

Prior to Reform

As the external pressures forced major devaluation and renewed import liberalization, the mid 1970s government reverted back to more intense growth activist policies using expansionary monetary and fiscal policies and increased foreign borrowings (Ranis and Mahmood). In this era, Ferdinand Marcos spearheaded developmental state project patterned from top-performing Asian countries. However, there were subsequent questions on legitimacy when Martial Law was declared. The death of Ninoy Aquino and the Martial Law itself fed a communist insurgency, an administrative infighting on the question of succession, and a popular protest movement which was later coined the People Power of EDSA.

EDSA saw the rise of an inexperienced Aquino as the only “legitimate” heir to clean up a truckload of Marcos mess: a reeling economy, a restive military, an ascendant CPP-NPA-NDF, a Muslim secessionist movement, a straggling Marcos loyalty, a “free” media, an agrarian unrest, a US military and aid retreat, and a bag of natural catastrophes. Despite these challenges, Aquino paved only few fundamental reforms: a new “democratic” constitution, a $2.5B joint World Bank and IMF structural debt, and, though not a reform per se, a smooth transition to an anointed Ramos who wiped off her *** of a series of coup d etats.

And yes, Ramos. Who would forget his tobacco? The highly decorated Fidel Ramos won because he was better in dealing with military adventurism and, of course, he had the marginal advantage of votes brought about by a troubled and divided opposition at that time.

Period of Policy Reforms

Ramos did not win because of economic reforms. However, because of his propensity in inculcating embeddedness and collaboration, he was regarded a “Reformist.” His socio-politico-economic reforms were all encompassing and long-range.

Among other reforms, he adopted the Build-Operate-Transfer (BOT) scheme, allotted credit to selected industries, and issued sovereign guarantee for power generation projects.

His state developmental model reforms were patterned to the East Asian Miracle countries like Thailand, Singapore and South Korea. The model’s key note was the embedded autonomy project—the State works closely with business and civil society groups to promote legitimacy, coherence, and coordination of reform policies (Araral), while the State remains autonomous in decision-making to prevent political and regulatory captures (Evans).

Hence, the embedded autonomy project called for a close collaboration with political actors, civil society, and business groups via elaborated structures embedded in the process of governance. These were pretty much evident in;

1. the pork barrel-aided “rainbow coalition” in Congress;

2. the Legislative-Executive Development Advisory Council (LEDAC) between executive and legislative branches;

3. the Cabinet Cluster System in the executive agencies;

4. the Development Budget Coordinating Council (DBCC) in economic agencies;

5. the Social Reform Council (SRC) and the Philippine Council for Sustainable Development (PCSD) for the civil society; and

6. the Office of the Presidential Adviser to the Peace Process for the various rebel groups (Ramos).

Let us be reminded that he won not because he was well-versed in reform policies but he was the better man to tone down the military adventurism of early 1990s. He somehow admitted this when we said, “the capacity of the Philippine state to intervene in the market is far less than those of its East Asian neighbors” (Almonte).

Again, he never took it to his advantage. Instead, he called for collaboration (not command and control) and embeddedness to pursue economic development within a democratic framework—which earned and regarded him as a Reformist president.

Outcomes of Reform

When Ramos ended his term of office at the height of the Asian crisis, he declared that “the Philippines of today is not the Philippines of yesterday” (Ramos). This was apparently accurate in neo-liberal economic radars.

The immediately benefits were felt in the collaborated civil society. Unemployment rates dropped from 10.5% in 1992 to 7.5% in 1996 while poverty incidence dropped from 40% in 1991 to around 31% in 1997 (http://www.bsp.gov.ph/statistics/stats_SRP).

Notwithstanding the numerous cases of state capture and administrative corruption in the Ramos administration (PCIJ, 1999), the Transparency International Corruption Perception Index improved substantially during the Ramos presidency (Transparency International).

Analytic Narrative

Explaining the Impetus for Reform

What explains the momentum of policy reforms during the 1992-1998 Philippines?

The trigger hypothesis (Bates and Krueger; and Alston and Gallo) proved wrong (Rodrik) and unfit to Philippine setting (Araral).

Araral points out three major impetus boosters. First, political elites recognized that the country’s upswings and downswings for the past four decades were likely to continue unless structural reforms were pursued. The 1986 uprising and the Aquino-to-Ramos transition provided the structural defects and facilitated the demand for reform.

Second, the ruling political elites acknowledged that the structural defects were caused by an oligarchy-manipulated economic system or state seen and described as “patrimonial” (Budd), “weak” (Doronilla), “pork barrel-driven” (Payumo), “booty capitalist” (Hutchcroft) and “political dynasty-controlled” (Coronel et al.).

Lastly, the nature of Ramos’ policy reforms in the Philippines—the developmental state project—took time before a consensus emerges among the political elites of what works and what does not. The credibility of the reformer (or the reform coalition) and the feasibility of breaking the inertia of the status quo became functions to effective Philippine reform policies partly inspired by the East Asian Miracle neighbors. The Bayesian-learning and demonstration effect hypotheses were well applied in this case.

Explaining the Scope and Pace of Reforms

Policy Attributes. Kruger and Bates enumerate policy attributes; among others, (1) rate of government spending, (2) financing of government expenditure, (3) foreign trade and payments regime, (4) policies affecting conditions of operation of private firms, and (5) policies regarding state economic enterprises.

As for Philippine scope, Araral points out that Ramos was fortunate in terms of increasing taxes and lowering expenditure given the financial conditions in 1992.

The neo-liberalist Ramos started when he reformed capital investment financing through BOT schemes in the energy sector to ensure anticipated supply in the country. He granted autonomy to BSP in the monetary sector. He liberalized strategic industries and privatized state assets. He targeted sectors with salient demands for reform and focused on “early fruit-bearing reforms” that built reform constituencies needed for deregulation of oil industry, abolition of subsidies, and reforms in labor market and civil service.

Sturzengger and Tommasi suggest that the uncertainty of the outcome of reform makes gradualism less costly than a big bang strategy from the viewpoint of experimentation, learning, and political survival. The strategies of unbundling works are better when reform measures are more complementary. And these attributes were apparently settled by Ramos (Araral).

Attributes of Players. Several variables are examined:

(1) Position of players in the political spectrum (Williamson and Haggard; Bambaci) - Williamson and Haggard find that most free market-oriented reforms were undertaken by centrist and leftist governments with only three out of thirteen cases attributed to right wing conservative governments. But Ramos was a center-rightist with extensive military career and no economic reform backgrounds;

(2) Credibility commitment (Rodrik; Cukierman and Tommasi) – Ramos had political will and capital, patterned his policies to East Asian Miracle economies, pursued embeddedness and collaboration, established reform constituencies, and focused on a state propaganda;

(3) Implementation capacity (Krueger, 1993) – However, the Philippines is weak in private and public sector implementation.

Political Rules and Policy Reforms

In Philippine setting, political rules of the game matter in policy reforms and in the choice of implementation strategy. Among other rules are;

First, tenure limits made Ramos to pursue “early fruit-bearing reforms” to build reform constituencies. Second, the veto power of Congress first targeted and served the concerns of oligarch-controlled sectors while controversial reforms are set aside. Third, electoral and veto rules deterred potential losers of big time policy reform initiatives from bidding out the services of law makers. Lastly, party affiliation during Ramos’ rainbow coalition was a key to sweeping passage of economic reforms in the Philippines from 1992-1998.

III. Conclusions/Comments

Araral’s analytic narrative differs from the economic literature that looks at the weaknesses of past policies, the partial nature of reform, and the confusions that yielded inferior economic outcomes. It also differs from the literature on political science and public administration, which overlooks the role of leadership and political institutions as important factors than can explain policy reform.

Hence, his approach tries to marry viewpoints of the economists and political scientists. An amalgam on two differing camps with two grand questions: why good economics is not seen as good politics and why political feasibility is sometimes not effective basis for policy reforms.

All of which are factors that could help explain why and when policy reforms happen as well as explain the scope, pace and sequencing of their implementation (Araral) before, during, and after the policy reform period of 1992-1998.

Reader sees biases of treatment of the past government administrations. Reader considers Araral a Ramos fanatic. But this prejudice somehow proves wrong when he elaborates on the known attributes of policy, qualities of political leadership, and the political rules of the game.

Though the neo-liberal yardstick surges in favor of the Ramos administration, reader wants more than Ramos in the limelight does. The reader understands constraints on the part of Araral but it would have been objective and commendable if he was able to compare the administrations before and after the policy reform periods in order to offer a full blown account of the scope, pace, and sequencing of policy reforms.