Conglomerates to the rescue?

Economist Raul Fabella, a national scientist, delivered a lecture last week that all but gave up on government’s ability to make a real difference in poverty reduction and economic inclusion.

Fabella pointed out early in his lecture that the world has successfully halved the incidence of abject poverty since 1990. Unfortunately, the Philippines was one of the few that failed (34 percent in 1990 and 26 percent in 2015).

Our problem, the economist pointed out, is weak institutions. Our rules are unstable and so is enforcement. Our institutions operate beyond their realm of competence. There is institutional capture by private groups for private gain... good ol’ rent-seeking.

Institutions are defined as humanly devised rules that structure human interactions. Groups have goals that transcend the individual, a social optimum... the common good. Institutions align behavior towards the social optimum.

Because our institutions are weak and the need to reduce dire poverty is urgent, what can we do?

Fabella thinks our conglomerates can come to the rescue. Conglomerates, he said, are islands of considerable capacity for collective action. They have resources, expertise, organization and stability.

The national scientist urges us to rechannel our conglomerates rather than diminish them. When enlisted, he pointed out, they could greatly boost the weak state’s capacity for providing public goods.

“The incapacity of the state to provide public goods could be helped along by enlisting conglomerates towards that. This is not a pipe dream. This has happened already. It’s already part of our history,” Fabella said.

Conglomerates can also “lower the cost/facilitate the strategic retreat of the state and attract foreign investment and resources, e.g., MWSS privatization.”

How to enlist the conglomerates? PPP or Public Private Partnership… assign the property right over a prospective asset to a firm, credibly commit to rule-of-law contracts and the firm builds long-term investments. He cited TPLEX, CALAX and connector road projects as footprints of enlisted conglomerates.

Fabella talks about “conglopolistic competition” This happens when conglomerates compete in many markets, reduce market power and give consumers options. It is happening now, he said, citing among others, how conglomerates are now competing in “non-elite” tertiary education.

This new area of interest for local conglomerates has resulted in improved faculties and facilities (Mapua, NU, UE, FEU, National Teachers College, University of Nuueva Caceres), Fabella pointed out.

Conglomerates can, and do, turn pursuit of the bottomline into empowerment of the poor, Fabella observed, citing the tingi-tingi pre-paid SMS. He said it empowers the kasambahay and trike drivers, while it lowers cost for Smart and Globe, and raises GDP. This is where Big Business meets the sari-sari store.

This reminds me of a discussion in a meeting I attended some years ago. The topic of that day was how conglomerates can help provide goods and services government has failed to sufficiently deliver.

The corporate taipans in the room were certain they can do better and deliver at less cost because they can give better management of projects and can eliminate corruption.

Building school houses was the example given. A typical schoolhouse can be designed, the number needed determined, and where. A company can build schoolhouses at a set unit price. Then the cost can be totally deducted from income tax payable by the companies involved.

The project could be a highway, a farm to market road or a public market. The same principle is involved: an agreed price and quality and total tax deductibility.

This doesn’t mean government will lose revenues. Companies are advancing the money for needed infrastructure so it gets delivered faster and cheaper. But it is not going to happen because public officials and private syndicates who profit from corruption in public projects won’t give up their privileges.

Still, for bigger projects like airports and expressways, Fabella’s prescription of harnessing private capital and expertise makes a lot of sense. But the current economic team has placed PPP on the back burner.

Then again, the conglomerates are no angels. Tingi tingi for SMS may be good for inclusion and the bottom line. But the flood of profits caused the telco duopoly to concentrate on large dividend payouts rather than invest in new technology that would give us faster and more reasonably priced broadband.

Property developers also exploit only the top end of the market and neglect building even the token number of low cost units they are obligated by law to build.

RA 10884 or the Balanced Housing Development Program requires developers of proposed subdivision and condominium projects to develop an area for socialized housing equivalent to 15 percent of the land area or total project cost for subdivisions, and five percent for condominium projects.

Developers comply grudgingly, if at all. They also tend to locate the socialized developments too far from the city center where jobs are.

The Vertis development that is on NHA land could have been required to have on-site affordable housing because the land was intended for such housing. I doubt if NHA even asked for it as a condition.

Maybe if the conglomerate sectors is really gets serious with their CSR and brings their CSR projects beyond mere PR, there is hope. Jollibee and San Miguel making the farmers part of their supply chain through contract growing is the way to go.

So is Air 21 helping farmers transport their produce to Manila markets in their refrigerated trucks on the return trip from the provinces. No significant extra cost because the trucks would have returned to Manila empty anyway, but tremendous help for farmers and consumers.

Ray Orosa’s Moneyshop, when he was CEO of the defunct PCIBank, is a good example of how to bring banking services to market vendors who were dependent on the 5/6 lender.

Conglomerates can help lift our people out of poverty. It is in their interest to do so for social stability’s sake.

Boo Chanco’s e-mail address is [email protected]. Follow him on Twitter @boochanco