Fighting corruption the managerial way

On Nov. 25, BusinessWorld published an article entitled, “Economic effects of corruption” written by Benjamin R. Punongbayan, a member of the Board of Governors of the Management Association of the Philippines.

He concluded his article thus:

“I purposely confined myself to analyzing the economic effects of corruption in government, except for a few comments in passing that corruption, in my opinion, is not a part of Philippine culture.

“I avoided commenting on the underlying issue of righteousness regarding the practice of corruption. I do not think I have the right to suggest to anyone to be like Mother Teresa.”

Like, Mr. Punongbayan, I would like to approach corruption as a management rather than a moral issue. How would a member of the Management Association of the Philippines go about fighting corruption, not as a crusader but as a manager?

We suggest the following principles guide his actions:

Bypass the corrupt middleman. In January 2013, the government of India, tired of relying on its corrupt agriculture bureaucrats, decided to bypass them and go directly to the farmers.

The Indian government introduced the Direct Benefit Transfer or DBT scheme to streamline the transfer of government-provided subsidies from various Indian welfare schemes directly into the beneficiaries’ bank accounts. This has been one of the most ambitious financial inclusion initiatives ever seen anywhere in the world, bringing over 330 million people into the formal financial sector. By 2020, 318 subsidy schemes from 53 ministries have been directly transferred to the farmer beneficiaries.

In its May 21, 2022 cover story on India, the Economist noted that the Indian government used a direct, real-time, digital welfare system to pay $200 billion over three years to about 950 million people. And the program is so successful that India is now a wheat and rice exporter.

The Philippines has also successfully bypassed its corrupt middlemen.

As reported by the World Bank, the conditional cash transfer (CCT) program, locally known as Pantawid Pamilya Pilipino Program or 4Ps, is a government program that provides conditional cash grants to the poorest of the poor in the Philippines.

The program has one of the most comprehensive poverty targeting databases in the world today, covering 75% of the country’s population. It has been used extensively to identify poor and near-poor beneficiaries for national and local government programs.

In the past, we have advocated that the excise tax collected on the importation of rice be sent directly to the rice farmers as cash instead of spending it on our corrupt bureaucrats. Additional budgets for the bureaucracies could also be converted into cash and deposited directly in the bank accounts of the intended beneficiaries.

Unfortunately, the present Secretary of Agriculture is pursuing a reverse course.

Government may regulate but never operate. The Department of Agriculture (DA) proposes to set up cold storage and warehousing facilities for the use of farmers. From a management point of view, the DA has neither the expertise nor experience to operate businesses, which is what these facilities are. First of all, constructing these facilities will require compliance with government rules on purchasing, rife as they are with corruption. Secondly, if the facilities do get constructed, the management will be very bureaucratic and not business oriented. Thirdly — and most importantly — the intended users of the facilities, the farmers, will not have the money to pay for the services provided.

Far better is to encourage the private sector to build and operate these facilities with the commitment that the funds earlier earmarked for the construction and operation of these facilities by the government will be issued as vouchers to farmers, who can then use the vouchers for availing of the services of the facilities.

The DA will regulate the operation of these facilities to assure that the farmers are getting a fair deal from the use of their vouchers. This does not eliminate the corruption that may arise in the issuance of the vouchers. But in management terms, these are friction costs, still allowing the system to operate albeit less efficiently rather than fatal costs forcing the system to collapse.

Government should regulate broadly not deeply. Let us take the case of two regulatory bodies in transportation, the Civil Aeronautics Board (CAB) in air transportation and the Land Transportation Franchising and Regulatory Board (LTFRB) in land transportation.

The CAB regulates the routes for both local and foreign airlines merely by setting the number of passenger seats that will be allowed on each route, i.e. 30,000 weekly passenger seats on the Manila-Seoul route. The airlines then determine the aircraft that will be used, the frequencies that they will offer, the services they will provide, i.e. economy or business class, and the fares they will charge. The CAB’s role is to ensure that there is competition on the routes so the consumer will benefit the most.

Meanwhile, the LTFRB regulates the more than 230 jeepney routes in Metro Manila alone (in addition, the LTFRB regulates all the routes in the entire Philippines). Given these routes, which are more numerous than the air routes, the LTFRB still insists on micro-managing the issuance of franchises; determining the number of vehicles in each route, the type of vehicles for the route, and the fares to be charged. The license issued by LTFRB is for a vehicle for a very specific route. Thus, if a route has a surplus of vehicles, vehicles assigned to that route cannot be transferred to another needier route. In sharp contrast, the CAB allows the airplanes of an airline to fly in any route that they are needed.

You may judge which regulatory agency is more corrupt.

Corruption should be made local. The crusader makes no distinction where corruption is concerned while the manager makes a distinction among different types of corruption.

The manager would seek to devolve most government functions to the lowest level of government, knowing that corruption on the local level is better managed.

Corruption on the national level is more comprehensive. National Government officials can steal not only from the taxes collected but also from the loans obtained by the government through domestic borrowing, i.e. treasury bills, international borrowings, i.e. samurai bonds, and international agencies such as JICA, ADB, and the World Bank. In effect they are also stealing from future taxes that will be collected to pay off the loans. The capacity of the local governments to borrow is more restricted.

Accountability on the local level is more demonstrable and so more effective. In the last election of 2022, the President — who cannot run for re-election after his six years — is not held accountable by the voters while the mayors, who serve three years and can be elected for up to three terms, can be held accountable by the voters. In the Metro Manila local elections, the mayors who performed well won by landslide margins while those who performed badly lost to their challengers.

Corruption should also be made local with respect to the Department of Education (DepEd) by devolving grade schools and high schools to the local government units. Let’s take the specific case of textbooks.

According to EdCom II, despite substantial budget allocations, only 27 textbooks have been procured for Grade 1 to Grade 10 for public schools since 2012. DepEd’s budget utilization data show that from 2018 to 2022 alone, a total of P12.6 billion had been allocated to textbooks and other instructional materials, but only P4.5 billion (35.3%) had been obligated and P952 million (7.5%) had been disbursed.

If the purchase of textbooks is devolved to the local governments, specifically to the school boards, corruption may still occur, but the books will be available to the students. If they are not, the outraged parents can confront the mayor as well as the members of the school board who are from the area and known to the parents. Currently, they cannot even identify the faceless bureaucrats in the head office of DepEd in charge of purchasing the textbooks and so are responsible for the lack of books for our public-school students. As with books, so also with computers and other learning materials.

When corruption is on the national level, citizens who despair of the situation can only emigrate to another country. Citizens who despair of corruption in their town or province can always move to another locality. By voting with their feet, they also exert pressure on their local officials to moderate their greed.

In sum, we argue that another approach towards fighting corruption is to consider it, not as a sin to be cleansed but a management problem to be solved.

Dr. Victor S. Limlingan is a retired professor of AIM and a fellow of the Foundation for Economic Freedom. He is presently chairman of Cristina Research Foundation, a public policy adviser and Regina Capital Development Corp., a member of the Philippine Stock Exchange.