An election should be a perfect occasion to debate the institutional reforms needed so that a society may enhance its capacity to respond to crises. We need not always think of reforms on a constitutional scale; we must also think of them as urgent practical adjustments needed to cope with new situations. Abundant examples of such situations have filled the newspapers lately. But, alas, they have not merited the attention of the major parties contesting the elections.
One example is the collapse of banks and companies that made bad investment decisions. A decision to let them sink and suffer the consequences of their own unscrupulousness and carelessness also injures the interests of their innocent depositors, clients, and employees. On the other hand, a decision to bail them out using public funds would be tantamount to condoning and rewarding incompetence, greed, and corruption.
Beyond the minimum guarantees provided by the Philippine Deposit Insurance Corporation (PDIC), depositors are entitled to expect the government to protect the money they entrust to banks. The government licenses banks to accept funds for safe keeping. The assumption is that the government also guarantees their trustworthiness at all times. Such a view focuses attention on the capacity of government to carry out its supervisory and regulatory functions in a country where banks are as numerous as gas stations.
The same issue is at stake in the case of the Cebu Pacific plane crash. The deregulation of the local airline industry has meant the entry of new players with varying capabilities. This multiplies the area of accountability of the Air Transportation Office and introduces new demands upon those in charge of regulating air traffic. A regime of total entrepreneurial freedom must be accompanied by an expansion of the supervisory capacity of governmental authority.
Globalization only increases the risks exponentially. With financial deregulation, local banks are enticed to borrow money from abroad for local re-lending. Interest rates on foreign funds are usually lower but they come with a corresponding risk in the exchange rate. Who should absorb the losses when the exchange rate moves up against the local currency? Must the government spend precious public resources to defend the previous exchange rate?
Commonsense tells us that private losses arising from currency fluctuations must be borne privately by the banks and investors and not passed on to the public treasury. The government after all never guaranteed them an exchange rate. Yet, it may also be argued that the government unwittingly fostered the illusion of a stable exchange rate by refusing to heed the danger signals of the huge trade deficits year after year and thus allow the peso to gradually depreciate. Accordingly, it has a duty to help affected private firms in a crisis whose advent it had concealed.
Globalization means that the arena in which local firms can play is larger and more complex. The more transactions they have with other players outside of the country, the greater the sources of vulnerability. The consequences of these risks are not suffered alone by the owners; they are inevitably passed on to their clients, their stockholders, workers, and the general public at home. The government cannot behave as if it were not implicated in these risks.
In Thailand, access to the global money market led to the proliferation of financial and investment companies who made quick profits from borrowing foreign money and lending it locally. The easy availability of foreign capital produced a tremendous pressure to spend it. Money was being placed in the most adventurous and speculative projects. When foreign capital suddenly moved out, the first to be dragged down were these same financial firms that had lent money as if the supply were endless. They had created a virtual economy built on pure speculation.
The lesson that this experience seems to teach us is that if we must play the global game, we must do so fully aware that the institutional requirements for surviving the game and playing it well are very different from those that were formed when markets followed national boundaries. Institutional reform has to be a deliberate and conscious day to day activity on the part of government. This cannot be left to the vagaries of the market. The lesson seems so clear that it is alarming to note the absence of any attempt by the principal contenders in the present election to engage each other in a policy debate on these issues.
Central to such a policy debate is the role that the government should play in an economy that is continually being shaped by the twists and turns of globalization. We need sensible answers to specific questions like: (1) What should be the country’s labor export policy? (2) What should be the direction of Philippine education? (3) What policy should govern the entry of short term foreign capital? (4) Should we continue with the policy of privatization and liberalization? (5) How do we ensure the protection of consumer rights against the excesses of monopolies? (6) What policy instruments are needed to spur development in the countryside? (7) What policy must guide the modernization of the civil service?
So much time has been wasted by political posturing and by the endless pandering of candidates to the lowest instincts of voters. Those who claim leadership must educate the public and show the way to the future.
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