BWorld 161, The sin of smuggling and corruption in the Sin tax law

* This is my article in BusinessWorld last October 23, 2017.

The intent or purpose of higher taxation is to further penalize an act, work, or consumption, hoping to discourage them by making their prices higher while giving government and lobbyists more freebies and more money.

The unintended result of higher taxation is to encourage illicit trade, production of cheaper but lower quality goods and services while giving the corrupt and extortionists in government more money.

Such may be the experience of the Sin Tax law of 2012 or RA 10351. It has raised lots of money for government, benefitted the universal health care program of DoH-PhilHealth while enriching the smugglers, illicit traders and their government protectors.

Revenues from sin tax has significantly increased in 2013, the first year of implementation of the law. Tobacco tax in particular has more than doubled from P32B in 2012 to P70B in 2013. Meanwhile, estimates of cigarettes smuggling have also increased from 35 million packs in 2012 to 40 million packs in 2013 (see table).

The CRC estimates are partly derived from the Oxford Economics report in 2016, “Asia: Illicit Tobacco Indicators 2015.”

The rise in smuggling and illicit trade of cigarettes is also shown by the haul of the BoC and BIR in raids in November 2016 in Bulacan, Pampanga and Pangasinan where more than P1 billion worth of illegally produced cigarettes and counterfeits were discovered. In Pangasinan alone, an illegal factory was raided, which led to the discovery of fake stamps and cigarette making/packing machines that can produce up to 3.6B cigarettes a year.

So claims by the government and advocates of RA 10351 that “8 million Filipinos have stopped smoking since the passage of the law” or “at least 70,000 smoking-related deaths have been averted since 2013” and similar pronouncements may not be true after all? Or are these numbers exaggerated?

The numbers in the table and the huge number of discovered smuggled cigarettes by government raids mean one thing — demand and consumption for tobacco products remained high despite the tax hike. Consumers simply shifted from higher-price to lower-price products, and from legal to illegal or informal sources of tobacco and alcohol products. Like lambanog and tuba.

I made an informal, verbal survey of some small sari-sari stores in a rice farming village in Bugallon, Pangasinan when I went there last month, accompanied by a local. I asked the store owners, “Has smoking and drinking incidence by the people declined, stayed about the same, or increased?”

They replied that they do not have the numbers but they observe that smoking and drinking incidence did not drop or decline. Poor people simply shifted to cheaper brands as new brands with cheap products like Mighty sprouted. The well-off continued patronizing the established higher-price brands despite the rise in prices, they simply reduced their smoking by several sticks a day.

For alcohol products, San Miguel beer is literally wiped out in poorer villages because of its higher price but the consumption of Ginebra, Emperador, Red Horse, and other products has remained the same if not increased. Drinkers usually start with the high alcohol drinks and before going home or elsewhere, they wind down to Red Horse.

Sen. Manny Pacquiao introduced Senate Bill 1599 that aims to increase the unitary excise tax on tobacco products from P30 to P60 per pack, and the annual increase be raised from 4% to 9%. His goal is to parrot the goals of the Sin tax law of 2012 — more money for government, less smoking incidence by the people.

Given the above numbers and facts on the ground, what the boxer-Senator would achieve if his bill becomes a law would be more illicit trade and more corruption in government while gaining more political pogi points for his political plans in 2022.

Instead of introducing another round of higher sin tax, legislators and executive agencies should focus on strictly implementing the existing law and plug loopholes. The proliferation of counterfeit products and stamps mean there is proliferation of corruption in government that allowed such things to happen for several years.

There is a limit to state nannyism and government intervention on how people should run their own lives. Government should limit its unlimited itch to tax-tax-tax, regulate-regulate-regulate, spend-spend-spend.

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See also:
BWorld 158, Why a carbon tax is wrong, October 16, 2017 

BWorld 159, Electoral reforms and the President, October 19, 2017 

BWorld 160, A high carbon tax is irrational, October 25, 2017

BWorld 74, Pres. Duterte's anti-corruption programs and Transparency Intl.

* This is my article in BusinessWorld Special Anniversary issue last Monday.
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The Duterte administration's anti-corruption plans

Corruption takes place when a person has the power to dispense certain actions or render services that other parties needs. Voters who sell their ballots in exchange for money and politicians buying them are both engaged in electoral corruption. Similarly, procurement officers who favor certain suppliers even if others can offer the same products or services at lower prices are also committing corruption.

Elevate the scene to a city or country level, and we can see or suspect large-scale corruption in various levels. Like a cabinet secretary favoring a particular supplier of construction materials and equipment, or arms and soldier uniforms, or school buildings and textbooks, or hospital equipment and medicines, even if other suppliers can deliver those goods and services at a lower price and/or better quality, corruption occurs.

To reduce or eliminate corruption, the process of procurement and signing of contracts should be made as transparent as possible. And the possibility of prosecution and imprisonment for wrongdoing should also be made as certain as possible. Because while the punishment can be as severe like the death penalty but if the chance of being caught and prosecuted is very small, then people will remain corrupt.

During the BusinessWorld Economic Forum last July 12, 2016, Department of Finace (DoF) Secretary Carlos G. Dominguez III outlined some important anti-corruption measures of the Duterte administration. Among these are the following:

1. Reduce income tax (personal and corporate), raise the income tax exemption, all in at P1 million a year. This will reduce corruption in the payment and collection of income taxes, broaden the tax base and hence, can actually raise revenues overall.

2. Rationalize import permit papers, reduce the number of signatures, conduct random audit of shipments, and undertake certain processes outside Manila ports. This will reduce corruption at the Bureau of Customs (BoC).

3. Accelerate the Run After the Tax Evaders (RATE), Run After the Smugglers (RATS), and Revenue Integrity Protection Service (RIPS) programs of the DoF. Undersecretary Gil Beltran was appointed as the anti-red tape czar of the Department tasked to cut the transaction processes at the BIR, BoC, and other agencies under the DoF.

4. Maintain transparency in all dealings — the Executive Order (EO) on Freedom of Information (FoI) that will cover the Executive Department will be signed very soon. This will encourage zero tolerance for corruption.

There are other proposals and programs to reduce corruption at the DoF and other agencies, but the above were highlighted in his speech that day.

These are good proposals. Few permits and bureaucratic signatures can lead to a leaner and smaller government. Instead of 8 or 10 directors in one bureau that require 8 or 10 signatures, make it 4 or 5 and the transaction procedures will significantly improve. The number of officials and their offices will also decline and hence, the need for taxes and fees to keep them going will also be reduced. If people have more money in their pockets because government taxation and mandatory fees have declined, that is already one form of public service. Concrete, down to earth public service.

The extent of corruption in the Philippines is captured in various international reports and studies that are reported annually. One such important report is Transparency International’s (TI) Corruption Perception Index (CPI). TI interviews thousands of expats in many countries worldwide and see their perception of corruption or absence of it in the countries where they do business.

Other selected reports are also included in a separate table by TI. For this piece, four of such reports are included in the table below. These are the (a) World Economic Forum’s (WEF) Executive Opinion Survey (EOS), (b) World Justice Project’s (WJP) Rule of Law Index (RLI), (c) Economist Intelligence Unit (EIU), and (d) IHS Global Insights (GI).

The Philippines has consistently scored only between 34 to 38 over the last four years of TI’s CPI annual reports. So out of 167 countries covered in the 2015 Report, the Philippines ranked 95th or within the lower half of the countries covered. And the Philippines’ low ranking is affirmed in its low score in the four other reports.

I am hoping that reforms initiated by the DoF and other departments of the Duterte administration will be implemented and sustained for the next six years. There will be significant improvement in the country’s corruption perception and reduction in actual practices of corruption in many government agencies, from local to national, and from the Executive to the Legislative and Judiciary.

Transparent and lean government is good. It will be beneficial for businesses and taxpayers and good for the officials and ordinary personnel in government. Trust and respect for both sides will also improve.

Bienvenido S. Oplas, Jr. (@noysky on Twitter) is the head of Minimal Government Thinkers and a SEANET Fellow.

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See also:

BWorld 71, Free trade and higher income, July 11, 2016 

BWorld 72, Economic integration and disruption, July 25, 2016 
BWorld 73, Transco and the big beneficiaries of feed in tariff, July 27, 2016

Rule of Law 25: Corruption in Europe

The Economist magazine's December 6^th 2014 issue featured this chart with this note,

Much about the practice of bribery remains murky. The OECD’s first report on the subject, published on December 2nd, sheds some light. Some findings confirm what was known or suspected. But the report also undermines some common beliefs. Bribery is not a sin of rogue employees or poor countries.

Yes, as governments expand, the opportunities for corruption and bribery also expands. The more restrictive, the more bureaucratic the government processes, the more corruption and bribery that will take place. 

Why? Because most of those bureaucratic procedures were deliberate, to make simple things become complicated, more time consuming and more costly. So players have only two choices --- endure the long, bureaucratic and costly process, or hasten it via bribery and corruption.

The implication here, corrupt leaders need not be thieves and steal public money. They can still become super-super rich in government by declaring many restrictions and prohibitions: No gambling, no prostitution, no drugs, no smuggling, no gun running, and so on. Then allow all of these, in exchange for huge bribes. So more prohibitions and regulations mean more opportunities and temptations for corruption and bribery.

A friend from FNF, Olaf Kellerhoff, posted this once in  his  fb wall.

Even rich countries characterized by strong adherence to  the rule of law can have a big portion  of "rule of  men". Corrupt officials and personnel who think they can get away with any prosecution.

Less or minimal governance is good governance.
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See also: 
Rule of Law 21: Violating Simple Parking Rules, September 17, 2013
Rule of Law 22: IAF Seminar in Germany, April 09, 2014
Rule of Law 23: RoL Index 2014 by the World Justice Project, July 02, 2014 
Rule of Law 24: Policemen as Violators of Traffic Rules, September 15, 2014

My Second Book: Liberalism, Rule of Law and Civil Society, September 02, 2014

Pork Barrel 2: Napoles, Legislature and Executive Branches Corruption

The Napoles-Some Legislators’ pork barrel scandal continues for several weeks now. And I started reading only a few days ago. I saw that there are too many articles written already. Here are some headlines, from the Inquirer. 

After the Inquirer, Rappler seems to be second in devoting lots of papers and analysis about the issue.

For now, I just want to comment on what my former boss in “Public Forum”, IBC Channel 13’s public affairs program from 1987-90, also my former undergrad teacher, Prof. Randy David, wrote last week. In his column A Thesis on Corruption at the Inquirer last July 31, 2013, Randy wrote:

Even if only half of the allegations against her turn out to be true, Janet Lim-Napoles, the supposed brain behind the mind-boggling pork barrel scam that is the subject of ongoing Inquirer reports, would easily qualify as the country’s foremost expert on corruption. The elaborate scheme attributed to her presumes an intimate grasp of the workings of the political system that no Filipino scholar has ever fully documented....  

Should she ever land in prison and need a benign intellectual pursuit to keep her active mind at work, I would recommend that she consider writing a participant-observer account of the social system of corruption. I would be happy to offer advice on the theoretical framework. A working title for her thesis might be: “Politics and the function of corruption: How the pork barrel works.” The aim of the study would be to bring out the background assumptions implicit in the way the JLN group of companies navigated the murky waters of government. Such research would help transitional societies like ours find effective antidotes to the scourge of corruption in public service.  

I would begin with the hypothesis that the pork barrel, which goes by the pretentious name Priority Development Assistance Fund (PDAF), is really nothing more than a bribe to the legislators who hold the power to approve the national budget. This concession can take many forms and go by other names like “congressional initiatives.” But the basic idea is the same: to provide congressmen and senators the means to cater to the specific needs of their constituencies, and, if they wish, to recoup part of what they spend during elections….  

The main argument of this imaginary thesis would be that a political system like ours incorporates corruption into its operations as a condition for its maintenance. In short, corruption is functional to the system. The system’s default is to reproduce itself. Nothing will compel it to change except persistent pressure from outside the system. If the other institutional systems—the mass media, the Church, the economic system, the law, etc.—can generate enough noise and irritation over its performance, the political system will have no choice but to pause, reflect and reform."

Here are my comments to some of Randy's points.

(1) “the pork barrel… is really nothing more than a bribe to the legislators who hold the power to approve the national budget.”

I Agree. Pork barrel is icing on the cake. A bribe by the executive branch to the legislative branch so that the former can continue many of its wasteful spending, its high and multiple taxation, and its endless and irresponsible public borrowings. This applies not only to the current but to all the past administrations, from Marcos to Cory, Ramos, Estrada and Arroyo. If legislators are not bribed with pork barrel, they will invent new schemes anyway.  They are deliberating, allocating and approving trillion plus budget annually, became P2 trillion this year, and nearly P2.3 trillion next year, national government alone – excluding funding and collections by LGUs, government corporations and finance institutions like SSS, PhilHealth, PagIBIG, PAGCOR, PCSO, DBP, Land Bank, MWSS, MRT, NFA, Napocor, and a hundred plus more -- and they have zero share from their efforts? That is like asking the legislators to become angels and be poor by choice and hence, is impossible to happen.

(2) “a political system like ours incorporates corruption into its operations as a condition for its maintenance. In short, corruption is functional to the system.”

Again, I agree. The budget keeps rising yearly despite wastes and corruption in past budget that are under investigation and/or unaccounted for, means that the scheme has its own life, its own momentum. But while people refer only to corruption by the legislators and those in Malacanang, the LGUs, and the appointed bureaucrats especially in notorious agencies like BIR, BOC, DPWH, DOTC, LTO, DILG, PNP, DND, AFP, DepEd, etc., what is rather hidden is corruption by the public themselves. The  voters, the welfare seekers and dependents, the academics and consultants, the private sector suppliers, the NGOs and media, the multilaterals and foreign aid. Meaning to a certain extent, you and I, we are somewhat part of the corruption in government without our realizing it. How?

Let us go to Randy’s concluding sentence.

(3) “If the other institutional systems...can generate enough noise and irritation over its performance, the political system will have no choice but to pause, reflect and reform.”

This, I think, is partly incorrect. Corruption happens not only in the wastes or robbery of legislators' pork barrel. There is also corruption in non-pork barrel spending, like spending in agencies and sectors where the target benefits or results are absent or not clear.

Take education for the poor, healthcare for the poor, housing for the poor, AR-tractors-credit for the poor, rice subsidy for the poor, etc. Made since many decades ago. If any or all of these programs were successful and done with minimal wastes and corruption, poverty should  have been low at this time. There would be no need for cash transfer for the poor, condoms and pills for the poor.

Just one generation of useful and efficient public education, say in the 60s, would have already produced productive and skilled parents, and their kids would no longer be poor and need another round of education and books for the poor, healthcare and hospital for the poor... for many generations.

In short, many policies and the way they were designed were wasteful and corrupt in the first place. When those programs for the poor were designed in the 60s for instance, they were meant to be perpetual, forever and no time table subsidy programs, and poverty persists until today. And current welfare and subsidy programs, still forever and no time table, are expected to produce the same degree of poverty by 2050 and beyond.

Corruption in policies makes corruption in implementation and legislation easier to commit, with or without pork barrel.

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See also: 
Welfarism 15: Abolishing Pork Barrel, February 04, 2012 
Pol. Ideology 43: On BIG Government Fetish, June 17, 2013
Pork Barrel: The Janet Napoles - Legislators' Scam, August 04, 2013

Pork Barrel: The Janet Napoles - Legislators' Scam

Abolish pork barrel. I support that, but I think this will happen 100 years from now, if ever. Legislators are deliberating on P2 trillion budget (this year) and nearly P2.3 trillion next year, and they have no pork barrel out of it?

Minimal Government Movement, before it became officially a think tank in 2008, issued a statement in September 2004, calling for the abolition of pork barrel, see the 5+ pages statement here.

About the current pork barrel scam involving several Congressmen and Senators, to the tune of around P10 billion, I did not follow it much. Keywords are Ms. Janet Lim-Napoles (JLN), her company JLN Corp., Sens. Bong Revilla, Jiinggoy Estrada, Gringo Honasan, Juan Ponce Enrile, others.

A friend posted in facebook a story from Mom and Pop Moments blog about this scam. It has gone viral, good. The author posted this,

… revelation of Ms. Napoles’ children’s extravagant lifestyles taken from their own personal blogs that they have neglected to discontinue in time.  (See full article and video here: Napoles’ daughter blogs about lavish lifestyle andNapoles daughter flaunts family’s wealth) This information only strengthens the possibility that the accusations against Ms. Napoles and the senators just might be true…. 

In my curiosity, I went to the website of Ms. Janet Lim Napoles’ corporation called JLN Corporation to check out whether or not her claims of legitimately earning her wealth have any grounds.  Surely, if they had this huge business capable of sustaining their lifestyle, it would reflect in their websites and will have an impact on some business news if I search it online.

Nothing.  Nada.  Zip.  Zero.

The website is a shell of a site devoid of any information.  It does not mention ANY products or specific services offered.  It’s just a hodgepodge of photos and mentions of exciting industries obviously taken online with no real indication of how they are directly involved in said industries.….

Then many comments followed. As I post this around 10 am Sunday, there are 403 comments already. What is interesting are the details given by “Anonymous”, which I am copy-pasting below. He/she seems to be an insider, although I cannot vouch for the statements. Maybe other readers here can verify or shoot down his/her comments.

There were also other “Anonymous” commenters, but they did not produce new or substantial details, only exhortation to violence like “patayin na lahat ng mga Congressmen at Senador” or “only a violent revolution against the legislators is the solution.” To me these are garbage, I do not believe in violence and I will never endorse such action.

To see the 400+ comments (and counting), just check that blog, again at

http://momandpopmoments.com/2013/07/31/janet-napoles-pork-barrel-scam-theft-from-a-nation/#comment-229

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Anonymous says:

AUGUST 1, 2013 AT 6:43 PM

Janet Lim Napoles has strong ties before with the late Emilia Boncodin, DBM Secretary. Emilia is the one that keep Janet in the loop whenever a budget or SARO is approved and to which senator or congressman.

Gringo Honasan is a dear friend of Janet’s husband, Jimmy Napoles. I was surprised when I read somewhere online when Honasan was interviewed and he said that he doesnt know the Napoles family.

During the coup in Cory’s time, Jimmy napoles was driving a tank on the way to camp crame when he’s tank was hit by a mortar.Jimmy is operating the .50 caliber machine gun and the soldier driving the tank died during the blast. Jimmy survived and was jailed along with Honasan. If you can get clear photos of Jimmy Napoles online, you will see that part of his face and his arms show burn marks.

Their wealth started to build up during the late 90′s when they engaged themselves with mayors based in zamboanga to use them as a front for a Foundation that will implement projects or deliver farm materials. With connections at COA, they were able to arrange “completed projects” without delivering anything. They established JLN group of companies sometime in 2000 and they moved to their new office from AFPOVAI to Discovery Suites on the 25th floor.

Soon enough, they were able to develop deep connections with more legislators in congress and numerous senators. What JLN Group Of Companies do and their sub-companie, Jo-Chris Trading (named after their eldest child, Jo-Christine “Neneng” Napoles) – they use their foundations as the implementing agency for the funds of congressmen or senators. You see, congressmen and senators have budget, PDAF or the “pork barrel”, but these politicians do not have direct access to their funds and they can never touch it. So what they do is the politicians will create a project (common one is “fertilizer distribution” to farmers) and will ask DBM to set the budget. Then, there will be a public bidding to be held by DAR. The outcome of the bidding is already fixed and it’s Napoles foundation wins. The fund or SARO will be released through Janet’s foundation and the congressmen/senators will ask 70% of the whole amount. So if the project is 10M, Janet will give 70% of that. Usually Janet’s nephew, John Francisco Lim is the courier of the money, they will meet at Podium or at a parking lot. The money are stored in plastic bags or paper bags.

So, whatever is left from the budget, 30% goes to Janet. They usually cash-in the cheque they get from DBM at Landbank in Greenhills and the manager there is part of Janet’s payroll. Janet also need to pay the inspectors from COA and whoever is involved in DAR.

This is their workflow. This is what they do for more than a decade. This is how the senators and congressmen make money. This is why these politicians have so much and working class filipinos almost have nothing. This is not only Janet’s fault. The greediness of the senators and congressmen are the driving point that keeps this system operating. It is also amazing that if Janet’s family and her company goes into trial, the people who will try them – judges, senators, congressmen, are also part of this. I fear for the life of Benhur and Merlina as whistleblowers. Soon enough they will die. The people of the philippines should protect them. NBI or the witness protection program cannot do anything about it. Because they are keeping the whistleblowers alive for their own use only. Once Janet give payments to the NBI and once Revilla, Honasan, Arroyo, Pichay, Ducut, Pineda, Lim, Estrada, Soto, Lapid, and almost all the congressmen who were in post for the past decade, step in – there’s nothing benhur or merlina can do. They are as good as dead by now.

Please post this on your social media and share it to the world. It is time to stop this madness and remove the pork barrel and protect benhur and merlina.

Foreign Aid 12: WB Corruption of Civil Society

Foreign aid agencies like the World Bank (WB), Asian Development Bank (ADB), International Monetary Fund (IMF), various UN bodies, USAID, etc. have funding for civil society groups and NGOs to get their support for "good governance" projects and programs. There is implicit message that such civil society groups should not question the bloated and BIG governments, and the big taxes and fees that support those big governments and big foreign aid bodies.

Below is a WB Civil Society Fund (CSF) funding opportunity. The WB wants civil society groups to be engaged in good governance projects, which is a good program. But as I mentioned above, the WB would also not be happy if civil society groups will demand less government, less regulations and less taxation. The business of the WB and other foreign aid bodies is to help expand governments of developing economies for all sorts of reasons and alibi -- save the planet, save the turtles and other wildlife, save the poor, achieve the MDGs, save the world economy, etc.

Minimal Government Thinkers and real free market groups cannot and should not apply for this kind of funding. Why?

Well, we can not attack the WB and other foreign aid bodies whenever they are in the "Rah-rah-rah, more taxes" or "more climate loans racket" mood if we get money from them.

Seriously, I think these foreign aid bodies are abolishable. But of course, only a few, if any, civil society group in this country share our ideas and philosophies.
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CALL FOR PROPOSALS

THE WORLD BANK
DEVELOPMENT GRANT FACILITY

THE CIVIL SOCIETY FUND
PHILIPPINES 2011
THEME: PROMOTING CITIZEN INVOLVEMENT FOR GOOD GOVERNANCE

About the Fund

The Civil Society Fund or CSF (formerly Small Grants Program) supports activities related to civic engagement by providing small grants administered through World Bank Country Offices.

The CSF seeds and supports activities that empower and enable citizens to take initiatives to enhance and influence development outcomes. Activities strengthen mechanisms for inclusion, accountability, and participation. Activities also strengthen partnerships with public sector, other civil society organizations, and the private sector....

Who Can Apply?

· Civil society organizations based in the Philippines and working on issues of development
· Civil society organizations must be in good standing and have a record of achievement in the community and record of financial probity;
· Priority will be given to organizations not supported by the CSF in previous years (organizations are not eligible for more than three grants
from the CSF within a five-year period).

What Activities Are Supported?

The CSF supports activities whose primary objective is civic engagement. A thematic focus is adopted each year to complement the Bank program in the Philippines. For FY 2011, the theme is Promoting Citizen Involvement for Good Governancen. CSF ‘11 shall support innovations on dissemination of information or promotion of knowledge sharing on social accountability or demand-driven good governance particularly in terms of their implications to vulnerable Filipino families/ households and communities....

What Size of Grants are Awarded?

Maximum grant per project shall be $10,000. CSF ‘11 expects to support about 2-3 proposals. The Grant should fund only a portion of the project cost, and therefore prefers that its grants help leverage additional contributions from other sources. Applicant organizations are asked to describe how a grant from the World Bank might help them to raise matching funds from other donors. A cash or in-kind counterpart from the applicant-organization of, at least, 20% of total cost required and should be reflected in the proposed budget...
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On a related note, I wrote this recently:

On ADB climate loans racket for electric tricycles.

These tricycles look cute, but should government enter this foray and resort to additional ADB borrowing, when private sector operators can do that function and not compromise further our public debt situation? ADB is more than happy to make such loans as it will make lots of interest earnings from those climate loans racket. 

The probability that the ADB and other foreign aid bodies will go bankrupt is zero. Even if they will give in to Heherson Alvarez's propoposal that the Philippines should borrow $10 B for 10 years, or $100 billion of climate loans robbery.

Government does not live on voluntary exchange, like what we do in our private enterprises. You dissatisfy your clients, they turn their backs, they tell their pals how lousy you are, later you close shop and might go hungry. Government lives on forced exchange and coercion. Even if you do not support those electric tricycles, even if you do not support those climate adaptation measures to "save the planet", you pay taxes, by hook or by crook, and government will pay the WB, ADB and other debt pushers. 

Debt pushers are no different from drug pushers. They push for addiction and endless dependence.
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See also:
Foreign Aid 6: IMF is Engineerable and Abolishable, September 05, 2006
Foreign Aid 7: Wolfowitzoellickation of the WB, May 30, 2007
Foreign Aid 8: Abolish the IMF, August 08, 2007
Foreign Aid 9: WB Wants Hike in Gasoline Excise Tax, July 10, 2009
Foreign Aid 10: Why We Don't Need It, February 15, 2010
Foreign Aid 11: People Mobility and Aid Hypocrisy, September 21, 2010

Rule of Law 9: Laws, Prohibitions and Corruption

(Note: this is my article for "People's Brigada News", submitted June 25, 2010)

Laws are enacted by the legislators of any country in order to restrain what they consider as bad and anti-social behavior. Laws by nature are prohibitions and restrictions.



Such prohibitions are either direct (do not do this) or indirect, aka mandatory (do that, or the State will penalize you if you don't do that). There are some laws that look "innocent", like mandatory 20% discount to senior citizens and persons with disabilities (PWDs). It looks very welfarist, and all drugstores, all restaurants, all moviehouses, all public transpo (plane, ship, bus, jeepney, etc.) are mini-criminals if they will not give the mandatory discount. Then the State can run after them.

Since all laws are prohibitions, then more laws = more prohibitions. It should be a formula to restrict individual freedom. I will be more than happy if everyone, no exception, will follow the prohibition against killing, against stealing, kidnapping, etc. But if new laws will tell us, "You cannot improve or expand your own house or your own office unless you get a 'Permit to Renovate' from the city hall", then another law that says, "You cannot re-occupy your own renovated house or office unless you get a 'Permit to Re-occupy' from the city hall", man that's something really restrictive.

I know a friend here in Metro Manila whose office has no electricity for at least one month because their "permit to renovate" was not yet signed by the city hall. I adviced her, "It only means one thing: those city hall building permit division bureaucrats want a bribe."

And we go to a discussion of a free and unfree society. In a free society, the dominant rule is: "Everything is allowed unless explicitly prohibited." And those expressly prohibited are just few, like no killing, no stealing, no kidnapping, no raping, etc. Everything else is allowed, like putting up your own vulcanizing shop with zero or just two signatures needed, from the city hall and from the national government, say the BIR.

In an unfree society though, the rule is a complete reversal : "Everything is prohibited unless explicitly allowed." So, putting up a business and creating job for the jobless is not allowed, unless one goes through a maze of bureaucracies. Putting up your own house, or renovating an old one, is not allowed, unless one gets certain permits from the local and/or national government agency.


The "rule of law” therefore, means the rule of prohibitions. Rule of law means no exception, no one is exempted from the law, and no one can grant exemption from the law. The law applies equally to unequal people.

Where there is full promulgation of the rule of law, the natural size of government will be small. Why? Because all laws and prohibitions that apply to ordinary people will also apply to all government officials, from the President or Prime Minister, to the lowest-ranking bureaucrat. This means that even the President and his/her military and police security aides should stop on red lights, should not counter-flow one-way streets, should not park on “No Parking” areas.

Since most politicians and bureaucrats do not like too many restrictions themselves, then they are obliged not to create new restrictions that will equally apply to them, to their friends and family. And they will be obliged to reverse or abrogate previous unnecessary restrictions. When there are few restrictions in society, then there will be few agencies and bureaucrats who will monitor and implement those restrictions and prohibitions. Overall result: small government.

Governments become big and expansive only because politicians and bureaucrats know that certain rules apply only to ordinary mortals but not to them, they know that they are exempted from such restrictions as they themselves granted the exceptions. This is wrong.
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On a related note, I wrote this last April 12, 2010:

Coercion and Corruption

Coercion and corruption are two aspects of the same body, whether government or private. They are not exactly the same but there is some causality between the two. Corruption is greatly facilitated when there is some coercion involved. And in many countries where there is weak promulgation of the rule of law, coercion is instituted and retained mainly to create the best opportunity for corruption.

Consider the coercion of outlawing certain drugs and other addictive chemicals. There are strict, if not deadly. penalties in producing and distributing prohibited drugs. But up to now, drug pushing and addiction remains a big issue in many countries, from poorer ones with weak promulgation of the rule of law like the Philippines, to richer countries with stronger implementation of the rule of law like the US. Corruption by certain law enforcers is the main explanation why the coercion against prohibited drugs is not and can not be fully implemented.

In many public discourses, even in electoral campaigns, the focus of discussion by almost all political parties, groups and individuals is on corruption. There is in fact general acceptance, if not consensus, that widespread corruption is happening in the country, and that the next administration should radically move to curtail and control it.

Coercion though, is never publicly discussed. The implication is that the various coercions instituted and enacted by the State and its various agencies, both national and local, are correct and acceptable. What government administrators and law enforcers need to do, in this philosophy, is simply implement those coercive laws and regulations without fear or favor.

This kind of thinking was hijacked by various vested interests in society who do not want to assume more personal responsibility about their own lives, their own households, their own communities. Thus, various lobbyists succeeded in having coercive laws that give them entitlement to certain subsidies and welfare. More subsidies, more personnel and bureaucrats to implement those subsidies, more taxes and fees to pay for the thick army of government personnel and another thick army of people expecting the subsidies.

Government is power, force and coercion. Government is never about voluntary exchange, it is all about coercive exchange. Government says, "I take your money (taxes and fees), I give you this policeman, this public works engineer, this taxation assessor, this school teacher... whether you like them or not, they are your public officials."

All the public noise about "bad governance" mainly refers to the government – from the Executive, Legislative, Judiciary, down to the local governments. It is not much with the private sector. If people find the richest man in the country as a labor exploiter, a shrewd businessman, or whatever complaint, the people have the option to boycott that man’s businesses like malls and banks. They can patronize the malls, supermarkets, banks, and other business interests of the competing businessmen, or simply not visit any mall at all. There is choice.

In government, choice is almost zero. Especially if you one is a fixed income earner. Thus, since government is an imposition, a coercion in body and spirit, then such coercion should not be big. Let there be big coercion and over-regulation of criminals, rapists, killers, kidnappers, thieves, land-grabbers, extortionists, etc. But there should be little or zero coercion in entrepreneurship and job creation.

Take the case of the Finance Department or Ministry of many countries. It is usually in an ugly position. It is a powerful agency but ordinary citizens hate it because their mandate is mainly to tax and penalize those who work, those who create jobs, those who produce various goods and services in society.

Is your job stealing, bank hold-ups or kidnapping children? The Finance Department will not deal with you.

Is your job to manufacture food, sell medicines and clothing, distribute housing and construction materials, operate a barber shop or an internet shop? The Finance Department will deal with you. If there are only two to four taxes to pay each year, at low rates, people would gladly comply and not hate that Department. But since there are one dozen to four dozen taxes and fees to pay, including those imposed by other agencies and local government units who also want a slice of the sweat and blood of the job creators and workers, then people begin to dislike, if not hate, the taxes and fees collectors. Thus, it is not surprising that the Finance Department is among the most corrupt agencies in the Executive branch.

Where there is more coercion, where there is more prohibition, there is more corruption.
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See also Rule of Law 8: Purpose and Supremacy of the Law, June 15, 2010