BWorld 204, Mining attractiveness index and the Philippines

* This is my column in BusinessWorld last April 12, 2018.

There are two similarities between the mining industry and Boracay.

The first is that both have small contributions to GDP, and the second is that both can be closed by the Duterte government for six months without any compensation to affected enterprises including environment-compliant ones. Mining companies and Boracay establishments show the face of business uncertainties in the country.

Mining production is 0.6% of GDP while Boracay production of services is 0.1% of GDP, an amount that is “very insignificant” according to the National Economic and Development Authority (NEDA).

By extension, the six-month closure Boracay island will adversely affect only a few number of businesses and jobs. That’s a very flawed argument.

Meanwhile, last April 9, President Duterte told mining companies: “I’m going to give you six months from now. Six months. I do not want to see any bald [areas]. I want [to see] the trees as tall as me by six months. Without the replacement of those trees, consider your permit revoked. Better pack up your things. You can go and that would be closed permanently.”

In early 2017, the former DENR secretary who was rejected by the Commission on Appointment (CA) issued a ban on open pit mining. That ban has not been lifted until now even though the Mining Industry Coordinating Council (MICC) has already recommended ending the ban.

The continuing investment uncertainties in Philippine mining are partly discussed by the Fraser Institute’s “Survey of Mining Companies 2017” report. Fraser is a famous free market think tank in Canada while the survey is an annual study of mining and exploration companies around the world with the goal of assessing how mineral endowments and public policies like taxation and regulations affect exploration and extraction investment.

In the 2016 Report, 104 jurisdictions were covered while it was 91 for 2017.

These 91 jurisdictions are: 13 states in the US, 12 states in Canada, 9 states in Argentina, 7 states in Australia; 15 countries each in Africa and Latin America/Caribbean, 12 countries in Europe, and 8 countries in Asia-Oceania.

These numbers show the investment attractiveness of the 91 places. The index is constructed by combining the Best Practices Mineral Potential index (which rates regions based on their geologic attractiveness) and the Policy Perception Index (which measures the effects of government policies like taxation and regulations on exploration investment (see table).

Fraser noted that “The 10 least attractive jurisdictions for investment based on the PPI rankings are (starting with the worst) Venezuela, Chubut, Zimbabwe, Guatemala, Democratic Republic of Congo (DRC), China, Philippines, Indonesia, Bolivia, and Ecuador.”

While rich countries in the world like Ireland, Finland, Sweden, Canada, USA, and Australia have business-friendly mining policies as indicated in the table, poorer countries like the Philippines have business-unfriendly policies in the sector. And this can be a good explanation among many other factors why many poor countries remain poor.

Nature has given the Philippines and other now poor countries good natural and mineral endowments. Their governments though have given these countries bad policies and extortionary regulations. All the fears of “mineral depletion,” “unmitigated surface soil destruction” and other concerns did not happen in these rich countries. Why?

The rule of law. Investments and environmental laws are strictly enforced and followed by all players, big and small, local and foreign.

It is not “nature preservation and environmental conservation” that determine sustainable mining and job creation. Rather, it is the rule of law. This is the essence of government raison d’etre or reason for existence.

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See also:
BWorld 192, Cobalt mining and TRAIN, March 16, 2018
BWorld 196, Mining tax and TRAIN, March 20, 2018
BWorld 201, Expanded environmental rights and anti-coal drama, April 05, 2018 
BWorld 202, Tourism, casinos, and Boracay, April 08, 2018 
BWorld 203, TRAIN, inflation and PPP, April 10, 2018

BWorld 183, Why low or zero income tax can mean more development

* This is my article in BusinessWorld last January 29, 2018.

“The people are hungry: It is because those in authority eat up too much in taxes.

When the government is too intrusive, people lose their spirit.”

— Lao Tzu, or Laozi

(6th-5th century BC)

The good news about the new tax law called TRAIN (Tax Reform for Acceleration and Inclusion) is that overall personal income tax (PIT) rates have declined. The bad news is that the high rates of 30% and 32% were retained, and an even higher rate of 35% was introduced for incomes P8 million a year or higher.

In a period of growing global tax competition, growing decentralization if not disintegration by big governments and countries, economies should introduce low taxes.

Currently, Asian economies with low, flat income tax rates are Mongolia with only 10%, Macau with 12%, and Hong Kong with 15%.

Currently too, there are 10 countries and/or jurisdictions around the world that have zero income tax policy.

Eight of them are in the table below, the two others, Bermuda and Cayman islands, have no available data in the IMF and WEF reports. Hence, they are not included in the table. The global rank and score in the World Economic Forum’s (WEF) annual Global Competitiveness Index (GCI), pillar #1 — Institutions, would represent or proxy for the rule of law of countries included in the report (see table).

These numbers show the following:

1. Citizens of zero income tax countries on average are actually richer (except Bahamas) than people of countries that impose and collect income taxes.

2. Zero income tax countries on average have high scores and rank in the WEF’s GCI (except Kuwait), in institutional strength. The same pattern is also observed for developed Asia except South Korea.

3. Developing and emerging Asia like the ASEAN 5 in the above table have lower scores and global ranking, except Malaysia.

One lesson here is that it is the rule of law, the stability and predictability of institutions, public and private, that largely determine an economy’s wealth and prosperity. Not higher taxes and welfarism, not more regulations and endless subsidies.

These countries like Qatar, Brunei, and United Arab Emirates, even Singapore and Hong Kong, are not known for their big mountains and waterfalls, many white sand beaches and sprawling golf courses. They are known for their liberal and secure investment policies that properly respect and protect private property rights, especially big investments and projects, and non-intrusive tax policies.

Currently, the Department of Finance (DoF) is preparing TRAIN 2, focus on lowering the corporate income tax (CIT) rate from 30% to 25% but with fewer fiscal holidays and exemptions. The goal of DoF is to have a “revenue neutral” law, reduce revenues on one side to be compensated by additional revenues on the other side.

Since the Duterte administration is gung-ho on federalism, this will be a good opportunity for them to drastically cut CIT — only 10%, or 15%, little or no exemptions — then allow the regional or state governments to have their own CIT.

The advantage of this setup is that it instills tax and investment competition among the regions and states.

Thus, the future state of southern Luzon for instance will have a CIT of 15%, the state of western Visayas will have a CIT of 10%, the state of northern Mindanao will have a CIT of only 6%, another state will have zero CIT, and so on.

The DoF should align its fiscal priorities with the political priorities of Malacañang and Congress.

TRAIN 1 was lousy because it raised many national taxes or created new ones even if the DoF is aware that soon there will be less national government departments, bureaus, and welfarism to be compensated by more state government departments and welfarism.

Let TRAIN 2 compensate for the short-sightedness of TRAIN 1. Let the national and soon federal government step back as the regional and state governments step forward.

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See also:

BWorld 171, Global vs national tax reforms, December 29, 2017

BWorld 180, Has East Asia liberalized its trade enough? January 19, 2018 

BWorld 181, Effects of Supreme Court TRO on RCOA, January 22, 2018
BWorld 182, Asia Liberty Forum 2018 in Jakarta, January 31, 2018

BWorld 182, Asia Liberty Forum 2018 in Jakarta

* This is my column in BusinessWorld last January 22, 2018.

“There is no evidence that fuel and electricity subsidies benefited the poor. There is no evidence that trade protection benefited the poor. Elimination of subsidies if compensated by reduction of cost doing business (corruption) will help the poor.”

— Muhamad Chatib Basri,

presentation about Indonesia energy and food subsidies,

EFN Asia conference September 2004, Hong Kong

Those conclusions were made by Dr. Chatib “Dede” Basri in his presentation, “Can subsidy and protection do any good for the poor?” at the Economic Freedom Network (EFN) Asia conference in 2004. At that time, he was a faculty member of the University of Indonesia and individual member of EFN. He used an econometric model and the Grosman and Helpman (G-H) model (trade protection is the result of bargaining between government and various lobby groups). The inevitable conclusion of his paper was that market reforms and the reduction, if not removal of dependence by the poor on the state will actually help them and taxpayers over the long term.

Dr. Basri later became Minister of Finance from May 2013 to October 2014 when the administration of Indonesian President Susilo Bambang Yudhoyono ended. Dr. Basri will be among the keynote speakers in the Asia Liberty Forum (ALF) this coming Feb. 10-11 at Mandarin Hotel Jakarta, Indonesia. The event is sponsored by the Atlas Foundation and co-hosted by the Center for Indonesian Policy Studies (CIPS).

Aside from Dr. Basri, other important speakers in this year’s conference will be the following:

1. Saidah Sakwan, chairwoman, CIPS; also a commissioner of the Indonesian Business Competition Commission (KPPU).

2. Brad Lips, CEO of Atlas Network, Washington DC, USA.

3. KH Yahya Cholil Staquf, general secretary of Nahdlatul Ulama (NU) Supreme Council, world’s largest Muslim organization with 50+ million members.

4. Siegfried Herzog, Regional director for Southeast and East Asia, Friedrich Naumann Foundation for Freedom (FNF), Thailand.

5. Suraj Vaidya, chairman of SAARC Chamber of Commerce and also chairman of Samriddhi Foundation, Nepal.

6. Rainer Heufers, executive director of CIPS.

7. Razeen Sally, Prof. at Lee Kuan Yew School of Public Policy, National University of Singapore.

8. Ronald Meinardus, Regional director, FNF South Asia, India.

9. Parth Shah, president of the Centre for Civil Society, India.

10. Lorenzo Montanari, exec. director of Property Rights Alliance (PRA), Washington DC, USA.

11. Barun Mitra, founder and Director of Liberty Institute, India.

12. Junjie Ma of Unirule Institute, Beijing, China.

There are many other interesting speakers to talk on many topics — policy reforms to broaden support for classical liberal principles, education policy, Ease of Doing Business Index, Protection of private property rights, Intellectual Property Rights (IPR), micro-enterprises, entrepreneurship in e-commerce, state-owned enterprises (SOEs).

Are Asian economies getting more market-oriented or state-distorted? Is there greater rule of law now or greater rule of men? Are public institutions more protective or more confiscatory of private property rights?

There are many studies and annual reports that track and monitor various indicators and parameters to help answer these and related questions. Among the important annual reports are Fraser Institute’s Economic Freedom of the World (EFW) reports, Heritage Foundation’s Economic Freedom Index (EFI), PRA’s International Property Rights Index (IPRI), World Bank’s Doing Business, and World Economic Forum’s (WEF) Global Competitiveness Index (GCI).

The GCI is composed of 12 pillars and the first pillar are Institutions. These are composed of 21 sub-pillars like property rights, IPR protection, diversion of public funds, public trust in politicians, irregular payments and bribes, judicial independence, favoritism in decisions of government officials, burden of government regulation, efficiency of legal framework in settling disputes and challenging regulations, transparency of government policy making, and reliability of police services.

I checked the latest WEF 2017-2018 report for East Asian economies and compared with the report two years ago for pillar #1, Institutions (see table).

So for Institutions, the numbers above show three important results: One, out of the 144 countries and economies covered, many East Asian nations land in the first half (i.e., 1st to 72nd), 11 of the 15 economies mentioned above. Singapore and Hong Kong are in the top 10.

Two, the biggest gainers in global ranking are India (+21!), South Korea, China, and Laos. And three, the biggest loser in ranking is the Philippines, dropping 17 places or notches.

In the WEF Executive Opinion Survey 2017, the most problematic factors for doing business in the Philippines were: (1) inefficient government bureaucracy, (2) inadequate supply of infrastructure, (3) corruption, (4) tax regulations, and (5) tax rates.

For Asian countries outside the first half like Thailand, Vietnam, Philippines and Cambodia, there is an immediate need to improve the rule of law and further debureaucratize, deregulate and depoliticize the economy.

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See also:

BWorld 179, Federalism dream vs centralized government, January 15, 2018 

BWorld 180, Has East Asia liberalized its trade enough? January 19, 2018 

BWorld 181, Effects of Supreme Court TRO on RCOA, January 22, 2018

BWorld 162, Open pit mines and open economy

* This is my article in BusinessWorld on October 27, 2017.

Open pit mining (OPM) is not as scary and draconian as many activists would paint it to be. Thus the ban on OPM by the CA-rejected ex-DENR secretary Gina Lopez has little or zero technical basis, only emotional outburst.

The Mining Industry Coordinating Council (MICC), the multi-stakeholder body on the sector has finally decided that the ban on OPM should be abandoned and new DENR Secretary Roy Cimatu has said that he will soon issue a new department order for this.

OPM is done and practiced in many countries including developed ones like the US, Australia, Germany, Sweden and Canada. Mining firms and their stockholders get good income, governments get huge tax revenues, many workers get long-term high-paying jobs, and consumers worldwide enjoy continued supply of electricity, gadgets, appliances, cars, steel bars and numerous other products of mining. (See table)

Now that the uncertainty of OPM banning has been removed, existing mines should be able to continue their production without fear of policy reversals. The image of the country as having fickle, atras-abante investment policies should be somehow corrected.

New, big prospective mining projects in the Philippines will hopefully see the green light for their operations. Two of those big potential projects are (1) the $2-billion MVP-led Silangan gold mine in Surigao del Norte, and (2) the $5.9-billion Tampakan gold-copper project in South Cotabato. The latter is actually the Philippines’ single biggest foreign investment project and is expected to bring huge income for the locals and the government, national and local.

Many local anti-mining groups vehemently oppose the Tampakan project citing thousands of hectares of land that will soon be wasted. That is an outright exaggeration. The copper-gold ore extraction in just one area is projected to be about 2.5 kms. wide, 3 kms. long and about 0.8 km deep, after 17 years of operation. This is significantly smaller than the Hibbing and Bingham Canyon in the US, among other big OPMs in the world.

Government should simply set the parameters and criteria for business to follow based on existing laws, like the Mining Act of 1995. Once government has given its permit and approval for a mining project, it should simply monitor the players that they comply with the laws and penalize violators, not change rules midway and in the process, violate the laws that it is bound to follow and implement in the first place.

The rule of law applies not only to businesses and regulated entities but also to the government. The rule of law applies to both governors and governed, both administrators and administered, both regulators and regulated. If governors and regulators want to exempt themselves from the law and make their own instant rules, that is the rule of men with arbitrary powers circumventing the rule of law.

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See also:
BWorld 151, Mining taxes per hectare of land, September 22, 2017
BWorld 159, Electoral reforms and the President, October 19, 2017 

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

BWorld 161, The sin of smuggling and corruption in the Sin tax law, November 02, 2017

BWorld 135, On reducing the distribution system loss

* This is my article in BusinessWorld last Wednesday.

When matter changes form, there are certain “system loss” that occur. Like a one-kilo dressed chicken becomes less than one-kilo once it is cooked into adobo or tinola. Or a one-kilo green mango or banana becomes lighter than a kilo when it transforms into ripe, yellow mango or banana after a few days.

When electricity is transported or transmitted from a power generation company (genco) some 100+ kilometers away to a private distribution utility (DU) or electric cooperative (EC), there is a transmission system loss. Thus, a 1,000-MW output from a genco may become only 980 MW when it reaches the DU or EC.

Then when electricity is distributed from a DU or EC to houses and offices, there is also a distribution system loss. This loss is divided into (a) Technical loss, inherent in the physical delivery of electric energy including conductor loss, transformer core loss, and technical error in meters, and (b) Nontechnical Loss, energy lost due to pilferage, meter reading errors, meter tampering, others not related to the physical characteristics and functions of the electric system.

The Philippines has a relatively high degree of transmission loss + distribution loss while Singapore, South Korea and Japan have low systems losses, based on World Bank data (see Table 1).

There are several attempts to limit or cap the distribution system loss that is passed on to the consumers. One from the Energy Regulatory Commission (ERC) draft “Rules for Setting the Distribution System Loss Cap and Establishing Performance Incentive Scheme for Distribution Efficiency,” and two from the Senate. Here is a summary of their provisions.

These three measures are problematic and Sen. Pacquiao’s bill is the worst because of its populist posturing, disallowing private DUs to charge any system loss while pampering the ECs to have their system loss. Check again Table 1 above, it shows that none of the advanced countries like Singapore and Japan have zero system loss.

Sen. Gatchalian’s bill is not as bad as Sen. Pacquiao’s but like the ERC draft Rules,it suffers from some populism too, pampering the ECs with higher loss cap compared to private DUs.

Giving differentiated loss cap is favoring the ECs while penalizing private DUs and this is wrong. If the real purpose of the proposed ERC regulation and Sen. Gatchalian’s bill is to protect the consumers from high system loss charge in their monthly electricity bill, then they should slap a uniform low cap for all players, whether private DUs or ECs.

The rule of law is explicit in reminding people that the law applies equally to unequal players and people. Thus, a law against traffic counterflow should apply to all vehicles, from buses to cars, jeepneys, armored vans, tricycles and motorcycles. It should apply also to both private and public/government vehicles.

A law with penalty against non-rehabilitation of mined-out area should apply to all mining entities, whether big, medium, small and artisanal mining.

And a law or regulation on system loss cap should apply to all players, from big corporate DUs to medium or small electric cooperatives.

By slapping differentiated system loss cap, new government regulations will not be exactly protecting the consumers but more of protecting certain ECs so that their inefficient if not outright wasteful distribution system is rewarded with higher profit at the expenses of the consumers.

Ultimately, all ECs should be corporatized. They should be registered with and monitored by the Securities and Exchange Commission (SEC) and not by the National Electrification Administration because SEC has more transparent and realistic rules than NEA. But that will be another topic in the future.

For now, the rule of law, of not making exemptions and differentiation in the imposition of system loss cap, should prevail. And the loss cap that government has in mind should be realistic that DUs and ECs should not be burdened with additional high capital expenditures (CAPEX) and operating expenditures (OPEX) which ultimately will be passed to the consumers in the form of higher distribution charge.

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See also: 

BWorld 128, The quest for more stable and cheaper electricity in the ASEAN, May 08, 2017 

BWorld 131, Why the FiT-All is a burden to consumers, May 18, 2017

BWorld 132, Global commodity prices, trade and growth, May 27, 2017 
BWorld 133, Dissecting Dutertenomics' overspending plan, June 01, 2017 
BWorld 134, PPP vs ODA, June 08, 2017

Mining 51, Gina Lopez, Roy Cimatu and rule of law

When Gina Lopez was finally rejected as DENR Secretary by the Commission on Appointments (CA), lots of conspiracy hypothesis were flying. And one thing I notice about these comments and opinions is that it seems all of the people who spread such opinions did not watch the 2 1/2 hours CA hearing of Gina last May 02, 2017.

I watched it in full and here are my impressions:

1. Simple questions answerable by Yes or No, Gina cannot answer. Her mind and mouth is full of emotions, little or nothing on specifics, numbers and law.

2. Three questions by Sen. Alan Cayetano: (a) how much of total PH land area is actively mined, (b) beach resorts, how much of total coastal land of the PH have beach resorts, (c) what are the standards and criteria for her recent orders on mine closure — she could not answer.

3. Questions on land multiple titles involving DENR corruption resulting in perennial land grabbing problem raised by 3 Congressmen, what she’s doing about it in her 10 months in office, she was clueless, no specific answer, only generalized ones like “we are cleaning up the department” or “we are computerizing things.” She can suspend or close down many mining firms that follow certain regulations but she cannot suspend or kick out any corrupt officials in her department the past 10 months.

4. Question on very dirty rivers like Marilao river, Pasig river, she answered “structural problems” daw, despite heading the Pasig river clean up commission. She has no specific plans to clean up these rivers.

5. Questions on unabated logging, she has no clear answer.

6. Questions on legal basis, what existing laws, as basis for her recent AOs (Administrative Orders) on P2M/hectare of “disturbed” agri land as deposit — no answer. She argued “my prerogative” as Secretary.  Congw. Josephine Sato who insisted on this issue is very specific in her points — “we are a nation of laws, not of men”. Our actions and policies should be based on existing laws, not on whims of men/women leaders. Bright legislator.

DENR work is more than mining. She’s very hard-working, very passionate, only in anti-mining campaigns. But she’s lazy on other mandates of the DENR. Gina's big problem is her big ego.

I liked Congw. Sato’s rejection of Gina’s “my prerogative as Secretary” answer to her question. Department Secretaries cannot legislate on their own, otherwise Secretaries of DA, DOTC, DPWH, DSWD, DAR, etc. can just issue dozens of AOs or Department circulars (DCS) creating new prohibitions and regulations, new fines and penalties, new subsidies and entitlements — all bypassing Congress as legislative body.

PDu30 made a mistake in appointing her as DENR Secretary even without fully scrutinizing her work ethics, her technical skills. Du30 corrected this mistake by not defending her at the CA.

People who oppose mining and argue “zero mining” are as confused as the people who say “zero fossil fuel”. These people should be riding bicycles or skateboards or just walking/running, or riding horses, cows, ponies. They should not ride cars, jeeps, buses, airplanes, ships because all these use fossil fuels 100%.

People who say “zero mining” don’t want to live in caves. Even barong-barong use mining products like nails, hammer, saw, bolo, etc. Hypocrisy always finds some scapegoats like the “oligarchs”, as if the Lopezes are not oligarchs.

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Last Monday, May 08, former AFP Chief Roy Cimatu was appointed as new DENR Secretary by President Duterte. A retired soldier, then labor diplomat in the Middle East, and now a DENR chief.

Perhaps near-zero official experience in managing an environment agency except in some tree planting activities of the AFP, his appointment is a guessing game for many sectors under DENR supervision — mining, forestry, solid waste, air pollution, coastal resources, rivers/lakes/sea water quality, land titling, etc.

Since all Cabinet posts are political appointees of the President, then it is assumed that the major policies of the appointed Secretary are also the policies of the President.

I am not a fan of “good governance” in a BIG government because it is a contradiction in terms. Big government almost always lead to bad governance because government would over-extend its power of coercion. Like creating a dozen new regulations on top of hundreds of regulations, laws and prohibitions that are already in place. That is what former DENR Secretary Gina Lopez did, creating new department regulations (administrative orders (AOs), department circulars (DCs), etc.) that pile up new requirements on top of existing ones, resulting in the closure and/or suspension of many mining firms.

The big question now is whether the new DENR Secretary will focus on the rule of law, enforce existing laws and regulations before creating new department orders or seek new laws in Congress. Like the laws regulating small-scale mines and quarrying equally implemented as the laws regulating large-scale metallic, non-metallic mines and quarrying.

This act alone of focusing on the rule of law will be a big improvement in the department and in the national government as a whole. A better situation of course is that many existing regulations that are “out of tune” are abolished, or consolidated with others so that instead of having 10 “out of tunes” AOs, DCs and other department orders, they are consolidated into one AO that is more “in tune” with the times.

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See also: 

Mining 48, Sec. Gina Lopez's rants, DENR inaction in other sectors, April 08, 2017 

Mining 49, Ma'am Monsod on poverty in mining areas, April 12, 2017 

Mining 50, Canada mining taxation, April 21, 2017 

BWorld 129, Open pit mines and the DENR Secretary, May 12, 2017

BWorld 123, Drug-related murders and criminal justice in Asia

* This is my article in BusinessWorld on March 30, 2017.

While there is continuing (legal and political) debate whether extrajudicial killings (EJK) are happening in the Duterte administration or not, there is no debate that thousands of mysterious murders, often drug-related, have occurred since President Duterte won the May 2016 elections.

So far, death toll of drug-related murders from mid-May 2016 to February 2017 is estimated at 7,000+. The Philippine National Police (PNP) released its official data, indicating that from July 1, 2016 to Jan. 24, 2017, some 2,539 “killed during police operations.”

I have no sympathy with drug lords, drug pushers, and hardened drug users/addicts who steal and commit other crimes just to sustain their addiction and trade. But I also believe that all suspects should be given due process. Armed agents of the state (PNP, NBI, PDEA, sometimes the AFP) should go through the legal process of investigation-apprehension-prosecution cycle and not commit shortcuts of outright murders based on flimsy reasons like “nanlaban eh” (fought the officers) even inside police precincts or even inside the prison cells.

There are many drug-related murders that are outside the “killed during police operations” and these were committed by armed vigilantes. Some of these “vigilantes” were found to be policemen themselves like the two officers caught in Mindoro last October 2016 after they murdered a woman.

To better address the drugs problem and related corruption and murders, we can learn from our neighbors in Asia how they enforce the rule of law, the criminal justice system in particular.

The World Justice Project (WJP) produces an annual study, the “Rule of Law Index” (ROLI) and score countries based on their performance on eight factors and 44 sub-factors. The eight factors are: (1) Constraints on Government Powers, (2) Absence of Corruption, (3) Open Government, (4) Fundamental Rights, (5) Order and Security, (6) Effective Regulatory enforcement, (7) Civil Justice, and (8) Criminal Justice.

The WJP’s Index team has developed a set of questionnaires based on the Index’s conceptual framework, then it engaged 2,700 expert surveys in 113 countries and jurisdictions and involved more than 110,000 households as respondents to the experts’ questionnaires.

Below is a summary table from ROLI 2016 in Asia. The Philippines’ scores in ROLI 2014 and 2015 reports are also included. The following acronyms stand for: SG Singapore, SK South Korea, JP Japan, HK Hong Kong, MY Malaysia, ID Indonesia, TH Thailand, PH Philippines, CN China, and CM Cambodia (see table).

The numbers point to the following:

One, Singapore, South Korea, Japan, and Hong Kong are developed economically mainly because they have high observance and respect for the rule of law as reflected in their high ROLI scores, also high scores in component #8, the criminal justice system. In contrast, communist China and Cambodia have low respect for rule of law and have low scores.

Two, ASEAN 5 -- Malaysia, Indonesia, Vietnam, Thailand and Philippines -- have middle scores in overall ROLI, which is somehow good news. But in component #8, Indonesia and Philippines have low scores.

Three, the Philippines has shown consistent low scores in component #8 for the past three years. In particular, very low scores in the four highlighted items -- CS Adjudication and Correctional system are not effective, the Justice system is highly discriminatory and due process is not properly observed.

Some of our developed neighbors like Singapore have death penalty against drug-related crimes, true. The difference is that the accused are given due process and the chance to prove their innocence and not summarily executed just based on suspicions.

What deters criminal behavior is stricter observance of the rule of law, the near-certainty of apprehension and imprisonment of violators, even if they may be the law enforcers themselves. This is the kind of criminal justice system that we need. Not state-sponsored or state-inspired or state-tolerated murders.

Bienvenido S. Oplas, Jr. is the head of Minimal Government Thinkers and a Fellow of SEANET; both institutes are members of EFN Asia.

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See also: 

BWorld 119, Seven myths in the mining debate, April 07, 2017

BWorld 120, Five myths of solar-wind energy, April 08, 2017 

BWorld 121, The PH tax reform bill and tax policies in East Asia, April 10, 2017 

BWorld 122, Six more myths in the mining debate, April 13, 2017

BWorld 110, Should we go federal or not?

* This is my article in BusinessWorld last February 02, 2017.

Whether to move from devolved unitary to a formal federal state, this is among the big political questions in the Philippines today. There are two related questions here: (1) If federalism is the answer, what is the question? (2) if federalism is not the answer, is a reformed devolution the solution?

The first question I borrowed from a big forum several months ago from my alma mater, the UP School of Economics. The second question is my reformulation of the arguments by the anti-federalists.

By definition, federal states are those whose national governments share power with semi-independent or semi-autonomous regional or provincial governments.

To further contextualize the national debate, let us view some global data about federal states compared to non-federal states.

Other federal states and economies that are too small (GDP size less than $1B) and not included in the list are Saint Kitts and Nevis, Comoros, and Micronesia.

The above numbers tell us that while there are huge and rich federal economies like the US, Germany, and Canada, there are also huge and rich non-federal economies like Japan, United Kingdom, and France. And there are many poor federal economies like South Sudan, Nepal, Ethiopia, Sudan, and Venezuela.

So the promise of “more development if we go federal” is highly questionable. There are more important factors that are directly related to the economic wealth and prosperity of countries other than the forms of government like federalism vs. unitary, presidential vs. parliamentary, centralized/socialist vs. decentralized. And those factors always include the rule of law, the sanctity and respect for laws, laws that apply to both rulers and ruled, to both governors and governed.

A debate on federalism will take place on Feb. 2 at Vivere Hotel, Alabang. It is organized by the Rotary Club of Muntinlupa North, PCCI-Muntinlupa, both presided by Ms. Elvie Sanchez-Quiazon, and the Muntinlupa City government.

The generally pro-federalism speakers will be Dean Pacifico Agabin of UP Law Center and Jonathan Malaya of PDP. The generally anti-federalism speakers will be Ambassador Hermenegildo Cruz, Prof. Gene Pilapil of UP Political Science Dept., and Solicitor General Florin Hilbay. Dean Ronald Mendoza of the Ateneo School of Government will also speak but he considers himself as more on the listening mode than being identified as pro- or anti-federalism.

I will be there as one of two reactors. This role is cut out for me because I am agnostic about the issue, so I can listen more to the two camps with no personal bias.

My bias is towards disintegration of huge countries -- huge population, huge land area -- into newer countries, to accommodate competing cultures and political and religious beliefs.

Consider Brunei with only 0.4M people, Maldives with only 0.5M, and Bhutan with only 0.8M people. They are fine as countries, they have their own currencies, tax system, national governments, international airports, etc.

Contrast with huge countries like China, India, Russia, USA, Brazil, Indonesia, Mexico and the Philippines. The US in particular and its 320M people remain heavily divided for many months now over the Trump candidacy and presidency. The idea of initiating a secession of their states from the US like the California exit (“Calexit”) was revived again by some quarters.

If I were to answer the two questions above they will go like these: (1) If federalism is the answer, then the question is who are the better central planners, the national or regional/provincial planners? (2) If federalism is not the answer, then having rule of law and limited government is the more appropriate solution regardless of the form of government.

Bienvenido S. Oplas, Jr. is the head of Minimal Government Thinkers and a Fellow of SEANET. Both institutes are members of EFN Asia.

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See also:

BWorld 107, Top 10 myths for oil tax hike, January 28, 2017 

BWorld 108, Rising feed in tariff (FIT) due to more wind-solar power, February 06, 2017 

BWorld 109, Asians' march to liberty and progress, February 16, 2017

EFN Asia 63, Day 1 of Conference 2016

The Economic Freedom Network (EFN) Asia conference 2016 at Dusit Thani Hotel in Makati ended last Wednesday. Thanks again FNF and EFN for another wonderful conference.

Here are some tweets from #efnasia2016 and my own thoughts about the event.

Protection of human rights is part and parcel of EU policy – Walter van Hattum, EU Delegation to the Philippines.

It's a responsibilty of businesses to respect human rights... It is state duty to protect and defend human rights in its territory.

Nobody can seriously suggest that businesses can opt in and out of respecting human rights as they wish... There is legal obligation for businesses to respect HR.

Businesses should be as transparent as possible so they will be less likely to be attacked by false news. Business leaders are often uncomfortable explaining to the public how they work. It's understandable but unwise. -- Markus Leöning, former Himan Rights Commissioner in Germany.

Increasingly populist goverments a threat to human rights and economic freedom. The pendulum has swung as globalization has failed in its promises to those who have lost out in its benefits. Food for thought. -- Frank Largo

For me, among the important human rights of the people is freedom to choose in the market place, freedom to sell or not sell, freedom to buy or not buy. Political human rights like the right or freedom from theft (especially organized criminals), murders, prosecution and harassment, that is where the state should come in.

A minimal government focused on enforcing the rule of law, enforcing contracts between and among people, is consistent with economic freedom and human rights protection. That minimal govt should have no business creating and expanding lots of endless welfarist programs. Prosperity is not an entitlement or privilege. Lazy and irresponsible have no right to a prosperous life, they deserve poverty. Politically incorrect statement, as usual.

Rule of law means the law applies equally to unequal people. So the law should apply to both rich and poor people, to big/giant and small firms. A law or contract can be written, verbal, done by govt or private entities. Basic human rights then means that people have access to such equality before the law.

Below, Rainer Heufers moderating, with Wan Saiful Wan Jan, Peter Kompalla, Rishi Sher Singh, Dr. Manzoor Ahmad in the new panel.

People's definitions of human rights vary. What may be HR violations to some can also be another's sole income source... Definitions of human rights vary. What may be HR violations to some can be another's sole income source. -- Wan Saiful Wan Jan

Good point. Some westerners may consider temporary child labor as HR violation already but for some households, it is ok and necessary. If a sole family breadwinner is gone for instance, the young need to work to help sustain the family. Harsh but necessary.

Stakeholder values, not just shareholder values. -- Rishi Sher Singh

Barun Mitra tweets:

Business of business is indeed business! Inclusive of profitability for investors, benefit to consumers, add values to society.

Better protection of human rights, improved environmental quality, higher sense of justice, necessary social value additions.

Value added products, economic and social, become affordable with prosperity, and necessity in a free competitive market.

Implentating Rule of law carries cost, level of effective enforcement has to be affordable, economically socially politically. #EFNAsia2016

I think corporate branding will help global firms stay the course in HR and econ freedom protection, respecting #ruleOfLaw. Firms would dislike to be associated with bad products, bad services, bad corporate image. So they will try to be as transparent as possible, to be accountable to their products and practices. Transparency is good protection vs negative image/attacks.

Session 2 Panel speakers: H.E. Franz Jessen of EU, Dr. Lee Taekyu of KERI, and Atty. Arpee Santiago of Ateneo Human rights Center.

Govt and countries don't trade, individuals and businesses do. Govt negotiating trade treaties leading to anti-trade backlash.

Free trade is voluntary, so win win. Govt negotiations may liberalise trade, but legitimises govt in trade n economy, corruption.

Environment, labour or human rights standards in national trade treaties, focus on outcomes, give advantage to large, richer cos!

Society / govt benefit most if they adopt unilateral free trade. All politics is local, a local decision will minimise backlash. 

Govt negotiating trade, inevitably adopt export is good, import is bad outlook. Free trade is beneficial when govt has no role.

Access to internet can't be a "Right". Political rights are negative rights. Any +ive right paid for by others can't be a RIGHT.

TPP may be good agreement, but has lost legitimacy because govts. no longer carry credibility among large sections of people. -- Barun Mitra

As usual, I agree with Barun's ideas and observations: unilateral trade liberalization; countries and governments do not trade with each other, people do; so governments, national and multilateral, should step back from trade negotiations as much as possible. Let companies and people organizations negotiate with their suppliers and consumers abroad and keep prices low via low or zero tariff, minimal non-tariff barriers.

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See also: EFN Asia 60, Conference 2014 in Hong Kong, part 5, April 03, 2016
EFN Asia 61, Panel on TPP at Jeju Forum 2016, June 14, 2016
EFN Asia 62, Program for Conference 2016, Manila, November 20, 2016

BWorld 56, Thomas Hobbes, Saul Alinsky and Duterte

* This is my article in BusinessWorld last Thursday.

An electoral exercise is a process of the changing and evolving function of the state, of local and national governments as key actors -- politicians and political parties -- articulate their vision or lack of it, of where government should focus its roles and function.

Such evolution of state and governments, like markets, is often for the better, towards the rule of law and equality before the law. But sometimes it is a change for the worse, towards the rule of men, unequal application of the law and dictatorship.

Among the leading presidential candidates, Davao City Mayor Rodrigo “Digong” Duterte is the odd-man-out. While the three other leading candidates -- Sen. Grace Poe, VP Jojo Binay, and Sec. Mar Roxas -- promise plenty of subsidies and new welfare programs, or expansion of existing ones, Mayor Duterte is focused on a single issue, fighting criminals, drug pushers and corrupt officials.

One of the three “social contract” theoreticians of why government was invented was Thomas Hobbes (1588-1679), an English philosopher best known for his book Leviathan (1651). He described early human situation under a “state of nature” as one of endless societal conflict, impossibility of peace, and the need to invent a Commonwealth where certain human freedoms are surrendered and curtailed by a supreme ruler in exchange for peace and order in society.

Hobbes wrote in the Leviathan:

Whatsoever therefore is consequent to a time of Warre, where every man is Enemy to every man; the same is consequent to the time, wherein men live without other security, than what their own strength, and their own invention shall furnish them withall. In such condition, there is no place for Industry;... and which is worst of all, continuall feare, and danger of violent death; And the life of man, solitary, poore, nasty, brutish, and short.

-- Chapter 13, “Of the Naturall Condition of Mankind”

The Fundamental Law Of Nature... “That every man, ought to endeavour Peace, as farre as he has hope of obtaining it; and when he cannot obtain it, that he may seek, and use, all helps, and advantages of Warre.”

The Second Law Of Nature... “That a man be willing, when others are so too, as farre-forth, as for Peace, and defence of himselfe he shall think it necessary, to lay down this right to all things; and be contented with so much liberty against other men, as he would allow other men against himselfe.”

-- Chapter 14, “Of the First and Second Naturall Lawes, and of Contracts”

This is what Mayor Duterte has been hammering regularly, consciously and unconsciously. That Philippine society is rolling back somehow to a “state of nature”, a pre-government state where individuals’ actions are bound only by their own desires and restraints, where criminals and brutes rule and can victimize anyone anywhere. Hence, a need for a “social contract” and install an absolute sovereign, a strong central government with the power of the biblical Leviathan (a sea monster) and protect people from their own selfishness, protect the weak from the brutes.

During the third and final presidential debate last April 24, host Karen Davila asked Mayor Duterte, “Sabi niyo po, ‘You cannot be a President if you cannot kill. Papatay ba kayo kung kayo’y Pangulo?” (Will you really kill if you become President?) and Duterte replied, “No, it’s not the actual -- takot ka mamatay, takot kang pumatay, wag kang mag Presidente.” (If you’re afraid to die, afraid to kill, don’t run for President).

And there’s a follow up when Ms. Davila asked him, “Anong gagawin niyo sakaling malaman po ninyo na isa sa mga anak niyo ay gumagamit ng ilegal na droga?” (What will you do if you know that one of your children is using illegal drugs?) The Mayor quickly answered, “Patayin mo.” (Kill him/her)

Killing and murder, individually or by the thousands, are his “default” answer to questions related to enforcing the law. In one interview, he promised to kill 100,000 more criminals and drug pushers nationwide if he wins the Presidency.

Saul Alinsky (1909-1972), a Jewish American community organizer and writer, became famous worldwide as the founder of modern community organizing through his famous book, Rules for Radicals (1971).

There are 13 key rules in that book that proved to be generally effective in organizing successful mass movement and collective action. Five of those rules seem to work for Mayor Duterte:

3. “Whenever possible, go outside the expertise of the enemy.” The other Presidential candidates promise endless welfarism and subsidies, controlling and killing many criminals is beyond their expertise.

5. “Ridicule is man’s most potent weapon.” Constant use of cusswords “P--- ina”, “bayot/bakla”, “go to hell” are powerful ridicules that decent politicians and statesmen and women are less prepared to deal with.

6. “A good tactic is one your people enjoy.” Again, frequent use of cusswords, gutter politics, sexist jokes, even making fun of rape-murder Australian victim three decades ago.

7. “A tactic that drags on too long becomes a drag.” He keeps producing new attacks, new antics that his political competitors can only raise their eyebrows in disbelief. Like his plan to go to the Spratly islands on a jetski, plant the Philippine flag and let the Chinese Navy to kill him if they like.

9. “The threat is usually more terrifying than the thing itself.” Saying that he killed 1,700 criminals in Davao City alone, and promise to kill 100,000 more criminals if he becomes President, make people wonder whether he is joking but his followers take him seriously, impatient about rampant criminality in many parts of the country, whether real or imagined.

One important revelation of this campaign period is that the masa after all, are not so enamored with more welfarism, subsidies populism, and more environmentalism. Rather, they are more concerned with peace and order, physical annihilation of criminals and the corrupt.

Duterte has shifted the debate on the “raison d’etre” or reason for existence of government: Not welfarism and populism, but protection of the people’s 3 freedoms: freedom of private property, freedom from aggression and bullies, and freedom of expression. Somehow this is good.

He has played out this hunger by the public. The welfarists including the UN, foreign aid bodies and their consultants are wrong to persist in welfarism to “fight inequality” as an important election issue. People, even the poor, can live with inequality. What they cannot tolerate is more criminality, more stealing, legal or illegal/outright robbery.

And by riding on this public hunger to control criminality, Duterte is promising more criminality, of state-sponsored murders to achieve that goal. Duterte in effect will be violating the people’s three freedoms without realizing it.

Duterte is a dangerous candidate. He should not win. The problem is that the other leading presidential candidates are showing little capacity to snatch the lead. One practical but seemingly improbable scenario is a consolidation of votes of two least-opposing candidates, that of Sen. Poe and Sec. Roxas. But it seems that the probability of a Duterte victory is higher than the probability of this consolidation of forces.

Bienvenido S. Oplas, Jr. is the head of Minimal Government Thinkers, a Fellow of SEANET and member of the Economic Freedom Network (EFN) Asia.

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See also: 

BWorld 49, John Locke and Jovito Salonga, March 18, 2016

BWorld 53, Population and growth projections, April 09, 2016 

BWorld 54, Rice farming, trading, smuggling and electioneering, April 15, 2016 

BWorld 55, FIT-All, renewables and elections 2016, April 23, 2016

Election 18, On Duterte's killing field of 1,700 murders, December 09, 2015 

Election 20, Digong Duterte's rape "joke" of the Australian victim, April 18, 2016 

Election 21, Duterte and the Australian, US Ambassadors' comment on rape joke, April 22, 2016

BWorld 37, World rule of law index and the Philippines

* This is my article in BusinessWorld last January 08, 2016.

Among the gut issues that directly affect the ordinary people in many countries in the world is the peace and order situation, their freedom from criminality and terrorism, freedom from thieves, abductors and murderers.

In the Philippines, this situation is graphically represented by a huge number of private security guards almost everywhere: in schools and universities, office buildings and residential villages, malls and shops, banks and factories, airports and seaports, farms and resorts, and many other places.

This situation implies that people distrust the police, army, and other government enforcement agencies in protecting them and their private property. The peace and order function of the state has been greatly privatized a long time ago, despite the continued presence of huge and heavily-armed government armed forces and police.

Besides the huge number of private and armed security personnel, what are the other indicators that peace and order situation in the Philippines need major improvement?

The World Justice Project (WJP) has the answer in its annual Rule of Law Index.

Covering 102 countries, the Rule of Law (RoL) Index 2015 Report has used over 100,000 household and 2,400 expert surveys to measure how the RoL is experienced in practical, everyday situations by ordinary people around the world.

RoL is based and defined by the WJP on four universal principles:

1. The government and its officials and agents as well as individuals and private entities are accountable under the law.

2. The laws are clear, publicized, stable, and just; are applied evenly; and protect fundamental rights, including the security of persons and property.

3. The process by which the laws are enacted, administered, and enforced is accessible, fair, and efficient.

4. Justice is delivered timely by competent, ethical, and independent representatives and neutrals who are of sufficient number, have adequate resources, and reflect the make up of the communities they serve.

Eight factors were considered in constructing the RoL index:

(1) Constraints on Government Powers; (2) Absence of Corruption; (3) Open Government; (4) Fundamental Rights; (5) Order and Security; (6) Effective Regulatory enforcement; (7) Civil Justice; and (8) Criminal Justice.

For the specific purpose of this paper, only the components of Factors #5 and #8 will be shown. The country codes below represent the following: Singapore, Malaysia, Philippines, Indonesia, Thailand, Vietnam, Cambodia; South Korea, Japan, Hong Kong, China. (See Table)

The Philippines ranked good in Factor #5, along with other Asian countries mentioned above. Perhaps the presence of so many private security agencies has contributed to the overall improvement in order and security.

The country though scored low in Factor #8 where the government’s justice, police and correctional agencies are directly involved.

Presidential, congressional, and local candidates, as well as their political parties and officials, should make it a priority to improve the country’s criminal justice system. An improvement in this area should mean higher confidence and respect of government and its various institutions.

A poor household may get free education, free health care,, a monthly cash transfer from the government and other subsidy programs. But of what use are these welfare programs if the same household would have one or more family members abducted, raped, or even murdered? Or the small parcel of land it has inherited or acquired after years of savings was grabbed by some influential individuals and families?

Here’s to hoping that the security and order, the criminal justice system of the country will greatly improved in the years to come.

Bienvenido S. Oplas, Jr. is the head of Minimal Government Thinkers, Inc., and a Fellow of Stratbase-Albert del Rosario Institute (ADRi). minimalgovernment@gmail.com 

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See also:

BWorld 33, Computing rise in tax revenues if rates are cut, December 17, 2015 

BWorld 34, Solar power and supply instability, December 24, 2015 

BWorld 35, Inter-island shipping and the PPA, Coast Guard, December 25, 2015 

BWorld 36, What if the Philippines splits into many new island-countries?, January 06, 2016

Rule of Law 11: RoL Index, October 15, 2010

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

Rule of Law 25: Corruption in Europe, December 21, 2014