Posted: January 11, 2011 in Philippine politics, Political economy

Possibilities for transformation

Informals are informals not because they want to but because they have to. One cannot fully accept the notion that they choose to be informal because they do not want to pay taxes. Some informals may really want to evade taxes. However, they actually ‘pay’ implicit taxes—the lagay (bribe) to the cops, and the “5-6” interest premium to the Indian (Bumbay) moneylenders, among others. If regulations were rationalized, informals would rather pay regular taxes to the state than endure their unprotected status.

On the basis of the foregoing discussion, we submit that the informals can supply the ‘swing vote’ for change. Ultimately, we understand reform of the Philippine political economy as a process where mass poverty is alleviated through the growth of the formal economic sector and the consequent shrinkage of the informal economic sector.

Similarly, we also see it as the growth of a law-governed state (Reichstaat) and the necessary contraction of the criminal economic sector. The possibilities for change can be surmised from the strategic direction of typical actors in each economic sector. The formal, even if she may dabble in the other economies, will prefer to stay in the formal sector. In that sector, she enjoys higher and more stable income and a more secure socio-political status than informals and criminals, more so for the warriors.

However, one cannot safely generalize that all formal actors have this strategic direction. Some formal actors, especially politically powerful ones, may want to continue to dabble in the other kinds of economic activity even in the long run. The political power they wield allows them to behave in this manner. On the opposite side of the spectrum, it is may be safe to assume that most criminals want stay that way—the dangers of the criminal life are offset by the returns on nefarious activity.

Nonetheless, it may still be necessary to disaggregate the actors into diehards and reluctants—the latter being those members of the under-classes who had to engage in petty crime because of extreme poverty. If this is the case, then the reluctants, if given the chance may want to be informals, or better yet, formals. For the informals, we do not doubt that strategically, they want to be formals rather than continue as informals or slide down as criminals. In this case, however, we do not have a chicken-and-egg situation.

Informals will decisively tilt the balance in favor of reform and side with the formals against the criminals only if some improvements have been achieved by earlier reform efforts that promise a better life for them or for their children. (Figure 3 is a graphical representation of the possibilities of transformation as it maps out the strategic directions of three different types of economic actors).

On the other hand, one may argue that the behavior of the formals may be the key to systemic change. Formals usually occupy the higher rungs in the social ladder and serve as society’s exemplars. If they refrain from dipping their fingers in the informal and criminal pies, then they may help deter others from doing the same.

It is quite difficult to map out on the outset the strategic direction of the warrior. His endeavors may end in several possibilities: strategic military victory, strategic military defeat, negotiation and political settlement, and strategic co-existence. Should he attain strategic military victory, then the state will be reconstituted according to his preferences. In the event of a strategic defeat, the war economy may disappear. If the combatants reach a political settlement, the social and political system may be amended acording to the settlement’s terms. Strategic co-existence cannot be ruled out as a possibility given the longevity of the country’s insurgencies. Strategic co-existence simply means the combatants are unable to defeat or settle with their counterparts and will mean the perpetuation of the current situation.

Concluding remarks

Admittedly, the theoretical model presented in this paper is rudimentary. To find out whether it has promise or should be consigned to the dustbin is the main reason why I chose to present it by installment in this blog. If indeed it is promising, I also like to find out if a robust research program can emanate from the model. Towards these ends, I await your comments and questions with eagerness.


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