Will ‘bringing government closer to the people’ help the poor?

At a forum on federalism held at a recent general membership meeting of the Financial Executives Institute of the Philippines (Finex), organized jointly with the Management Association of the Philippines (MAP), lawyer Raul Lambino, administrator and CEO of the Cagayan Economic Zone Authority, presented the administration’s position on this contentious issue. The other speaker was Hilario G. Davide, retired chief justice of the Supreme Court.

Davide’s highly articulate presentation expounded on his well-known position on the issue, while Lambino’s simply echoed the administration’s “antiimperialist Manila” stance.

The basic premise of Lambino’s argument can be summed up as thus: “bringing local government closer to the people will improve the lot of the poor.” Equally implausible is the implicit assumption of the profederalist position that local government executives have both the competence and the inclination to serve the economic interests of the poorest among their constituencies. Nothing, to my mind, could be farther from the truth.

Much more than their national counterparts, local government executives generally have a very parochial and simplistic view of social, economic and environmental issues, and have extremely short-run time perspectives. From their isolated positions, they cannot begin to fully appreciate the interrelatedness of the wide-ranging issues faced by society in today’s highly complex and interconnected world, nor do they have the wits to put in place measures designed to capture value arising from symbiosis. They simply are too focused on their respective local—and personal!—concerns and fixated with immediate results to fully comprehend the wider and longer-lasting ramifications of their acts on their communities, much less to be aware of—and concerned with—their adverse regional, national and global consequences.

In their hands, public-sector governance, from the wider national and global perspective, becomes what is known as a “zero-sum game,” a strategy where one gains at the expense of another, or worse, a negative-sum game where everybody loses—including, ironically, the very communities that they are supposed to serve.

I have argued elsewhere that corruption and conflicts of interest between the political elite and their constituencies is relatively more intense and more lethal at the local than at the national level. If this observation is correct, adopting a federal system of government will allow abusive local officials not only to assume greater political power, but also to arrogate to themselves a larger share of the national wealth, making our country even more corrupt and less inclusive than it already is.

The biggest losers in this shift to federalism are the poorest members of our society who will be most disenfranchised and will surely be mired even deeper in poverty.

Should business support federalism?

Over the past several years, business has been playing an increasingly important role in poverty alleviation and social development. An increasing number of progressive business organizations, among them some of the best-known corporate entities in the country but mostly comprising of small and innovative startups, are pursuing what are known as inclusive business strategies or models. This modern approach to business management provides access to economic opportunities to low-income communities in a manner that will make businesses more viable and sustainable.

Usually regarded as part of the firms’ corporate social responsibility, these initiatives are assumed to entail sacrifices in profits in exchange for their impact on society. However, since inclusive business models have a potential positive impact on the firms’ long-term profitability, they should be regarded as an integral part of the strategic agenda.

I contend that a shift to federalism will serve to discourage business firms from pursuing strategies that serve the economic interests of the poorest segments of our society.

Adopting a federal system of government as proposed by the incumbent administration will allow local administrators to pursue their own political, economic, social and environmental agendas. This will lead to a hodgepodge of incoherent fiscal policies and regulatory measures at the local level which are likely to be incompatible with one another, possibly work at cross-purposes, and certainly out of sync with national developmental policies. Devising an overarching governance mechanism that would bring these conflicting elements into harmony will be a gargantuan challenge to those who will be managing the affairs of state under a federal regime.

More importantly from a business strategy point of view, a business setting characterized by policy and regulatory confusion and inconsistencies will make it impossible for firms to craft and implement comprehensive strategies for their sustained profitability, and at the same time deprive them of the opportunity to help alleviate poverty in our country.