Asia CEO Talks
In the letter of your chairman, Mr. Richard Mills, I was told that I am given the liberty to speak about whatever topic I feel would be compelling.
Well, I thought about that for a while and I think that at this particular point in time nothing proves to be more compelling than indulging in a reflection about the current state of our country. We heard the other day the President’s own version of the state of our nation in his 6th and final State of the Nation Address, where he brandished to Congress and the people the gains of his “Daang Matuwid” blue print for administration.
Now then comes a rather expedient time for post hoc public reactions, annotations, comments, from the entire captive audience, Filipino or otherwise, from experts to armchair analysts, from cheerleaders and well-wishers down to plain trigger-happy bashers.
But rather than engage in a critical discourse and give you a negative-toned counter, or Contra-SONA, allow me to present rather some sort of draft SONA, or administration blue-print, of a make-believe or hypothetical President made at a maiden SONA or at a miting de avance. One that presents another diagnosis of our country, a second opinion, and wherein would contain the plans and programs required to remedy and respond to the state of problems in which we found ourselves and the country as that President leads and assumes the highest and most powerful office of the land.
And please let me emphasize the words hypothetical, not hopeful, expectant, but less wishful thinking, lest I be quoted out of context and suddenly be reported, as it has been reported before we come here, to have announced a surprise early presidential bid. But if in case it happens, you will be able to see it nowhere else but here in the Asia CEO Forum, and you’ll be able to say, you heard it here first.
My vision of our country is one that can overcome its economic and social challenges by drawing on our own strengths and drawing on our unity. It is a vision of the Philippines that is prosperous, rich in opportunity, home to happy, morally upright, and productive citizens whose lives are meaningful because theirs is a just society, because theirs is a nation that has become great again.
I will immediately work to restore in all Filipinos the lost sense of pride in themselves and pride in being citizens of the Republic of the Philippines. We had at some point in our history that pride, that sense of nationhood but we see it to have gone astray and we have lost it.
This administration should govern our country with special attention to the needs of the more than 26% of our population who are the poorest, and the almost 70% who are called “unpoor” but actually mean that they live only precariously above the poverty line.
And that, ladies and gentlemen, is where you come in.
I would like to focus on two things that I believe we need to finally banish these discouraging statistics, unavoidable facts which persist despite our best efforts to change them.
First, I believe business should take the lead in nation-building, in poverty reduction, in developing our shared future. You have demonstrated in your work your ability to do so with your wealth, your skills, and your imagination in raising our economy to a level that has attracted positive elements. But it has happened under a system that has distributed the benefits inequitably.
The success of our nation depends on national unity, but it is hard for me to imagine how unity can be even be possible when nearly 97% percent of our people do not feel they are sharing in our so-called “economic miracle.”
And share in it they must. Not simply because for those of us of privilege and wealth, caring for the needs of our communities and our nation is the correct, upright thing to do, but also because it is in our best interests.
It is alarming to note that, despite our economic gains of recent years, at least 3,700 Filipinos leave for jobs abroad every single day. Nearly one in 10 of us are already abroad, meeting our families’ basic needs with the earnings from foreign jobs. It is distressing to see the most desperate of our people even consigned to the streets, or falling prey to sexual or other forms of exploitation simply because of a lack of opportunities.
These people are our workforce, and our market. They are our greatest resource, a resource that only grows in strength and does not diminish if it is used for the benefit of all.
Asking business to lead us in nation-building is a tall request, and one that government cannot rightly ask if it is not willing to equally share the burden, or take the lead. Which brings me to the second, but no less important point: How can government help business do business?
It is perhaps understandable if many doubt whether government actually has the ability to do that, because recent problems have revealed shortcomings in our efforts to eliminate corruption and improve performance. The P62.3-billion Conditional Cash Transfer Program, directed at the poorest of our poor Filipino families, has not helped all that it could because of leakages, because of weaknesses in the implementation, and because of lack of clarity in principle and in concept as to what the program was meant to achieve.
The modest efforts towards upgrading our armed forces have been hampered by anomalous deals and irregular transactions with suppliers of questionable competence. Every day, hundreds of thousands of commuters – our workers, our students, our shoppers – face the challenges of using an aging, inadequate commuter rail service that has become unreliable under the best of circumstances, and actually dangerous to life and limb at its worst.
Sound fiscal management has provided the Philippines with billions in accumulated savings, yet deploying those carefully-collected resources into infrastructure, improving the nation’s defense and law enforcement capabilities, and other basic development has proved more difficult than it should rightly be. And as a result, opportunities to create jobs, to create new areas for business growth, and to expand consumer and investment markets have been lost.
Government as well as business must change. The “trickle-down” concept of economics, pursuit of profit for profit’s sake with the expectation that the benefits will eventually find their way to the lower levels of our society, is a failure. It is something I sensed a long time ago, while still a student at university. In a study that we made on the Marshall Plan, which had as its central principle, a trickle down theory: throw money at the problem, if you had enough money it would trickle down to the poorest and you would have taken care of it. While there, I wrote a paper proposing that it is good economic policy, and ultimately profitable strategy for business, to balance those profits with a concern for the common good.
In recent years, many other have woken to the same realization, from political leaders, to learned and respected economists, and most recently even Pope Francis, who has offered strong words. In 2013, in his apostolic exhortation “Evangelii Gaudium,” he argued that “trickle down” economics wrongly demand “a crude and naïve trust in the goodness of those wielding economic power.” And as recently as this past July 10, while visiting Bolivia, he condemned the unbridled greed of naked capitalism: “Once capital becomes an idol and guides people’s decisions, once greed for money presides over the entire socio-economic system, it ruins society, it condemns and enslaves men and women, it destroys the human fraternity, it sets people against one another and, as we can clearly see, it even puts at risk our common home: the planet Earth.”
Capitalism as we know it, whether we like it or not, is becoming socially unacceptable.
Do not take it as a damnation of the capitalist society or the capitalist principle. But merely to say that government must take and must institute and have a mechanism that actively pursue the principle of distribution of wealth. I think even the most recent rock star of the economics fraternity, a gentleman by the name of Piketty, on his large and rather hard-going book on capital, again seems to have confirmed the same observation that growth in value of capital is never matched, if left to its own devices, by the growth in value of each individual in that economy.
By focusing on poverty, we focus on the fundamental strength of this nation, and our greatest resource, our people. It will require government and business working hand in hand.
But neither business nor the great population of Filipinos can have confidence in a government that does not demonstrate the competence and the ethical commitment to good performance. I was disappointed that in the SONA that we heard a couple of days ago, he neglected to mention the Freedom of Information Bill, a freedom of information bill that he actually can take note.
I believe in the FOI, because I believe it is a tool to build trust—something that we have to rebuild in our country as we have been set in a political system and even in a social system where we must take sides against each other. The FOI is a tool that encourages government to carry out its mandates honestly, competently, and with due regard to all stakeholders in critical issues and challenges facing the nation. Government cannot, after all, exhort those it serves to practice discipline and follow the law if it does not set the example by respecting the separation of authority and responsibilities of the individual branches of government, or to utilize collaborative tools like the Legislative-Executive Development Advisory Council, or LEDAC, or pursue long-overdue peace arrangements with enemies of the state with a sincere objective to improve the lives of all who are affected by any such conflict.
Neither the people nor you, as leaders of our vibrant business sector, can have the confidence and trust in the competence and commitment of government as a partner in advancing the nation if doubt is created by perceptions of corruption, of lack of ability, or of favoritism towards special interests.
The FOI will help erase those doubts, but it is only part of the answer.
If the next administration is to succeed, meritocracy must be the guiding principle. The next leader should surround himself or herself with the best of the best in the Cabinet. Our country is blessed with such great human talent and we must engage that great human talent in the service of nation-building. Meritocracy must govern all appointments, not only in high-level appointments, but throughout the entire bureaucracy.
Meritocracy will guide the organization and leadership of even the Armed Forces and Philippine National Police as well. Our nation’s internal and external security, peace and order in our cities and neighborhoods, is a critical concern for all us, government, business, and private citizens—all the same. Under the next administration, leadership roles in the police and armed forces that will be regarded with the gravity they deserve: As roles with vital responsibilities, responsibilities that can only be met by leaders who have demonstrated integrity, have demonstrated skill, and experience, and who believe, as I do, that inasmuch as promotion to a position of greater authority is an endorsement of one’s abilities and good service, it is also a call to duty and not a reward to be passed frequently from one officer to another.
These critical top leadership positions in our Armed Forces of the Philippines and the PNP will no longer be subject to the “revolving door policy”, wherein, again, for political considerations just make up a queue and say you will be the head for six months, next, next, next, immaterial of what your performance has been or if you have shown any special qualities that put you above the rank and file, that put you above all the other officers who also are vying for the same position.
Our military and police leaders have great responsibilities, and must earn the trust and confidence of their men and women in uniform if they are to lead effectively. And that they cannot do if they cannot be assured of stability and continuity in command. Frequent changes in leadership undermine morale, and make instilling discipline from the top, where it should start, difficult if not impossible. The next administration, leaders of the uniformed services will be chosen according to demonstrated skill and experience, and will be retained for as long as they can serve, and continue to make a positive difference.
But in order for our leaders in uniform to fulfill the duties we demand of them, they must have our support, and be given the tools they need to carry out their tasks. Just as government should strive to help business do business, under the next administration we will do our utmost to pay tribute to our courageous and hard-working men and women in uniform in deeds, and not only words.
Modernizing the AFP is an objective that should be pursued with vigor, but with reason. It is unreasonable to pursue modernization without having a clear doctrine addressing national defense and reduction of internal threats. It is unreasonable to pursue modernization while overlooking the basic needs of servicemen and their families for fair pay, and meaningful benefits delivered efficiently and with a minimum of procedures. It is unreasonable to pursue modernization by seeking bargains on other nations’ obsolete, second-hand equipment and materiel. It is unreasonable to pursue modernization using a complicated, time-consuming procurement process that is at risk of corruption and abuse.
Modernization of the armed forces under any successful administration will build trust and confidence in government and the armed forces alike, because it will be exactly that – modernization. We should seek to equip the armed forces with only the best tools and systems – not others’ hand-me-downs – and to eliminate middlemen and lengthy processes that can be corrupted, we will, we should, wherever possible, pursue the needed upgrades through government-to-government deals. Where that is not possible, and with the FOI as the peoples’ assurance that transactions are carried out with integrity, we will seek only the best suppliers with proven track records through transparent, consistent bidding processes.
I would like also now to take a few moments to touch upon and focus on the topic of “peace and order.” As I’m sure you are all aware, the threat of crime and a general lack of discipline is harmful to our economy, diverts resources away from productive endeavors, and reduces our quality of life.
A successful administration will have meritocracy that will be applied to our law enforcement and judicial sectors with no less vigor than the rest of the government. Because again, it is as much a matter of trust as it is “getting the job done.” Proper equipment and training, and the fair, firm, and consistent maintenance of discipline will encourage greater respect for the law, as will improving the efficiency and consistency of the judicial system.
By focusing on meritocracy, efficiency, and integrity in government, in national defense, and in law enforcement, this government will lay the firm foundation needed to “democratize capitalism” and to encourage the sharing of the fruits of our collective effort with all Filipinos. It is the firm foundation that we need to be able to ask you, the business leaders of our country, to take the lead in nation-building for all Filipinos. It is the firm foundation we need to be able to help you in that role, and to create a business environment of more opportunities for investors, an environment in which innovation, competition, and customer choice, value-added, drives our growth, and an environment in which businesses and consumers alike can be confident in fair, consistent, and uncompromised regulation.
So that we can have peace and order reign in our land, we must find ways to end internal conflicts and long-standing rebellions. The next resident must initiate peace negotiations with all who wish to stand against us – the MILF and other Muslim groups, and the New People’s Army and its Communist compatriots. And we will achieve this peace by building self-respect and mutual respect, addressing the root causes of conflict while protecting the rights and opportunities of all Filipinos.
Let us shift now our focus to some of the specific challenges our nation faces.
The Philippines has the dubious distinction of having the most expensive electricity among all the ASEAN nations, the second-highest in all of Asia, next to Japan. Part of this cost can of course be attributed to our heavy reliance on imported fuels, and out-dated, inefficient power generation systems.
Another significant contributor to our very high electrical costs, however, is the unjustifiable perception shared by government and the power sector that all risks and losses can be passed on to the end consumer. Electricity, of course, is not free, nor should it be. It requires resources and effort to produce and to deliver to consumers, and it is altogether appropriate that those consumers pay a price for it that reflects the true costs of production and distribution, and yes, a fair profit for producers and distributors as a worthwhile reward for their efforts.
What is not appropriate is to pass on to consumers costs not directly connected to the production and delivery of the commodity they are purchasing. Costs such as corporate income taxes. Costs such as capital expenditures for the development and roll-out of a prepaid electricity program that already provides electricity distributors with the bonus of guaranteed, up-front income, and further traps poor consumers in a subsistence-level existence. Costs such as “system losses” due to inefficiency, poor maintenance, or outright thievery. Cost such as the electricity used to power the electric generator’s or distributor’s own facilities.
Costs such as more than P5 billion in excessive generation charges levied against electric customers more than a year ago, but thankfully declared invalid and ordered returned.
Again, addressing these matters cannot be done with a single-dimensional approach. Any successful administration can and will work to develop more sensible rules, and create a regulatory framework that not only encourages and facilitates inputs from all affected stakeholders, but relies on them in a way that reflects the democratic nature of our society. By the same token, we recognize that we must also strive to provide greater opportunity for growth and innovation, by providing a consistent, rule-of-law based business environment, and by giving our strong support to development of alternative sources of electricity, using resources the Philippines is blessed with, such as geothermal, solar, wind, and biomass and any other emerging technology that we may take advantage of.
Solving our chronic power supply problems not only opens new opportunities in the power sector, it will be a big step towards the creation of the elusive inclusive economy, and greatly enhance the Philippines’ productivity at all levels.
Other countries have taken a shortcut to lowering power rates by subsidizing electrical costs. I think that is something that we have to look at very closely and possibly is a mistaken approach to the problem, and cannot lead to the same productivity and cost reduction that equitable but strict regulation and an attractive level playing field can provide. There must be no subsidies under the next administration – but there will be close monitoring and engagement with the industry.
Although studies vary in their perceptions of the scope and degree of the problem, it is a growing shared concern among scientists and policymakers that the entire world is moving quickly towards a water crisis. Over the past couple of months, we have seen a glimpse of what’s to come in California, where vast stretches of the state are unable to obtain fresh water in any form at any cost.
Studies in the Philippines confirm we are not immune to this risk: “Peak water,” the point at which our consumption exceeds our resources to replenish supplies, is estimated sometime between 2030 and 2050. Already we feel the effects of an El Niño-triggered drought in some parts of the country, while other places such as Mindanao regularly experience shortages during long dry spells.
Under the next administration, we must not wait like California for the crisis to be upon us before acting to secure our future water needs. We must take steps to encourage more investment in water supply systems, and I believe an area that has great promise in desalinization, a tried and tested technology already being regularly used in different parts of the world.
Desalinization technology is not of course without its challenges; the systems themselves are costly, and consume a great deal of energy. But I believe we must find ways to attract investment in that area, and that by doing so, help the technology to improve, to become more efficient, and to lower costs. Even if it is costly at first, the alternative – no water at any price – is simply unacceptable.
Thanks to the duopoly we have allowed to capture this vital part of our national infrastructure,—telecommunications—we are forced to tolerate service that is consistently rated as some of the worst in the world, and some of the highest-priced. A reliable, competitively-priced telecommunications system whose performance is on par with our partners and competitors throughout the region is not just a matter of convenience; it is a matter of national security.
I feel it is more productive to approach problems from as positive a perspective as possible. But that is very difficult when it comes to the problem of telecommunications infrastructure, because consumer anger is so widespread. Frustration with poor telecommunications services cuts across all segments of society– I’m sure there’s at least one or two, or quite probably more, of us in this room who have recently, maybe even today, been annoyed and inconvenienced by a poor signal, or a lack of coverage, a dropped call, missed messaging. It is 2015 ladies and gentlemen, the technology exists. Why do we suffer under these conditions?
For reasons that I have never been able to fathom, prepaid load on cellular phones has an expiration date. This only happens in the Philippines. You go to Malaysia, no such thing occur. You go to Thailand, no such thing occur. You go anywhere else where there is a cellular phone system, no such thing occur. Is it perhaps because most of load is used for text messages, which cost virtually nothing for the telcos to transmit?
A good president must ensure telecommunications services are improved, and provide value to their users. We should work with the patriotic Agham Group of Scientists for the People, whose assessment is that the provision of text messaging services should and can be provided for free, at very little if any real cost to the companies. We must also direct that a critical review of industry pricing structures and practices be carried out, and abusive or otherwise unjustifiable practices corrected. I will also explore ways in which greater competition in the industry can be encouraged, perhaps through a law similar to the recently-enacted law permitting the entry of foreign banks, or changes to the so-called ‘economic provisions’ of the Constitution.
We are all, no doubt, very familiar with the ongoing woes of Metro Manila’s light rail transit system – serious safety and reliability issues, poor maintenance, overcrowding, allegations of corruption – and I know that you are all familiar with these so I will not belabor the point.
In fact, we should acknowledge that some small progress is being made. I think more progress is made if one does not wait five years to begin the work, so the next administration must hit the ground running. We all know how safe and comfortable nearby rail systems such as in Singapore or Hong Kong are compared to our own. The only thing stopping us from having the same system in our country, in our cities, is ourselves.
Traffic congestion goes hand-in-hand with overworked public transit systems, and both present the same problem to all of us: They have a serious negative impact on our productivity and on the bottom line. I saw recently a calculation, an estimate, as to what are the actual peso costs to the very bad traffic situation in Manila and the calculation was at P2.4 billion a day. I think that all of us here who have sat in our cars, frustrated at the lack of progress going from one place to another, will find that that estimate is just about right.
Fixing the trains will take some engineering effort, but traffic congestion can at least be partly solved by enforcing discipline on our roads. Discipline comes from the top, which is why the meritocracy-based, non-political standards I mentioned earlier for choosing leaders in the police and military is so important: Corrupt and erring lower-level officers cannot be corrected by superiors who are not above reproach. The next administration must ensure that discipline is the rule throughout every rank of law enforcement. When the law enforcers become the law-breakers there is a serious problem in the system.
Of course, government must contribute to the effort, and to that end the next administration should focus on expanding the transportation infrastructure, as well as providing better training and proper equipment to law enforcement and for the orderly conduct of our transport system.
We cannot speak about what the problems that plague the country without talking about port congestion. I am pleased that the amendments to the Cabotage Law have finally been enacted, and I urge the government and Philippine businesses to take full advantage of it. Yes, it does increase competitive pressure, but I believe it opens up new opportunities as well.
We have also recently learned that Manila’s port area is vulnerable to a strong earthquakes. It makes sense then to encourage traffic to spread to other ports, which is what the next administration must do – for example, Subic and Port Irene for goods bound to or from Central and Northern Luzon, and Batangas for deliveries in Southern Luzon.
Infrastructure building must be a center part of the government’s efforts to improve the economy. One of the challenges we must overcome if we are to build a greater nation is to find ways to meet our enormous need for infrastructure of all kinds. We have now a limited number of large companies – highly-qualified and successful companies, to be sure – who build our large-scale infrastructure projects, and while they do good work, it is clear more participation is needed. The next administration must find ways to attract new investors and partners to help build the infrastructure we need. The government has belatedly recognized the lack of infrastructure development and public investment. We had over the past few years been spending at the rate of 2.5 percent of our GDP on infrastructure development. And because it had been clearly shown that we cannot make the economy expand and grow and create jobs if we do not improve our infrastructure development plan, then there was a policy decision that we would increase the government expenditure in infrastructure development to 5 percent of GDP. However, government also—following the recommendations of the World Bank study where it said 50 percent of the personnel of the Department of Public Works needed to be removed—so with an increase of double of our expenditure but with halving of the capacity of the Department of Public Works, then clearly it cannot work. And this kind of system where we have the government, where the right hand does not know what the left hand is doing, again brings us to this kind of situation. As I said this is a belated realization but it is a simple problem that does not have a simple solution. It must start from the very beginnings of the creation of policy and carried on through the implementation of that policy.
We must find ways to attract new investments and partners to help build the infrastructure that we need. And that is why I think we have come upon a very important juncture when we speak about infrastructure development: we are at the moment in my committee in Public Works, we are presently finishing the amendments to the PPP Law. There is great promise if we can actually get the system to implement large national projects on PPP bases, where we can transfer the costs of capital to the private sector and even the financial risks to the private sector, whilst giving the private sector to gain profit.
And now, I’ve saved the best part for last, let us talk about tax policy. Undoubtedly, you businessmen, that is your favorite subject.
My administration—should it happen— will push for the adoption of the gross income tax policy for businesses. Just as excessive human intervention poses a risk to government procurements, collecting tax revenue has become similarly compromised. In the next administration, corporations will pay reasonable, fixed taxes computed on their gross income, with companies fairly categorized according to their type and size.
Practices such as negotiating a bribe to receive a reduced tax assessment will immediately become a thing of the past under such as system.
Managing an equitable and efficient tax system – or anything else I’ve touched on today – will not be possible without a meritocracy-based, professional civil service and judiciary. A strong and independent judiciary is a vital necessity, a partner in all our efforts to provide greater opportunities for our people, to maintain our peace and security, encourage discipline, and maintain a productive level playing field for every business and every entrepreneur.
But it is a partner that many would say is missing, and has been for many years now. The next president, I will welcome that partner back to our nation, by applying the principles of meritocracy to the judiciary. It is a judiciary that is free from the whiff of corruption and totally above reproach, because its people are employed and rewarded in ways that recognize their competence and good performance, and provide them with respectable livelihoods for the important work they do on behalf of our nation.
In my remarks today, I have tried to remind us all of our duty to our fellow-man, the vast population of the Philippines who do not share in the benefits we are able to create, yet makes those benefits possible and could increase them almost beyond measure just if they are given a fair opportunity. I have touched on the gap in trust created between a government that performs poorly and inefficiently and the people it is meant to serve. I have highlighted areas – areas familiar to every one of us on a personal level, such as utility services, telecommunications, transportation, power-generation – in which our policies have hampered our growth and development. And I have, at least in brief terms, suggested ways in which the rule of law can be better enforced and in which taxes can be assessed more equitably and ethically, and more consistently.
The strength of the nation is in its unity, but unity cannot be achieved if the leader of the nation serves both the nation and his party. We must leave politics in its proper place. I take the same view as President Manuel L. Quezon when he said: “My loyalty to my party ends where my loyalty to my country begins.” This is something that all our leaders should be well reminded of. Therefore, the next preside must resign from my party and be a unifying president – after all, we do not elect a “President of the Liberal Party,” or a “President of the Nacionalista Party,” but a President of the Republic of the Philippines, whose duty is no less to the citizen who did not vote for him than it is his most ardent supporter. And in a non-partisan role, one should work with all political parties to strengthen the party system, an area of our democracy that is weak and ineffectual.
Once again the concept of meritocracy: I believe that in a meritocracy, the rule of law becomes second nature. In a meritocracy, we can focus on the real answer to that question: What would I do if I were president? Strong nations need strong foundations, and a successful presidency must emphasize service to the vast majority of our people – not in handouts, but in opportunities to easily join the meritocracy where we can build together.
Thank you very much and good afternoon. God bless us all. Mabuhay ang Republika ng Pilipinas. Mabuhay ang Asian CEO Forum.