globalICaTion and governance

Posted: March 21, 2010 in Globalization, governance, ICT, Political economy

Introduction

In the early twenty-first century, the twin and related developments of globalization and the new information-communications technology (ICT) revolution are the two most powerful factors that shape and will continue to determine the parameters within which contemporary nation-states—big or small, strong or weak, developed or developing—will operate. They likewise have the strong potential of transforming governance in the Philippines—from the public to the private sector and from the national down to the grassroots levels. Likewise, these forces will also affect the continued viability of the Philippine nation-state project, one that is yet to be completed.

In public and academic discourse, globalization has taken on narrow and broad meanings. Its narrower meaning is economic integration at the global level. It is associated with capitalism, capitalism’s logic being that of expansion and accumulation. Globalization has also been identified with the growth of political interdependence at the world level, the erosion of local space and time, and the homogenization of social life especially at the elite level through universal standards, products, and culture.

Technology is understood as the use of scientific knowledge to indicate ways of doing things in a reproducible manner (BELL 1976). Included among the information and communications technologies are the converging sets of technologies in microelectronics, computing (hardware and software), tele-communications/broadcasting, and opto-electronics (SAXBY 1990; MULGAN 1991). Other observers add, to the list, genetic engineering and its growing list of applications and developments (HALL 1987; MARX 1989; CASTELLS 1996) because genetic engineering is focused on “decoding, manipulation, and eventual reprogramming of information codes” of living matter and because biology, electronics, and informatics seem to be converging and interacting in their applications, materials and conceptual approaches (CASTELLS 1996: 30; K. KELLY 1995). What characterizes the current technological revolution is not so much the centrality of information “but the application of such knowledge and information to knowledge generation and information processing/communication devices, in a cumulative feedback loop between innovation and the uses of innovation” (CASTELLS 1996: 32).

Globalization and the ICT revolution are inter-related processes; they in fact feed on each other. It has been acknowledged that globalization is not a new phenomenon as it is associated with capitalism. However, it is quite clear that contemporary globalization is distinct from past globalization in so far as the pace of flows (especially in the capital markets) is concerned. The immensely accelerated pace of contemporary capital flows were made possible largely through advances in ICT. Progress in ICT also enhanced the C3 (communication-coordination-control) capabilities of multinational organizations (especially transnational business firms) such that post-Fordist arrangements (such as internationalized production, sub-contracting, niche production and marketing) can be undertaken leading to greater global economic integration in the process.

Because of the two’s inter-relatedness, one is forced to coin a new albeit awkward term to represent their summation, interaction, and synthesis: globalICaTion.

Both inter-related phenomena reshape, distort, displace, dissimulate time and space, parameters that are key to governance and nation-states. Some observers have made radical but one-sided claims: OHMAE (1995) argued that globalization will send the nation-state to the museum of antiquities while NEGROPONTE (1995: 6) expected “the nation-state to evaporate” under the influence of the new technologies. It will be argued in this article that globalization and ICT will exert enabling, disabling, and transformative effects on governance and nation-statehood. The ultimate purpose is to identify these various phenomena as far as the Philippines is concerned and to elaborate on some of the key trends that may configure the Philippine political economy in the early 21st century. The second broad objective will NOT be a stab at futurology but rather, ala CASTELLS (1998: 352), “an attempt to bring a dynamic, prospective dimension to a previous synthesis of findings and hypotheses.”

The State and Globalization

It was with the modern nation-state that politics became territorialized. In pre-modern Europe, political authority and sovereignty were shared by a wide variety of secular and religious personages and institutions—king, prince, pope, bishop, merchant guilds, and the like. The modern state project sought to replace these overlapping and often conflicting jurisdictions through a centralized state apparatus and the entire exercise was legitimized by the doctrine of state sovereignty which claimed that the government of any state had supreme authority over the people, resources and all other ‘authorities’ within the territory it controls (AXTMANN and GRANT 2000). In recent years, the phenomenon of globalization, with its consequent adulteration of space and territory, and its impact on the state is a hotly debated topic among academics and politicians alike.

Two strands in contemporary literature stand out on the question of globalization and the modern nation-state. The earlier strand asserted that globalization has reduced the potency of the nation-state, i.e., that non-state, sub-national, and transnational actors have dethroned the nation-state as the primary actor in the international arena. Supposedly, there is pressure for a “relocation of authority” both supra-nationally and sub-nationally (ROSENAU 1997a). These developments supposedly carry the risk of national disintegration for, at least, some societies especially those racked with ethnic rivalries and boundary disputes (KENNEDY 1993). A more extreme view relegated the nation-state to the museum of antiquities (OHMAE 1995). This view has a noble lineage: capital mobility was seen by writers from Adam Smith, David Hume and Montesquieu as a powerful antidote to bad princes. In this situation, the authority of the sovereign state is being undermined by the pressures of de-territorialization. The territorial bounded ness of the state is undercut by the globalization dynamique. The global economy supposedly evades the control of any single state, even the most powerful or wealthiest one. New information and communications technology make it extremely difficult for governments to control the flow of information. Extra-territorial global forces both invade and evade the political space of the modern state and have the effect of altering or diluting political allegiances. For one, notice how Islamic fundamentalism has caused the growth of the Abu Sayyaf in Southern Philippines.

A more recent thread argues for the continued relevance of nation-states, though states must develop new capacities, in response to globalization. It has been noted that while some state functions such as macroeconomic management, immigration control or cultural policy are more difficult to implement under globalization, others may in fact be more effectively conducted. International issue regimes on criminal investigation and deportation, mutual defense, customs and taxation harmonization, and statistical cooperation mean that individual states can be more effective (P. KELLY 1999; MANN 1997; WEISS 1997).

Capital mobility and the changed nature of on-the-cutting-edge products (being more a bundle of ideas rather than a package of tangible or material inputs) make property rights even more important today than ever before. This is so because knowledge products are more susceptible to copying or replication making the enforcement of property rights over these same products even more difficult what with the open and replicative nature of contemporary technologies. Consequently, the key area of property rights enforcement and protection is the realm of intellectual products, e.g., software, movies, books, songs, etc.  www.napster.com, a popular song-swapper on the Internet, is a case in point. The Recording Industry Association of America (RIIA) asked the federal courts in the US to shut down the Internet site that it charged with “massive copyright infringement.” At the time, Napster already has 22 million users who use the site to download, for free, music files (in the MP3 format). Thus, even with international issue-area regimes in place (such as the GATT-Uruguay Round Treaty with its TRIPS, TRIMS, etc), nation-states are still tasked with the enforcement and protection of these same rights (EVANS 1997).

Other observers have similarly argued that actors in the global economy need a public agency, i.e., the state, that can regulate the business environment even with respect to old-fashioned products, and that economic actors are necessarily embedded in national economic systems:

Calculable trade rules, settled and internationally common property rights, and exchange-rate stability are a level of elementary security that companies need to plan ahead and, therefore, a condition of continued investment and growth . . . Companies may want free trade and common regimes of trade standards, but they can only have them if states work together to achieve common international regulation . . .. Companies benefit from being enmeshed in networks of relations with central and local governments, with trade associations, with organized labour, with specifically national systems of skill formation and labour motivation. These networks provide information, they are a means to co-operation and co-ordination between firms to secure common objectives, and they help make the business environment less uncertain and stable—a national economic system provides forms of reassurance to firms against shocks and the risks of the international economy (HIRST and THOMPSON 1995: 425-7).

The tendency of globalization to produce losers and winners (and therefore cause polarization within and between nation-states) enhances the need for states to act as mediator and conciliator (CHANG and ROWTHORN 1995). A number of observers have been disturbed by the uncanny correlation between increased economic openness and increasing global inequality in recent times. Accordingly, the income share of the bottom 60% of the world’s population has fallen by more than 40% between 1965 and 1990 (from 9.27% to 5.27%), while the share of the top 20% rose from under 70% to over 83% with the trend accelerating at the end of the period just as globalization accelerated (CHANG and EVANS 2000; STEWART 1999, UNCTAD 1997; KORZENIEWICZ and MORAN 1997). The inability of self-regulating markets to produce socially acceptable outcomes has given rise to the so-called “Polanyi problem.” In his work on the rise of national markets, Karl Polanyi argued that free markets, with its inequitable outcomes, generated a natural “protective” response on the part of a variety of adversely affected social groups, including fractions of the elite (POLANYI 1944). The rise of the Keynesian welfare state in most of the developed economies after World War II appeared to have mitigated the Polanyi problem but has led to the enlargement of state (RODRIK 1997; 1998). The apparent inability to regulate the international markets in contemporary times created social dislocations (as those generated by the Asian financial crisis) that are seemingly beyond the ability of states and domestic political processes to resolve and call for the construction of new international institutions (CHANG and EVANS 2000). Of course, states are called upon anew to build these new global institutions.

Furthermore, integration into the global economic community is quite costly. It has been calculated that it would cost a typical developing country US$150 million to implement requirements under the World Trade Organization (WTO) agreements on customs valuation, sanitary and phyto-sanitary measures (SPS), and intellectual property rights (TRIPs) (FINGER 1999).

The effects of globalization on the modern state, more particularly the Philippine state needs extensive empirical analysis. We cannot immediately say, without detailed argument, that globalization will of necessity weaken the Philippine state, even as the latter is already a weak one, and undermines its political capacity.

A synthesis of the literature reveals the key political challenge posed by globalization for nation-states: while globalization may diminish state authority and capacity in some areas, it has simultaneously offered new opportunities and new burdens on states. However, these opportunities can only be exploited by those who are nimble enough to do so. The new burdens imposed meanwhile require new capabilities on the part of nation-states. Where states are weak or have uneven capacities, the challenges become more formidable.

The strong link between growth of government and economic openness, at least in the West, has been demonstrated. The explanation appears to be that government spending plays a risk-reducing role in economies exposed to a significant amount of external risk. International economic integration, as it increases societies’ exposure to external risk, consequently intensifies domestic demands for social insurance through national government programs. But globalization also reduces the financial ability of governments to respond to these pressures since capital mobility reduces tax bases. There is danger that as globalization proceeds apace, the domestic social consensus (forged by increased government spending) required to maintain openness may erode to the point where a return to protectionism becomes a serious possibility. This observation was made in connection with the open economies of the West (RODRIK 1997; 1998).

The problem gets compounded in societies like the Philippines where the social consensus for openness to the global economy is either weak or non-existent. A rough estimate of the Filipino public’s response to globalization may be represented by results of a September 1999 survey of public opinion on possible changes in the Philippine Constitution. To avoid the suspicion that plans to amend the charter are motivated principally by self-serving motives (such as the lifting or extension of term limits for the President and other elective officials), the Estrada administration initiated in mid-1999 an amendment drive called Constitutional Correction for Development (or CONCORD). The said plan intends to limit changes to the economic provisions of the charter with the objective of making it more attuned to the challenges of globalization.

Concretely, the Estrada plan intends to amend the charter by lifting the prohibitions on ownership of land by foreigners and 100% foreign ownership of public utilities, mass media, and other strategic industries.

While the September 1999 survey of Pulse Asia indicate that most Filipinos were against amending the Constitution in general, it was precisely the economic amendments proposed by President Estrada that Filipinos found most unacceptable. While 77% of the survey respondents were against extending the term limits of elected national and local officials, a heftier 92% did not want foreigners to own land in the country. In addition, 88% did not want foreigners to own public utilities or mass media companies while 81% registered opposition to a proposal allowing foreigners to own retail companies in the country. The profile of the respondents tends to suggest that these opinions are held strongly by the poorer sectors of society. Majority (at 64%) of the survey respondents rated themselves as poor/very poor, with nearly half of the total (45%) saying their quality of life in the last year deteriorated rather than improved (19%).

The attitude against alien ownership of land appears to be common across income classes. Of the 6% of the survey respondents who rated themselves very poor, 94% were not in favor; 92% of those who rated themselves poor (57% of the respondents) agreed with them. The 7%, who rated themselves well off or wealthy, were of the same opinion. Strong differences in opinion among the income classes are more pronounced with respect to foreign ownership of media and retail companies. While 93% (83%) of the very poor did not approve of foreign ownership of media firms (foreign ownership of retail companies), only 84% (66%) of the wealthy had the same opinion.

The need for domestic social conflict resolution is highlighted by recent research that show that internal conflicts can help explain why growth rates could not be sustained and why so many countries have experienced a growth collapse after the mid-1970s. Conflicts interact with external shocks on the one hand, and the domestic institutions of conflict management on the other. Economic evidence show that countries which sustained the sharpest declines after 1975 were those with divided societies (as measured by indicators of inequality such as Gini ratios, ethnic fragmentation, and the like) and with weak institutions of conflict management, as proxied by indicators of the quality of government institutions, rule of law, democratic rights, and social safety nets (RODRIK 1998-NBER 6350).

Capital mobility itself can lead to a distributive conflict even as it enhances efficiencies. Just as free trade in goods, there is no guarantee that capital mobility makes everyone better off. Consequently, capital mobility may be politically unsustainable (RODRIK and VAN YPERSELE 1999).

With respect to capital mobility, there appears to be an emerging consensus in favor of some form of capital controls—a shift prompted by Malaysia’s successful one-year experiment. This shift was announced by no less than recently resigned World Bank chief economist Joseph Stiglitz (“A Paradigm Shift,” CHIKIAMCO 1999).

Market reforms associated with globalization may not always reduce rent-seeking opportunities. It may in fact reproduce incentives for rent-seeking behavior even in the presence of comprehensive liberalization. Recent Latin American experience shows that distributional coalitions (of the Mancur Olson type) may proliferate when the state withdraws from the economy, not only when it intervenes (SCHAMIS 1999). Russia’s experience shows how premature price liberalization without prior or accompanying de-monopolization simply shifted the flow of monopoly rents from the state to private monopolists. The Philippine experience (with Ramos’ telecommunications policy) saw the emergence of duo-polies (or tripolies) with the service area concept.

Even if one accepts that the components of the so-called “Washington Consensus” can help spur growth in developing countries, new research demonstrate that it is “groups of policies” (combination of policies) that are more critical for growth. States in developing countries supposedly must ensure policy complementarity, the adoption and implementation of a set of mutually reinforcing policies that create an environment that is conducive to investment and growth. Progress along a multi-faceted set of policy dimensions is supposedly more critical especially as the world economy becomes more globalized. This suggests that sequencing of reforms may lead to less optimal outcomes (AZIZ and WESCOTT 1997). The growing list of necessary capabilities that developing countries must acquire in order to grow has led NAIM (1999) to quip that the lack of these same capacities was the problem in the first place. The need to achieve progress on a broad reform front poses great political and technical difficulties for the many weak states in the developing world. For one, reformers sequence reforms to try to stagger the political battles they will have to wage against special interest groups. Others believe that one has to go after “low-lying fruits” first in order to notch early victories, gain confidence and broaden the social consensus for reform. Policy complementarity may be most especially difficult in democracies, which are by nature breeding grounds for inconsistent policies (COMMANDER and GILLICK 1988).

Globalization and Governance

Governance entails the design, construction, and maintenance of mechanisms to reach collective decisions and to enforce agreed-upon bargains within human communities. The Commission on Global Governance defines it as “the sum of the many ways individuals and institutions, public and private, manage their common affairs. It is a continuing process through which conflicting or diverse interests may be accommodated and cooperative action may be taken.” Nation-states are a particular type of governance structure but they are not the only form. Governance is not merely government. For all intents and purposes, a diverse range of organizations, families and clans, firms, guilds, trade unions, lobby groups, political parties, international non-governmental organizations, empires—are all governance structures since they ‘speak’ and act as a singular entity, facilitate group decision-making, foster cooperation, and enforce compliance with group norms and rules. In short, they govern their members and represent them in interactions with others. Thus, governance occurs in many arenas and in many forms.

Nonetheless, governance structures at the nation-state level appear to be most important as they enable and enhance operation of other governance structures, sub- and supra-national. Within a given national jurisdiction, the co-existence of a well-functioning state and a vigorous civil society characterized by robust crosscutting ties (the linkages between diverse social groups) produce social and economic well-being. Thus under conditions of good governance, the functioning state complements the functions of civil society groups. The functioning state provides the environment that encourages the productive work and cooperation among private social actors. Where states are dysfunctional, private social groups become substitutes for the state. People struggle to survive in the context of disorder, or try to cope in an economically stagnant situation to earn a livelihood (NARAYAN 1999). When states are dysfunctional or when they collapse, they lose the ability to fulfill three basic functions:

1. As a sovereign authority (the accepted source of identity and the arena of politics);
2. As an institution (a tangible organization for decision making and an intangible source of identity); and
3. As the guarantor of the security of a population within a given territory (ZARTMAN 1995).

In the international context, even if treaties create global governance mechanisms on key issue areas like trade, environmental protection, and the like, the implementation of these treaties still rest on the state-signatories.

In the 1970s, the Trilateral Commission worried about a “crisis of governability” as social unrest spread throughout the industrialized countries. At the time, the concern was that the evident breakdown in state-society relations threatened the ability of governments to respond effectively to the emerging economic and technological challenges of the phenomenon we now know as globalization.

Today, analysts worry about a crisis of governance. Under the press of globalization, political authority is seen as draining away from states, and is supposedly moving in three different direction:

• Upwards to supranational organizations like the European Union;
• Downwards to sub-national units—regions, provinces, and municipalities; and
• Sideways to private actors assuming hitherto public responsibilities such as multinational firms and non-governmental organizations (NGOs).

Globalization and Economic Reform in the Philippine Context


Various Philippine governments, including the late Marcos regime (late 1970s up to 1985) have made commitments to economic and structural reform to international multi-lateral financial institutions. These commitments were without fail responses to balance of payments crises, which required mediation of international financial institutions (IFIs) such as the International Monetary Fund (IMF) and the World Bank to keep the flow of foreign exchange going. The essence of these commitments was a rejection of an inward-looking protectionist policy regime and a choice for active engagement in the global economy.

If globalization is primarily understood as economic integration, then the extent to which the Philippines is integrated within the global economy could be measured. The World Bank has formulated an index of integration consisting of four components: the share of trade to gross domestic product (GDP); the ratio of foreign direct investment (FDI) to GDP; the ratio of manufactured goods to total exports; and a creditworthiness rating as determined by the Institutional Investor magazine (World Bank 1996). Even if one uses only one of these measures, the share of total trade to GDP, it is quite clear that the Philippine economy has been steadily integrated into the international economy since the 1980s.

In 1985, for instance, the Philippines had the lowest trade-GDP ratio (at 31.4%) in a group of six Southeast Asian economies, which includes Indonesia (36.3%), Thailand (39.5%), Vietnam (48.9 %), Malaysia (83.7%), and Singapore (269%). By 1996, the Philippine ratio (65.3%) bested that of Indonesia (41.9%), was comparable to Thailand (67.2%), but was still lower than Vietnam (82%), Malaysia (149.8%), and Singapore (281.1%) (SOESASTRO 1998).

Two kinds of adjustments to globalization had been identified by SOESASTRO (1998). First-order adjustments involve the process of opening up the society (and the economy) to forces of globalization and these include changes in the domestic economy through liberalization, marketization, deregulation, and privatization. On the other hand, second-order adjustments entail coping with domestic changes that come as a consequence of opening up. In the wake of the Asian financial crisis, the concern is whether government and society can make the adjustments necessary to alleviate, overcome, or minimize the negative impacts of the first-order adjustment efforts. These domestic social and political impacts of globalization, and the subsequent responses by government (in the form of policy and programs) and civil society, constitute second-order adjustments in the globalization process.

In the Philippines (and Thailand), civil society is more developed and active than in other ASEAN societies. Among ASEAN members, the articulation of political and social challenges to globalization (particularly its negative aspects or impacts) is probably strongest in the Philippines. While by and large, there is acceptance that globalization requires market-friendly reforms, many individuals and groups are concerned that globalization can result in displacement and marginalization of the poor in economic, social, and political terms, and that the burdens of adjustment are inordinately shouldered by the poor. Given its rather unique (compared to its ASEAN neighbors) political history, the Philippines exhibit the greatest concern within the region that globalization must not be subversive of democratization and popular empowerment and participation (GOCHOCO-BAUTISTA 1998).

As globalization was accelerated over the past decade by the end of the Cold War and the breathtaking advances in information technology, the implementation of these commitments got facilitated during the post-Marcos regimes with substantial breakthroughs achieved by the government of President Fidel V. Ramos. Elite consensus was achieved on key aspects of the economic reform package as evidenced by the relatively easy ratification of the General Agreement on Trade and Tariff-Uruguay Round Treaty in the Philippine Senate and its acceptance even by hitherto protectionist economic interests and groups. In the Philippine context, the government’s accession to the GATT Treaty in 1994 represented the first time that the term ‘globalization’ entered the political lexicon.

The elite consensus behind marketization and further integration into the world economy is not shared by several sectors of Philippine society. From the late 1970s up to the mid-1980s, opposition to so-called International Monetary Fund (IMF)-inspired economic austerity cum structural adjustment packages was fundamentally tied to the overall democratic struggle against the Marcos dictatorship. The basic critique was that these programs were “anti-poor,” “anti-people,” and that they provided much-needed financial support to an oppressive regime.

The advent of democracy in 1986 changed the tenor of the opposition to market reform. For one, it provided additional opportunities for opposition given relative freedom of information and expression. The strength of the opposition was manifested by a general strike against oil price hikes in August 1987, an occasion exploited by military rebels to mount the first serious coup attempt against the government of President Corazon Aquino. Any reform of an existing trade and economic regime will produce winners and losers within the short- and medium-run. For that matter, trade and economic reform had always been a tan¬gle of technical and political considerations. Why is this so? As early as the 13th century, Machiavelli observed “the reformer has ene¬mies in all those who profit by the old order and only luke¬warm defenders in all those who would profit from the new order.” It is easy to see why groups (labor, businessmen involved in “sunset” sectors, etc.) that will lose from trade and economic reform will lobby their governments to restrict trade and protect their incomes. However, those who would gain from the re¬form will not lobby equally strongly on the other side. Trade economists (e.g. KRUGMAN and OBSTFELD 1988) have long recognized that those who gain from economic reform and trade in any particular product are a much less concentrated, informed, and organized group than those who lose. This means that the per capita benefits of trade and economic reform are grossly outweighed by the per capita costs. For instance, the consumer beneficiaries of trade liberalization of sugar products would run to millions and are often unorganized while domestic sugar producers, who might be adversely affected, are obviously fewer, organized, and have the ability to act collectively and make political contributions to help thwart or adulterate trade policy.

Indeed, questions about the allocation of the social and political costs of economic reform have generated bitter argument within both international development circles and within countries struggling with economic adjustment since the 1980s. A number of observers (ROOT 1996, PRZEWORSKI 1992, and DAHL 1992) draw our attention to the attendant problems of market reform. These problems could be grouped into two: political support and state capacity.

Political support for structural adjustment programs in the 1980s was sorely lacking all over the developing world. They entailed sacrifices from social groups not generally included in the negotiations. During adjustment, countries that suffer severe income inequality often experienced political polarization. Adjustment programs became contestable on charges of intensifying perceived inequalities. Notwithstanding their intrinsic technical merit, market reforms will be opposed when some groups realize that they will benefit or suffer more than others. Good policies indeed matter but gaining a consensus for reform is a political question. Gloria Macapagal-Arroyo was the most enthusiastic champion for GATT-Uruguay Round treaty during the 1994 Senate debates. Is it correct to read her topping the 1995 senatorial by-elections, her election as vice president in May 1998 as a strong popular consensus, or her coalition’s victory during the May 2001 senatorial elections as a clear mandate for free trade and economic liberalization? How about her contested mandate from the May 2004 elections?

Equity therefore is a major consideration in assessing the political feasibility of market reform. NELSON (1992) points out that two distinct equity issues have emerged from out of the economic adjustment and reform processes in the developing world during the 1980s. The first, driven by humanitarian considerations, focused on reducing the impact of adjustment on the very poor, most of which are rural folk. In most cases, the pressures from external institutions played an important role. The second was largely defined by domestic political pressures, and focused less on the very poor than on the semi-poor and the urban working classes.

These two equity issues pose different political dilemmas. In the first case, while there are very weak domestic political incentives to assist the very poor (who are also relatively powerless and atomized), there were considerable international pressures on their behalf that have developed since the late 1980s, when economic adjustment sought to have a “human face” (pace CORNIA, JOLLY and STEWART 1987). While external agencies provided financial support for pro-poor programs in many countries, most of these programs had been defeated by opposition from the more vocal political sectors who stood to lose by the reforms.

The second issue seems to be a greater problem in the Philippines and the rest of the developing world. In contrast to the very poor in the rural areas, urban working and “popular” classes are more organized and politically active and can pressure reforming governments through a variety of weapons–from the general strike up to the ballot box and ‘people power’.

Given the above discussion, any reforming government has to weigh the social and political costs of reform. In the Philippines, opposition to economic and trade reform had traditionally emanated from oligopolistic business interests, farm interests and organized labor. However, oligopolistic business had displayed greater political sophistication since the downfall of Marcos in 1986. Realizing that multilateral funds were necessary to resuscitate the Philippine economy and secure the post-Marcos political regime, they paid lip service to economic reform to secure these funds and fought rear-guard skirmishes and battles since then. In fact, they made use of their positions in the Aquino government to perpetuate protectionist tariff barriers and block other anti-monopoly measures.

Curiously, these monopolists then found “strange” tactical allies in organized labor, peasants, and other leftist forces in the country. Apart from a perception that these measures were being foisted by imperialist agencies, the less powerful classes are also aware that they usually bear the costs of economic adjustment. For instance, the import liberalization program of President Aquino spared the “white-line” appliance industry identified with her trade secretary while certain agricultural sectors (e.g., cotton, sunflower seeds, etc.) were liberalized.

The tactical alliance may seem curious to a technical analyst who would argue that the lower classes (who are also consumers) will benefit in the long run from freer trade even if they may suffer short-run losses especially if they are employed in inefficient industries. The same alliance is intelligible, however, to ROBINSON (1962) who earlier quipped that the invisible hand of the market will always do its work, but it may work by strangulation. In addition, the visible hand of oligarchic interests and rent seekers will inflict further damage to lower class interests.

To dissipate local opposition to the Uruguay Round Treaty, the Philippine Senate cobbled up a multi-billion-peso ‘safety net’ package especially directed to peasant and rural beneficiaries. In general, a reforming government may have to buy off opposition through such “bribes”.  However, its difficulties are compounded if it is in a financial bind and under an IMF-prescribed austerity program which calls for reduction of public deficits, among others. The question here involves the funding of these “reform-buying” efforts. The scramble for government funds will obviously have political implications for any reforming regime.

Fundamentalists would argue that the provision of so-called safety nets is contrary to the logic of the market. The technical objective of market reform, they argue, is precisely to eliminate non-competitive firms, industries, and sectors. These observers believe that the provision of safety nets will simply inject new life into these moribund sectors. Others believe that technical considerations should be tempered by political imperatives especially in a country with a substantial peasant and small grower population as well as a burgeoning service (formal and informal) sector.

But this brings us back to the financing problem. Some have suggested that multi-lateral agencies such as the International Monetary Fund and the World Bank, pushing for trade and market reforms in the developing economies, should likewise provide funds for safety net packages. But this track may have to depend a great deal on the improvement of the capacity of many government bureaucracies to prevent the diversion of these resources to rent seeking orgiasts.

It is quite clear that market reform entails massive overhaul of state capacities in the developing world. The “orthodox paradox” stipulates that while reform calls for less intervention of the state in the economy, it requires the same state to initiate and sustain these same changes. The absence of state capacity is, in my opinion, a more important reason why economic reform could fail. Even when political support exists, it can ensure the successful implementation of reform. In situations where the bureaucracy is known to be corrupt or inept, the adoption of market reforms will not instantly transform it into an honest and competent one. A democratic state’s dismal capacity to administer reform will also feed to its political vulnerability. Capacity, politics, and equity considerations are in fact intertwined. The inability of the bureaucracy to successfully fend off demands for continued preferential treatment for powerful vested interests will only fuel charges that reforms benefit some groups at the expense of others.

As it is, economic and trade reform will be a politically and socially contentious process because not everybody gains both in the short and long hauls. Furthermore, more powerful interests who cannot stanch the reform process may manage to pass on the costs to less powerful and marginalized social sectors and groups. This is the usual complaint raised by populist critics with economic reform programs. A government committed both to popular empowerment and economic reform must therefore find ways through which the burdens of reform may be born equitably.

On the other hand, the advent of democracy and the initial results of economic reform have both resulted in diverse responses from the popular opposition. While a section continues its outright opposition to the incumbent regime, other sections have adjusted to market reform and have “constructively engaged” government to make the reform process a humane, pro-poor one. Other considerations include extracting a commitment from government in favor of sustainable development and gender-equity. These sections of the popular movements skillfully used international initiatives on environment, development, population, human rights, and gender (from Rio in 1992 to Beijing in 1995 and beyond) to obtain these governmental commitments.

What needs to be done?

The demand for good governance at the nation-state level is universal. The more relevant and interesting question is a question of supply: where or how do strong states develop?

If one considers the history of Western Europe where the nation-state was born, international war was the cruel crucible. Centuries of warfare forced the nascent Western European states to steadily build their capacities to penetrate and extract resources from their societies and to coordinate variegated functions and programs. The test of statehood was war; weak and incompetent states usually sustained military defeats and debacles. More recent examples indicate that war, even if of the “cold” kind, continue to be the forgers of strong states. Taiwan and South Korea built strong states, with the help of the United States, as they competed with their communist alter egos.

In principle, the Philippines rejects war as an instrument of national policy. In lieu of this option, our leaders has chosen the neo-liberal solution, or closer integration into the global economy, as the way to bring about good governance and a strong state. The international capital market will supposedly impose disciplinary strictures on local political and economic actors, public and private. This view has a noble lineage: classical writers like Smith, Hume, and Montesquieu saw capital mobility as a powerful antidote to bad princes. Where mobile capital goes will be depend on the quality and competitiveness of immobile factors of a particular location. These immobile factors include the hard ones—land, roads and bridges, information and communications systems, and the like; and the soft ones such as law enforcement, contract enforcement, property rights protection, and public service delivery systems—governance in short.

The burden of attracting mobile capital falls squarely on the immobile factors of a country. From the viewpoint of international capital, the ultimate competitiveness of each location depends upon the attractiveness of the package of immobile factors it offers. Previously, competition for mobile capital among and within developing economies have largely taken the form of providing more attractive hard immobile factors as well as investment incentives such as tax credits and strike-free industrial estates. More recently, the greater salience of governance had been recognized.

How could governance at the state level be improved? A general prescription is to reduce the state’s intervention in the economy. The argument here is that the over-reaching state will consequently be an incompetent one since its grasp will fall short of its reach. If the state reduces the scope of its activities, its competence will improve. The retreat of the state from direct intervention and involvement in the economy in turn requires new governance and regulatory capacities. Where markets do not exist or where markets do exist but are unfree, state action is needed either to help create markets, to free existing ones, and to maintain the freedom of existing ones.. This is the so-called “orthodox paradox” of market reform. The “orthodox paradox” stipulates that while market reform calls for less intervention of the state in the economy, it requires the same state to initiate and sustain these changes. While there is debate about the state’s “limited agenda,” there is consensus on three basic items:

 The state should stay clear of areas where markets can function properly;
 The state, should, at best, regulate in areas where market failures are endemic (as with prudential rules for banks where moral hazard is eminent) rather than acquire ownership;
 The state should improve its performance in the Smithian agenda (FABELLA 1999).

Retreating from the overreaching agenda of the past is the political challenge confronting the Philippine state. Alongside this necessary retreat is the need to change the prevailing culture of entitlements. As far as the Philippine state is concerned, it is both a case for retreat and advance. In many cases and levels, state action is sorely lacking. In this sense, the state is a weak and soft one. In instances where the state is overbearing, this is usually when and where the intervention is in favor of vested interests.

Reverting to a minimalist agenda is not problem-free. Several questions need to be answered. From where will the impetus to dismantle the overreaching soft state come from? From the state leaders and bureaucrats themselves (even if they benefit from the state’s softness)? From the rent-seeking special interest groups? From the general public who also benefit from the transgression of rules via the contagion effect?

All these questions are derivatives of the more fundamental questions: where do good institutions come from? How are they built and how are they sustained? A number of the greatest minds tried answering these questions, including the participants of the 1999 conference on second-generation reforms organized by the International Monetary Fund (IMF). In an article appropriately titled, RODRIK (1999b) noted that the choice lay between importing wholesale a “blueprint” from the more advanced countries and relying on the expertise of technocrats and foreign advisors or relying on hands-on experience, local knowledge, and experimentation. The local knowledge approach relies on mechanisms for eliciting and aggregating local information. The most reliable forms of such mechanisms, according to Rodrik, are participatory political institutions since democracy helps build better institutions for achieving prosperous societies. In a follow-on paper, he argued that democratic regimes are associated with significantly lower levels of aggregate economic instability since democracies have a greater propensity than non-democracies to moderate social conflict and induce compromise (RODRIK 2000a).

The Harvard economist also cautioned us that institutional change is costly and requires the expenditure of scarce human resources, administrative capabilities and political capital (RODRIK 2000b). The priorities implied by integration into the global economy will, arguably, not always coincide with those of a more fully developmental national agenda. Consider some illustrative tradeoffs:

• Education. What should the government priorities be in its education budget? Should it train more bank auditors and accountants, even if it means fewer elementary and secondary school teachers?
• Corruption. How should government focus its anti-corruption strategy? Should it target the “grand” corruption that foreign investors complain about, or the petty corruption that affects the average person the most?
• Legal reform. Should the government focus its energies on “importing” legal codes and standards, or on improving existing domestic legal institutions? Reforming the existing legal system for the benefit of foreign and domestic investors might be a better strategy in the long run.
• Public health. Should the government pursue tough policies on compulsory licensing and/or parallel importation of basic medicines (to make low-cost drugs available to the poor), even if that means running afoul of existing World Trade Organization (WTO) rules?
• Industrial strategy. Should the government simply open up and let the chips drop wherever they might, or emulate East Asian experience of industrial policies through export subsidies, directed credit, and selective protection?
• Social protection and safety nets. How much can the government afford to spend on social protection and safety programs in view of financial constraints imposed by market “discipline”?

One of the usual laments about under-developed societies in general, and the Philippines, in particular, is that there is supposedly “too much politics” and that therefore, the road ahead would be better if politics were reduced. SHEPSLE (1999), a noted political scientist, warned against naïve prescriptions which call for the creation of institutions that are depoliticized, that is, purged of politics, such as those contained in the World Bank-produced World Development Report 1997. Politics may be a problem but it must be part of the solution since institutions are inherently political and therefore those engaged in the design of appropriate institutions and social reform must “take politicians and political motivations as a fixture and try to design institutional arrangements in light of these, not despite them.” (SHEPSLE 1999, 2) In the end, Shepsle sees hope in the competition between uber-officials and unter-officials, between older and younger politicians, where ambition is pitted against ambition. Older uber-officials with shorter time-horizons will discount the future heavily and may be partial to present consumption (or predatory behavior, if you will). The future welfare of his people will thus depend on his altruism (or the lack of). On the other hand, younger unter-officials have greater valuations of the future and may therefore prefer investments to current consumption for future growth. To the extent that uber-officials need the cooperation of unter-officials to implement policy or changes in policy, then the latter can temper the excesses of the former. All these arguments are made in appreciation of the fact that successful economic development requires sacrifices in the short-term for long-term gain.

However, politicians of whatever age, as a rule, have short time horizons. While some of them may genuinely desire prosperity and equity for the people, most of them are mainly concerned with their personal interests and advancement. Uber-officials want to remain as such while unter-officials want to become uber-officials. Furthermore, the pressures and demands exerted on them by their constituents and patrons are for gratification in the short-run. Should we pine for monumental changes in the behavior of our political leaders and our citizens? Or should we design solutions in due recognition of the fact that most men, officials and citizens, are ambitious and self-interested. Thus, the solution is not “political will” nor “impeccable non-corrupt behavior” because if these were available there would not be a problem in the first place. Enlightenment and incorruptibility are in short supply and properly designed institutions may serve as substitutes.

We have already alluded to one source of hope and change. The difference in age and valuations among politicians, even as they are as a rule with short time horizons, will lead the rising ambitious set to oppose actions by the current incumbents to run down the privileges, authority, and capital assets associated with the higher offices to which they aspire. Shepsle also notes that even if all politicians were predatory, the presence of organizations with longer lives and therefore, longer time horizons, which represent interests to whom politicians are beholden for their political survival—political parties, labor unions, corporations, churches and religious organizations, etc.—will also serve as countervailing powers. The most important implication of this analytical line is that non-state actors, which normally have longer-time horizons than politicians, must be thoroughly integrated into a society’s political life. In this sense, therefore, Shepsle’s institutional preferences are compatible with those of Rodrik even as they are no more than a general principle rather than a well worked-out or fully operational plan. This is where local learning and experimentation will come in.

ICT, Governance and the Nation-State’s Future

A Human Development Report released by the United Nations Development Programme (UNDP) observed that while the digital revolution offered mankind great opportunities at learning, enhancing productivity, and improving governance, it also could help perpetuate the divide between the rich and the poor both within and across societies. This time the divide is between the “connected” and the “unplugged,” the digital “haves” and “have-nots,” the latter being those who are, for one reason or the other, unable to join the digital revolution and are not on the information superhighway. An article published by the Philippine Daily Inquirer reveals the dimensions of the digital divide :

• Only one of 20 people around the world are online and close to 60% of Internet users live in North America even if it accounts for only 5% of the world’s population.
• In Africa, there are a mere 14 million phone lines, fewer than in Manhattan or Tokyo.
• In India, despite its celebrated emergence as a software and IT powerhouse (with Bangalore as its own “Silicon Valley”), nearly a quarter of a million villages lack even a single telephone.
• In the US itself, there are yawning IT gaps with 60% more white households being online than African-American households and senior citizens account for only 16% of the cyber-community.

The digital revolution has at its core, networked data-production technologies, of which the Internet (or the WWW) is the most publicly visible form, is transforming the world upside down as they achieve critical mass in many societies around the world.

As networks become pervasive, they are reshaping the way people live, communicate and work. The technological changes that are transforming the business world (e-commerce, e-biz, B2B, B2C, etc.) and civil society will also revolutionize the way government operates and the very nature of public life in the near future. In its wake, the digital revolution will remake the two distinct yet intertwined relationships between people and their governments: the one between the government and the citizen as “customer” or “consumer” of public goods and services, and the other between government and the citizen as “owner” or “shareholder”. These transformations will be most likely felt in democratic polities all over the world where citizens are formally recognized as stakeholders of the polity.

The widespread adoption of information and communications technologies (ICT) is beneficial to democracy. Before the unfolding of the ICT revolution, democratic governance had to deal with tremendous transaction costs. The citizen must know in order to be able to consume available public goods. But acquiring this knowledge is costly. In order to provide the appropriate public services, governments, like a private business firm, must likewise know what citizens need and/or demand. Acquisition of such knowledge by government is equally costly. Furthermore, for the citizens as a whole to exercise their power and privileges as principals over the government (their agent or their representative), they must likewise know what their agent is doing. The antidote to Michels’ iron law oligarchy will surely include knowledge in the amounts far exceeding current levels that citizens have of what their governments are doing. With the digital revolution, the costs of producing, acquiring, transmitting, transforming information/knowledge has been dramatically reduced. This happens as the reach and speed of ICT increase exponentially and as the tools become more robust.

For all governments and governance structures, the digital changes have brought pressure to bear on through these issue areas:

Fiscal and performance issues. Governments the world over face continued pressure to reduce the costs of operations and control public borrowing and deficits. Citizens want improved public service; not simply better service but service delivered with increasingly flexibility and efficiency, and without their having to pay an extra premium for it. These issues intersect with technology because, increasingly, taxpayers and end-users know that many governments lag behind private business badly when it comes to providing convenience, accessibility, and efficiency. In the Philippines, for instance, the weather bureau has to rely on private mass media outfits to announce typhoon signals accurately and promptly.

The emergence of digital citizens. These same performance issues are felt keenly by the growing number of digital citizens. Computer access is now an everyday reality for millions of people and the reach of digital technologies grows daily. While computer access is not yet that widespread in the Philippines, the emergence of the wireless Internet promises to make access to information more widespread. The country has already earned the reputation of being the Short Messaging Service (SMS, more popularly known as text) capital of the world. And with the on-going convergence of communications technologies (such that one can use his mobile phone to send and receive e-mail or view TV broadcasts), then the country will most likely go whole-hog digital limited only by individual budget constraints.

New technologies are creating new networks. As ICT converge and as bandwidths increase, governments face not only tremendous new possibilities of informing and serving their constituents but are also challenged seriously to keep up. Most governments, including the Philippine national government and the LGUs still face an even bigger hurdle: their lack of resources required to acquire and implement complex and robust technologies. Alongside the IT revolution, globalization has created new competitive pressures on governments: jurisdictions are now measured for their compatibility with firms and actors who have digital savvy. Citizens now (or will) have the information that allows them to compare their government against any other in the world on virtually any score.

In summary, the digital age spawns transformation at all levels of governance:

• Democracy—from representative to participatory;
• Citizens—from passive consumers to active partners;
• Politics—from broadcast, mass, polarized to one-on-one;
• States—from national, mono-cultural to global, local, virtual, multi-cultural

In short, the digital revolution posed both rich opportunities and serious challenges to democratic governance. For a poor society like the Philippines, the digital revolution may help exacerbate the socio-political divide. Or it could be harnessed to deepen democratic politics, increase equity, and enhance empowerment. The socio-political challenge is to prevent the ICT revolution from exacerbating disparities between and within societies, when millions are still without running water and electricity, not to mention phone lines and computers.

If the historic brouhaha about the “I Love You” virus is instructive in any way, it is that the perverse episode may be indicative of the Philippines’ strong potential in the new ‘Digital Economy’. While the country ranked consistently low in competitiveness based on traditional economy indicators (lower than most Southeast Asian countries including Thailand and barely ahead of Indonesia), a new index based on New Economy indicators showed the Philippines as the world’s most competitive in one of 5 categories. The country was ranked No. 1 worldwide in the category of knowledge jobs, followed next by Australia, US, Canada and France, with India, a presumed competitor, way behind. The indicators for the category of “knowledge jobs” included qualified engineers, availability of IT skills, availability of senior management, and higher educational enrollment. In the other four New Economy indicators—technological innovation, economic dynamism, degree of transformation to a digital economy, and globalization—the Philippines scored no higher than 26 in any of the four categories (CRUZ 2000).

The ICT revolution poses serious challenges to national sovereignty and offers new opportunities for improving governance at all levels in the Philippines. As mentioned earlier, capital mobility and the changed nature of on-the-cutting-edge products (being more a bundle of ideas rather than a package of tangible or material inputs) make property rights even more important today than ever before. This is so because knowledge products are more susceptible to copying or replication making the enforcement of property rights over these same products even more difficult what with the open and replicative nature of contemporary IC technologies. The essential nature of these technologies, i.e., digitization or the conversion of data into bit streams consisting of number strings, is a vast improvement over previous copying technologies in that no diminution in quality is observed no matter how many copies are made.

In addition, the horizontal character of the contemporary IC infrastructure enables anyone with access to the network to be author/producer/distributor, etc. with the minimum of effort and capital resources. Consequently, the key area of property rights enforcement and protection is the realm of intellectual products, e.g., software, movies, books, songs, etc.
ICT makes it difficult for nation-states to regulate content and usage of the cyberworld. The Internet is undoubtedly an international and global phenomenon. As observed by FROOMKIN (1996), Net users are largely indifferent to the physical location of their interlocutors as long as they understand each other and connection is established rather rapidly. To the extent that cyber-transactions are instantaneous or to the Net enables long-term relationships, its multinational character makes it possible for users to engage in regulatory arbitrage defined as choosing “to evade disliked domestic regulations by communicating/transacting under regulatory regimes with different rules. Sometimes this will mean gravitating to jurisdictions with more lenient rules, or perhaps no rules at all; sometimes it will mean choosing more stringent foreign regimes (e.g., those with strong consumer protection laws), where stricter rules are more congenial” (FROOMKIN 1996, 13).

ICT offers opportunities in improving governance, especially in the provision of public goods and services to citizen-consumers. As mentioned earlier, the ICT revolution has theoretically and in practice reduced the cost of acquiring information. For this reason, if harnessed properly, it can help improve governance. Information is a crucial good and input in the governance process. Citizens need to know what public goods and services are provided by government and other public agents. Governments and other public agents, on the other hand, require adequate and timely data about citizens’ needs. Government agencies need to transmit and collect data from each other, either horizontally or vertically—for them to be able to better fulfill their function of public good provision.

ICT systems themselves can deliver the public good or service. A great number of the services that the public needs from government comes in the form of licenses, certificates, permits, etc—form documents—the issuance of which could be facilitated by ICT systems. For example, the computerization of the issuance of residence certificates at the Quezon City Hall as well as of birth certificates at the National Census and Statistics Office (NCSO) could be cited.

A number of observers argued that the expanding use of the new ICT can produce a qualitatively different political system in the future. For instance, DAHL (1989: 339) believed that telecommunications technologies have a key role in making possible the “advanced democratic country,” where policy is firmly anchored in the demos’ judgements. In the Internet, ETZIONI (1993) sees the possibility of an advancement in the public sphere through “teledemocracy” while GROSSMAN (1995) and BROWNING (1996) argued that a third great epoch of democracy is arriving through technology.

In theory, ICT could facilitate democratic processes, such as elections, plebiscites, and legislation as well as help combat corruption in government contracting through electronic procurement and bidding systems. ICT systems could facilitate the holding of elections and plebiscites. As long as the integrity of these systems are safeguarded and are not compromised, election results could be reported promptly; this promptness could pre-empt electoral fraud which, is common in Philippine electoral politics. These systems could also reduce the cost of holding plebiscites so that political leaders could receive periodic and timely feedback from citizens on key political and social issues.

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