Duterte and the Hard State

While I had voted for President Duterte in 2016, I confess that I wasn’t much of a fan in his first year in office, reaching a point of possible “buyer’s remorse.”

To my mind, he didn’t do much in his first year, which was just full of bombastic, populist promises: end “endo”, free irrigation, increase in SSS pensions, free cavan of rice, etc. While his war against drugs was on point, the way he went about it was over the top, applying pure brute force to a complex problem, and costing the country in terms of international reputation.

I also thought he was naïve in entering into peace talks with the CPP-NDF, even to the point of appointing known Red activists in his Cabinet. He also failed to confront the oligarchy in his first year. How could he?

For example, he appointed a former Globe executive to head the Department of Information and Communications Technology. It was like appointing a fox to guard the hen house. He also did nothing for agriculture and instead appointed Manny Piñol as Secretary of Agriculture. Pinol’s main policy is to continue former Agriculture Secretary Prospero Alcala’s failed rice self-sufficiency policy.

The President has evolved

However, I’m glad that there’s a President Duterte version 2.0. The man has clearly evolved in office. Perhaps, attribute the evolution to his humility about his intellectual capacity (“it took me 7 years to finish high school.”) but he has shown a capacity to learn and change course.

For example, while he initially bought into Piñol’s bankrupt rice self-sufficiency policy, President Duterte later backed Cabinet Secretary Jun Evasco’s more enlightened policy to liberalize rice importation and reform the National Food Authority. That the NFA with the help of the rice syndicate is now trying to create a rice crisis to avoid being “reformed” is beside the point. The administration is officially backing legislation to remove NFA’s legal monopoly on rice importation.

There are more examples: President Duterte has allowed the hard leftists in his Cabinet not to be confirmed for office and has junked the peace talks. He fired Atty. Salalima from office and appointed a competent and honest former general as DICT OIC. (I hope former Gen. Eliseo Rio Jr. will be made permanent.) He has reached out of his small circle of Davao friends and San Beda law classmates to staff the government and has been appointing more professionals (mostly ex-military) to sensitive positions. He has tempered his populist impulses. In fact, he has stopped short of fully implementing a job-killing end “endo” policy. Further, it was legislators, and not him, who pushed for the populist free SUC (State Universities and Colleges) tuition.

Even on the drug war, he has learned. He has relaunched Operation Tokhang as “Tokhang Lite,” without the headline-grabbing EJKs (Extra Judicial Killings), which was seen as the substance of his drug war policy.

My benign, if not positive, view of the actions of President Duterte version 2.0 is that he’s trying to develop a “strong” or “hard” state.

Duterte moves against the oligarchy

In developmental literature, a hard state is one which can raise substantial revenues, provide basic services, keep law and order, and impose public policy over narrow private interests.

It’s with this prism that I view the tax reform law or TRAIN (Tax Reform for Acceleration and Inclusion). While a few have criticized TRAIN as being anti-poor because of the increased taxes and the mild inflationary effects, I see it as a big step toward a harder or stronger state. The version that finally passed may have been diluted somewhat by the legislators, but the fact is that the administration pushed for it, despite objections of powerful private interests such as car manufacturers, sugar producers, beverage and food manufacturers, and leftist groups.  The ability to impose taxes is a hallmark of a strong state.

TRAIN isn’t the only instance where President Duterte has shown political will about the state’s financial prerogatives vis a vis private interests.

He has managed to collect Php 6 billion from Lucio Tan’s Philippine Airlines, representing unpaid navigational charges, a debt previous administrations have failed to collect. He has retaken the Mile Long Property from the Prietos, previous owners of the Philippine Daily Inquirer.

Recently, he forced PLDT Chairman Manny Pangilinan to surrender telecom frequencies to the government at no cost after threatening to send tax auditors to look over PLDT’s books. Those frequencies are public property and while PLDT may have paid CURE (Connectivity Unlimited Resources Enterprises) for those frequencies, CURE obtained them without paying for them.

More bitter to PLDT, the administration intends to hand over those frequencies to a third telco player which will compete with the existing duopoly.

To try to strengthen the state, President Duterte has been attacking what he perceives to be threats to the state. One threat is the drug syndicates with their creeping influence over local, and even national, government officials and police authorities. This is the reason for his drug war. The other threats are from extremists, the first from ISIS-backed local Islamic terrorists and the second, from the CPP-NPA. On the latter, he has done a 180-degree turn.

From consorting with the communists (which he admitted started when he was Davao mayor and playing local politics), he has scrapped the peace talks, ordered the re-arrest of NDF “consultants,” and instructed the military to go on an all-out war against the NPA.

However, a skeptic told me that a significant amount of TRAIN’s revenues will go to pay for increases in military and police pay. I retorted that it’s just being consistent with Duterte’s objective to strengthen the state by strengthening its capacity to vanquish the state’s enemies.

Breaking up the duopoly

Another sign of Duterte’s evolution is that his economic policies have transitioned from populist solutions to breaking the back of monopolies and duopolies holding back the economy.

On telecommunications, he’s pushing for a third telco player to compete with the duopoly. The administration got Facebook to invest in a bypass infrastructure which will give government 2 Terrabits of spectrum capacity, more than the duopoly combined. The government will use this to enable a third player to compete.

There are more government policies, from the Public Wifi law to the Open Access Bill, which would loosen the strangehold of the duopoly on internet services and improve people’s internet access.

More significantly, the administration has supported and prioritized the passage of the Public Service Act amendment. Amending the Public Service Act to exclude telecommunications and transportation from the list of public utilities will allow foreign companies to invest up to 100% in those industries.

As I had previously said, this is the most consequential piece of economic legislation since the founding of the Republic because the prohibition of 100% foreign ownership in those industries since 1935 has led to monopolies in those sectors, starving them of capital investment and technological transfer, and made the economy uncompetitive and resulting in high prices and poor service to consumers.

By fostering economic liberalization and emasculating the economic power of local monopolies and oligopolies, President Duterte will indirectly strengthen the state. It’s therefore laudable that the administration will try to shorten the foreign investment negative list, thereby facilitating foreign investment and more competition in presently restricted areas.

His administration has also signaled its intention to liberalize rice importation and remove the NFA’s rice importation monopoly although there are still dark forces within his administration bucking the policy.

However, his drive to strengthen the state has shortcomings.

President Duterte’s activist and can-do attitude doesn’t square with a weak and inefficient bureaucracy. True, he’s trying to cure the ills of the bureaucracy by appointing more ex-military officers (more than 55 officials to date, from the Department of Environment and Natural Resources and Department of Interior and Local Government to the Metromanila Development Authority and the Housing and Urban Development Coordinating Council). It’s a sound policy because the armed forces is the biggest government institution with the most educated professionals with organizational experience.

It’s not going to be enough. This is why his government’s reliance on ODA-funded or hybrid PPPs for his infrastructure program is highly misplaced. It puts a big burden on government to perform. However, already, the public relations releases are outrunning the realities on the ground. His rail projects, such as the Subic-Clark cargo railway and the Mindanao railway, are economically unsound and will become white elephants if ever they come to fruition. Even the much touted Manila-Clark railway may reach only as far as Malolos because the DOTr has yet to secure right of ways to Clark.

Is the President spending his political capital correctly?

I’m also not sure if President Duterte is right in spending his political capital in trying to change the form of government.

Changing the form of government from unitary to federal and from presidential to parliamentary may be an admission that a strong central state is not possible but only mini-states competing against each other is.

Moreover, I don’t agree with his administration’s political attacks against Chief Justice Sereno and the Ombudsman. Successful or not, the impeachment of either Sereno or Morales will weaken the state because President Duterte is expected to make political tradeoffs to secure conviction.

If I were President Duterte, however, I would rather focus on inclusive agricultural development to strengthen the state. The widespread poverty in the countryside and the extremism it breeds is a major reason for our weak state. Because of agricultural underdevelopment and widespread rural poverty, the state is continually threatened by political extremists, whether by Islamic terrorists or NPA guerillas, and weakened by the lack of a rural middle class, resulting in dominant political dynasties.

On the other hand, abolishing the NFA rice import monopoly is in the right direction, although he has to do more. Now that the leftists in his Cabinet are gone, he has to fix the problems spawned by the CARP law (overregulation and restrictions in the rural land market). And instead of big ticket economically unsound railway projects, his Build-Build-Build program should be focused on easier to build regional infrastructure that will help agriculture.

Beyond President Duterte’s foul language and the sexist jokes, I try to focus on the big picture and I like what I see.

For too long, we have had a weak state, easily penetrated and bullied by narrow private interest.

This is why the Philippines has been left behind economically by its neighbors. This is why we lack public services and peace and order. This is why I silently applaud when President Duterte threatens to shut down Boracay because local officials have been unable to punish violators of environmental laws and to assert public rights over unscrupulous developers.

A hard state is not to be confused with an authoritarian state.

With its irresponsible elite, giving a man political monopoly doesn’t work in the Philippines. What the country needs is a hard, or developmental, state within its democratic framework that will promote sustainable, inclusive development. If President Duterte aims to achieve that, then bully for him.