Caution on Federalism

The shift to a federal form of government will surely be among the contentious issues taken up by President Duterte in his state of the nation address today.
As a long-serving mayor, he has witnessed how policies dictated by the national government can be counter-productive for certain regions. He has seen how the national government dictates the fate of the regions without regard for its unique culture, traditions, religious persuasions, and aspirations.
As a result, Federalism is now at the front and center of national conversation. But it should not be reduced to a partisan issue or point of argument between Duterte supporters and those who oppose him. It is infinitely larger than that. Federalism will cause sweeping changes in the very fabric of Filipino life — from the way we are governed, to our economic future, to the way we interact among each other to the way our culture evolves. It will be change that transcends multiple generations.
I recently spoke to a cabinet member, who is also a member of the President’s economic cluster. In no uncertain terms, this cabinet member told me that we need sufficient time to prepare for federalism. To plunge into it in haste could backfire financially, socially, and culturally.
I discovered that his opinion is shared by the entire economic cluster as well as other members of Mr. Duterte’s cabinet.
So strong are the cabinet’s apprehensions about federalism that they collectively submitted a position paper to the President cautioning him of its premature implementation. These are the reasons why.
NOT ALL REGIONS ARE EQUAL
Studies show that only five of our seventeen regions have the infrastructure, the industries, and institutions to support themselves without subsidies from the national government. These are Calabarzon, Central Luzon, Central Visayas, the Davao Region, and NCR. These regions are ready for self-governance. The remaining twelve are not.
A look into the Statement of Receipts and Expenditures from the National Treasury as of September 2017 give us a snapshot of the extent by which certain regions are dependent on the national government.
The ARMM, for instance, derives 98% of their revenues from their share of national tax collections and other subsidies received from the national government. Only 2% of their income is self-generated through real property taxes, taxes on businesses and regulatory fees, among others.
Similarly, internally generated revenues stands at only 12% for the Cordillera Administrative Region; 14% for the Zamboanga Peninsula; 14% for Mimaropa; 15% for the Bicol Region; 15% for Ilocos; 16% for Western Visayas; and 16% for the Cagayan Valley.
Granted, under a federal government, regions will remit substantially less taxes to the national government, the data shows that their revenues are still far too minuscule to support their respective populations.
The lack of business activities is the reason why revenues in these regions are minimal. Unfortunately, industries are unable to flourish due to the lack of infrastructure, the lack of investments, and access to capital. Short-sighted governance and corruption on the part of the local government also contribute to the lethargic development of industries.
Can the twelve poorer regions survive on their own under a federal framework? Not with the revenues they presently have.
The likely scenario is that most (if not all) will fall further into poverty, widening the gap between the “haves” and “have nots” among regions.
The need to survive will compel citizens from impoverished regions to seek jobs in areas that offer opportunities. As a result, we can expect an inundation of job seeking migrants in Metro Manila, Cebu, Davao, Cavite, and Pampanga. This defeats one of the purposes of federalism, which is to decongest our capital cities.
AN EVEN MORE COMPLEX BUREAUCRACY
Federalism will not simplify the bureaucracy, it will add another layer to it.
Whereas in the present presidential system, we struggle with the bureaucracies at the national and local levels — under a federal system, another level will be added in the form of a regional government, exacerbating the complexity of it all. Along with this comes another set of taxes we must pay.
This results to duplicity of functions among the three levels of government, a situation that is both costly and inefficient. This also gives rise to jurisdiction issues. When does the reach of the regional government end and the national government begin? Unfortunately, not everything is well defined by the law.
To shift to a federal form of government at this juncture will interrupt the rollout of infrastructure projects in the countryside.
As it stands, it typically takes three years to start construction of a road, railway or port given the myriad of permits required by the national and local governments.
Under a federal system, the regional government must endorse the project as well. With this, there is no telling how much longer the approval process will take, how much more the project will cost and whether the project will even be approved in the first place. Simply put, federalism, at this point, will derail government’s “Build, Build, Build” program.
Federalism will also advance political dynasties.
A recent survey counted 77 out of 81 provinces to be governed by political families. Federalism will legitimize them as they can easily relieve themselves of term limits under regional law. Without a vibrant regional economy in place, federalism will perpetuate feudal societies where dynastic families acts as the landlord of all.
THE NEED FOR PREPARATION
Federalism has many advantages, not the least of which is that it allows regions to tailor-fit their laws to what is most important and meaningful for them. It allows them to build specialized industries that generate wealth without remitting the lion’s share of it to the national government.
Certainly, it is something worth pursuing. But again, we must prepare for it.
What does this preparation entail?
Government must first provide the appropriate infrastructure in the countryside for industries to thrive; local governments must strengthen their institutions so as to deliver basic services like education, health care, and housing with relative efficiency; Local governments must be capable of maintaining peace and order within their borders and install a credible justice system; More importantly, industries must be made to flourish so as to raise revenues to a point of self sufficiency. Without these basics, the federal state will fail. We need not look far, the ARMM and CAR were given autonomy on many aspects of governance, yet have little to show for it.
Experts estimate that it will take P2.91 trillion to make the shift to a federal government. Mind you, this is P2.91 trillion that we do not have — it will have to be funded by debt. Hence, we must make sure that the shift to federalism yields more economic benefits than it costs, otherwise, we will be saddling the next generation of Filipinos with debts they cannot pay.
Members of President Duterte’s cabinet have advised him not to rush the process of federalism. They have valid reasons.
 
Andrew J. Masigan is an economist