Philippine economic history through the perspective of ‘institutions’

Philippine economic history through the perspective of ‘institutions’

Notes on Regional Decentralization

NOTES ON THE FEDERAL STRUCTURE FOR THE PHILIPPINES*

By Gonzalo M. Jurado, PhD

Vice-President for Finance and Development and Professor of Economics

Kalayaan College

We’ve heard of the pros and cons of a federal structure of government for our country from various authorities in the last several years**, perhaps even taking sides in the debate. My own thoughts on the matter have been formed from my long association with Dr. Abueva who as a scholar has long advocated the federal structure of government for our country. Though I am apprehensive that a federal structure of government might unleash latent forces of separatism in our country, I am persuaded that it might just be the structure that will ensure that decisions and actions taken at higher levels of political authority, which in our current unitary structure seldom affect people on the ground, impact positively on the lives of our countrymen. This should accelerate the development of our economy and speed up the enhancement of the welfare of the Filipino people.

I am in general agreement with Dr. Abueva on the points he has raised in his paper for which reason I shall not anymore comment on them. What I shall do is to cite three propositions in economics suggesting that a federal structure of government compared to a unitary one will be better for our country, more responsive to our individual and common aspirations.

One. The federal structure of government will reduce the negative and increase the positive impact of location on our political subdivisions. Location theory says that the nearer you are to the center the more likely you are to benefit from the advantages of the center; the opposite is also true, the farther you are from the center the more likely you are to suffer from the disadvantages of distance.

No matter what we do, we can never obliterate the consequences of distance. Everything else being equal, it will always take longer to travel over a longer distance than over a shorter distance. It will always take longer to come to Manila from Batanes than from Bulacan. It will always be more costly to deliver a product to distant South Cotabato than to nearby Cavite. Those closer to the kitchen will receive more culinary attention and service than those farther from it.

This explains why Mindanao and the Visayas, both physically distant from Manila, the center of our current unitary structure of government, suffer from inadequate infrastructure and poor political, social and economic services, while provinces neighboring Manila, including Manila itself, suffer from a surfeit of these facilities and services -- notwithstanding commitments regularly made by Luzon political leaders to direct more attention and more resources to Mindanao and the Visayas or lessen the concentration of resources in Luzon or Manila.

A federal structure of government will enable our provinces to maximize their benefits (or minimize their costs, which is the same thing) from distance. That is because each federal unit will have its own capital which, naturally, will be located somewhere in the federal state. With its own center, the federal unit will have no compelling reason to defer to the unitary center. Provinces, towns and communities within the federal unit will now be referring to a center nearby rather than to any capital situated hundreds of kilometers away. People from Batanes will not have to come to Manila when they can settle their problem in Basco. The high transport cost of a product coming from Luzon to South Cotabato can be avoided if the product can be sourced from Koronadal. Why bother about distance to the kitchen when the kitchen has relocated to your immediate neighborhood?

Two. The federal structure of government will attract the forces of agglomeration to the federal units and thus accelerate the federal units’ development. From agglomeration theory we know that people and resources tend to concentrate in places where there are already large concentrations of people and investments. People are attracted to people; investments attract further investments. The opposite is also true: people and resources tend to be “repelled” by empty space.

As matters currently stand people and investments tend to agglomerate in Manila, the center of our unitary structure of government. Despite strenuous demands for decongestion and dispersion frequently voiced by city officials and urban planners, people from the provinces gravitate to Manila; businesses large and small come to settle in Manila. The reason is simple, here is where jobs are located, here is where incomes and profits are earned.

As the various federal units work for their development, they will attract agglomeration forces to themselves. New or refurbished federal capitals will function as magnets to people and resources in the federal state. Responding to perceived needs of civil servants in the various departments of the new federal state and the relocated departments of the unitary government, businessmen can be expected to make investments in housing, restaurants, and personal services. In due time, these investments will draw further investments in hotels, education and medical facilities. Before long industrial, commercial, and cultural agglomerations will have risen in the federal capital and its environs, dynamizing the whole federal state.

And three. The federal structure will promote friendly competition among the federal units, accelerating their growth and development. Economics abhors monopolies for the simple reason that monopolies are inefficient, selling poor quality products at prohibitive prices, to the detriment of the interest of the communities they serve. In contrast, entities operating in competitive markets are constrained to deliver the “best” products at the most reasonable price to customers in order to keep their share of the market. The government in a unitary system is the most glaring example of a monopoly, unchallenged in its collection of exceedingly high taxes from the citizens and delivery of unspeakably poor services to them.

The federal structure of government will give vastly expanded autonomy to federal units.  In the exercise of this autonomy federal units will be obliged to rely upon themselves. They will have to plan out and implement the development of their areas of responsibility on the basis of their own vision and resources.

One virtue of the federal structure is that it will enable the federal units to benefit not just from their own genius and resources but also from developmental stimuli coming from outside. That is because sooner than later they will find themselves in friendly competition with their neighbors. Competition will enable them to replicate the successes and avoid the failures of their neighbors, even as their neighbors will also benefit from their successes and failures.

This friendly competition will be a most welcome development. For, operationally, it can only result in the improvement and expansion of the economic, social, political, cultural, educational, and other social overhead, not just of one federal unit but of all of them, to the benefit of the country as a whole.

These are economic reasons supportive of the political arguments put forward by Dr. Abueva, suggesting that the federal structure of government is superior to the unitary structure in the acceleration of the development of our economy and the more speedy enhancement of the welfare of the Filipino people. 

*Delivered at 4^th Round Table Discussion on Structural Reform: Forms of Regional Decentralization, sponsored by the University of Asia and the Pacific, Ortigas Center, Pasig City, on September 10, 2012, in reaction to “Federal Form of Decentralization” by Jose V. Abueva.

**For a comprehensive discussion of federalism, see, among other sources, the Stanford Encyclopedia of Philosophy, with Internet Link: plato.stanford.edu/entries/federalism/.

Milton Friedman - Monopoly