Thursday, June 20, 2013

The challenge of bureaucracy

Are we finally on the right track? “The Aquino administration has approved a budget ceiling of P2.27 trillion for 2014, 13.1 percent higher than this year’s P2.01 trillion as it aims to sustain rapid and inclusive growth.” [Gov’t sets P2.27-T budget for 2014, The Philippine Star, 6th May 2013] “Its main focus is to expand transport and energy infrastructure, pursue tourism development, revive the manufacturing sector and enhance the assistance to small and medium enterprises for more to go up the value chain and allow them to multiply. The government also intends to promote greater agricultural productivity and higher farmer incomes. It also intends to ramp up infrastructure spending as a ratio of GDP from 2.6 percent in 2011 to at least 5-to-6 percent by 2016. The government intends to adopt a coherent and efficient intermodal transport roadmap, connecting employment-creating areas such priority tourism destinations, agricultural and manufacturing production hubs.”

But then, bureaucracy creeps in? “The Department of Finance (DOF) has put its foot down on the grant of incentives to most if not all preferred industries being proposed for incentives eligibility under the 2013 Investment Priorities Plan (IPP) and urged the granting of tax perks to export-oriented enterprises only.” [DOF wants to limit tax perks to export projects only, Manila Bulletin, 6th May 2013] “DOF’s position is tantamount to scrapping the IPP . . . IPP is for preferred economic activities that are geared for the domestic market . . . Unless the law is amended, you cannot do that . . . EO 226 was issued in 1987 by then President Corazon Aquino and has not been amended since then . . . The DOF, however, has always been wary about granting incentives to investors because this would cause additional drain to the government coffers . . . [T]here is no foregone revenue because there is no investment yet.”

At first glance it appears laughable, “a classic case for adult supervision" – i.e., the left hand does not know what the right hand is doing. Yet even the private sector falls into the trap; and as I’ve said in this blog, my claim to fame in my old MNC employer is moving the budget drill from a principally financial exercise into a goal-alignment process. And wasn’t the creation of the economic cluster within the cabinet precisely to get goal-alignment instituted in government service?

This is not the first time that the DOF has pronounced the primacy of tax collection. Indeed we have a problem with tax collection but we also have a problem in being an underdeveloped economy. And as such, our national economic output or GDP is minuscule to begin with – and thus the tax base would be pretty limited. It mirrors the tension not uncommon in private enterprise: the financial folks would push cost reduction because they question the optimism behind the sales targets set by their commercial counterparts. And it comes from linear-thinking or when everyone thinks they are being logical by starting from step-one. And which is why this blog has repeatedly talked about “starting with the end in view.” And thus has praised the efforts of the JFC (Joint Foreign Chambers) behind “Arangkada Philippines 2010.” It spells out the endpoint of raising our economic output or GDP by over $100 billion and it starts with investments of $75 billion focused on 7 priority industries that will generate millions of jobs.

If there is an effort to align goals within the government bureaucracy in support of Arangkada, for example, then the economic managers would want to connect the dots presented by the JFC by: (a) figuring out the various mechanisms to turn the vision of Arangkada into a tightly-knit plan and then (b) driving execution? The equivalent in the private sector is: (a) creating competitive products relevant to the 21st century consumer and her wellbeing (and this blog often discusses the elements of competitiveness: investment, technology, innovation as well as the development of talent, products and markets); (b) turning up the power of the products via the requisite and integrated marketing mix or elements; (c) employing the resource imperatives; and (d) pursuing dogged execution.

Understandably that will be too much to chew for the public sector. The reality – given our inward-looking bias – is that PHL private sector is yet to meet the above imperatives of global competitiveness as well. And thus those shortcomings (which can't be overcome by CCT nor CSR) of our ecosystem would explain why we’re an underdeveloped economy – and faced with widespread poverty.

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