It's all about Competition

http://correctphilippines.org/competition/

It’s all about Competition

Posted on January 28, 2012

by Orion Perez Dumdum

Competition forces you to shape up, or ship out!

It is well-known that the concept of healthy and fair competition has the effect of an “invisible hand” that essentially results in benefits and improvements for everyone.

We CoRRECTors and other advocates of Constitutional Reform do not subscribe to the idea that human beings have to be saints so that things will get better. Humans are fallible and make mistakes. Instead, it is clear that when people have to compete, that’s when people improve: because competition forces people to shape up or ship out. Whenever there is healthy competition, unscrupulous behavior ensures that one’s competitors will eventually win. When there is competition, lousy service and lousy products lose out as consumers prefer to buy the better products & services.

CoRRECT™ – Constitutional Reform & Rectification for Economic Competitiveness & Transformation is really all about Competition, Competitiveness, Competence, and Choice.

Let us review the Three Point Agenda:

1) Economic Liberalization

Companies compete against other Companies for Employees

With economic liberalization, we allow more investors into the economy, whether they be foreign or local. It is very possible to have local players comprised of talented local Filipino technology gurus (who unfortunately do not have their own cash) who are supported and funded by foreign venture capitalists’ seed money.

We will have more foreign investors and foreign companies coming in – instead of having to send Filipinos abroad to work for foreign companies in foreign lands – so that Filipinos can earn and learn (foreign multinationals often have good skills and personnel training programs) while being with their families, and not needing to work as migrant workers and OFW’s abroad.

With more economic players, there is more competition. Companies will compete against each other and will thus be forced to provide better goods and better services to the end consumer. Simple Law of Supply and Demand: Companies will be forced to compete against each other in hiring the best employees, dangling higher wages or benefits just to attract applicants to choose to work for them and not for a competitor.

Filipino workers will see that more jobs also means higher wages, with the highest wages going to the most competitive, skilled, and hardworking workers. Many workers will thus seek to improve themselves and compete against others, by learning new skills, and making themselves more attractive to employers in order to command higher wages.

Compare a situation that has an abundance of competition versus a situation that has a lack of it.

Without competition, you end up with lethargy & laziness. You end up with Despair. People feel resigned to the fact that no matter what they do, they’ll continue to earn low wages and they can’t find alternatives. And when they try to go into business, they also realize they don’t have much capital to begin with (and with the 60/40 constitutional provisions, generous foreign venture capitalists and angel investors are nowhere to be found) and even if they do, they may find that while there are many people, only a few have jobs that pay them enough to allow them to afford whatever it is they’re selling.

Clearly, competition is better. Economic Liberalization ensures competition, and economic competition improves our economic lives as wages improve.

The Philippines’ OFW problem is really nothing but a serious manifestation of the obvious lack of competition in the economy and lack of companies and jobs, forcing Filipinos overseas either as overseas workers, or as full-fledged emigrants.

When jobs are scarce in a country, people are forced to look for jobs overseas.

2) Region-based Decentralization (Evolving Federalism) 

Regions Competing Against Other Regions in attracting Investors

With Region-based Decentralization, the regions will be empowered to make their own economic and business-related decisions so that they themselves can decide how they want to attract investors to come over and set up companies in the regions.

Instead of a centralized unitary single monolithic entity such as Imperial Manila, we end up with empowered autonomous Regions who can compete with each other in trying to best attract investors and businesses. Whether it be by providing lower taxes or creating better policies, or it could even be by simply improving the efficiency of their own regional bureaucracies, the simple point here is that by making the empowered Regions compete with each other, they are forced to improve themselves in order to attract economic opportunities and businesses because in turn, the more businesses go to regions, the higher their revenues, the better the region’s infrastructure, and the more respectable the region’s leaders become.

If certain regions succeed in making themselves richer by successfully attracting so many investors and multinational companies as well as national companies originally headquartered in Manila, since they are autonomized and empowered to keep a bigger share of the tax revenue that they collect and are also empowered to make their own regional decisions, they may even decide to raise the salaries of their own government employees and leaders, thus making it unnecessary to resort to graft and scraping little kickbacks just to decently raise families. Regions will compete against each other and thus try to lessen their inefficiencies, lessen corruption, lower taxes, improve infrastructure, etc.

Competition clearly improves things, not just in a corporation versus corporation type of competition but also in a region versus region type of competition.

3) Parliamentary System

Parties competing against other parties to provide better results

In the current Presidential System, there is no real competition based on competence and platform. Instead, the competition is based on name-recall and popularity: both of which are irrelevant when it comes to delivering results.

But in a Parliamentary System, real competition that makes sense happens.

It’s a competition of Party versus Party (as opposed to personality versus personality).

In parliamentary systems, there is intra-party competition where the best members move up to the top, the best one becoming party leader. Parties also compete against each other on the basis of platform and performance

Notice also that in Parliamentary Systems, party leaders (who are in the running to become Prime Minister if their respective parties win majority of all seats or if their parties form coalitions where they have the most seats within the coalition) campaign using the pronoun “We.” They speak more collectively about their party’s platforms and their party’s past performance by always referring to “Our Party” or “My Party” unlike in Presidential Systems where presidential candidates use the pronoun “I” all the time.

Parties will be forced to compete against other parties by presenting their platforms to the public and showing that their platforms are more responsive to the needs of the people. More importantly, parties will be forced to compete against each other by choosing the best members among themselves to be the senior members of the party, the best of whom will be the party leader.

In a Parliamentary System, unlike in a presidential system, the Prime Minister and his majority bloc are always in competition against the Leader of the Opposition and his minority bloc. Active Debates ensue. The Leader of the Opposition tries to show that the Prime Minister does not know what he is talking about. The Prime Minister, on the other hand, must always be on his toes to show that indeed, he does know what he is talking about and has the facts to prove his point…

In a parliamentary system, there is an intense system of competition where the Majority’s “Government Cabinet” is always being challenged by the Minority’s “Shadow Cabinet.”

In a Parliamentary System, the competition between the Opposition versus Government during parliamentary debates ensures that the Government is on its toes

The Minister of Finance from the Government Majority is always on his toes and must always prove himself as the Shadow Minister from the Opposition Minority always challenges him and questions his decisions. In fact, since every single decision that the Minister of Finance makes within the Ministry of Finance regarding budget and other concerns is always done in the presence of the Opposition Shadow Minister of Finance, everything is above board, everything is transparent.

In a Parliamentary System, the Majority Government faces off in a highly competitive confrontational seating arrangement against the Minority Opposition

In fact, even the seating lay-out of a Parliamentary System (particularly the Westminster and Spanish systems) force the Majority and the Minority to face-off against each other in a face-to-face debate. The Government side sits on one side of the parliament hall directly facing the Opposition who are on the other side. Compare that with the Philippine legislative chambers’ seating lay-outs where all members of the House of Representatives and even the Senate all face the front where the presiding officer (Senate President or Speaker of the House) is seated.

There is no real sense of “competition” between the two sides. As such, this obvious issue of the physical seating lay-out in the legislature is also why there is a very poorly-developed sense of party cohesion in the Philippine setting. If the Philippines shifted over to a Parliamentary System where the seating lay-out features direct face-to-face confrontation between Majority versus Minority, this institutionalized competition between both sides will actually force the development of an improved party system: It will force parties with similar philosophies and platforms to coalesce or merge and prevent the proliferation of too many fractured mini-parties, while it will cause parties with very different ideas to become distinct as far as their platforms and policy proposals in concerned.

Most of all, forcing Majority and Minority to face-off in debates as a result of such a seating layout fosters the kind of greater competition that results in higher transparency and lower corruption.

In such a system, you don’t need to hope and pray that your government’s leaders are extremely honest people. Instead, the competition between the Minority Opposition and the Majority Government keeps them honest, as the Minority-Opposition essentially keeps close watch over the Government’s dealings and decisions. The Majority-Government, on the other hand, will try its best to ensure that it is able to deliver on its promises and thus enable it to gain the trust and confidence of the voting public for the next general elections.

In the presidential system, the decisions made by presidents and their cabinets often tend to be done behind closed doors, without any observation or scrutiny unlike in a Parliamentary System where the intense competition between Majority Government and Minority Opposition blocs forces the opposition to scrutinize the Government in the minutest detail.

Knowing this, it is thus no wonder that countries using parliamentary systems dominate the top ranks of Transparency International’s CPI listing (Corruption Perceptions Index) of the Least Corrupt Countries of the world, while presidentialist countries (and semi-presidentialists and dictatorships) dominate the bottom tiers.

In a Parliamentary System, there is Competition everywhere. There is Competition among parties and competition within parties.

Among parties, the parties try to outdo each other by executing policies better and producing better results than their opponents, and presenting better planned projects, better planned policies, and better platforms and manifestos to the general public.

Within parties, party members compete against each other to show who embodies the party’s principles and who is worthy to move up the ranks and eventually take on important roles within the party and within government in case the party wins a majority and forms the government.

A lousy debater who cannot articulate his thoughts properly, cannot think on his toes, has poor knowledge of history, poor knowledge of geopolitics, poor knowledge of policy, poor knowledge of economics, etc can never rise up the ranks in a parliamentary system. In a parliamentary system, the higher you go, the more exposed you will be to heated debates and intense scrutiny by the opposing side.

Not everyone in a party can do this. And certainly, because of this, not everyone aspires to become a party leader (and therefore only a select few ever really aspire to become Prime Minister).

Becoming a Prime Minister, a deputy prime minister, a minister, or some other senior member is clearly not for the faint-hearted and especially not for the weak-minded. To be a Prime Minister, you must be better at debates than your own party mates. You must be the “go-to-guy” or “go-to-gal” that everyone relies on when there is a difficult question. You must know all the relevant facts and figures in order to support your statements and often, you will not have notes or teleprompters helping you out when you extemporaneously respond to questions during debates and Question Time. There is no such thing as “Teka muna, tanungin ko muna advisers ko” in parliamentary debates.

The parliamentary system is all about healthy competition. It’s the kind of competition within parties that ensures that the best and most competent member in a party becomes its leader.

Competition between Minority bloc versus Majority bloc ensures that Corruption is kept very low as scrutiny of government is very intense.

Competition between Parties ensures that parties come up with solid platforms and solid plans of action.

Clearly, competition forces the best in everyone in a parliamentary system.

Sadly, the Philippines is presidential, that’s why we continue to be mired in mediocrity.

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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