FEDERALISM WITHOUT TEARS

For The Bohol Tribune

In This Our Journey

NESTOR MANIEBO PESTELOS

Last Thursday night, I arrived home in time to watch former Senator Aquilino Pimental, Jr.,  being interviewed on TV 5 about the talk of the hour, the adoption of the Federal form of government by the incoming Duterte administration.

Being a long-time advocate of federalism, along with former UP President Jose Abueva, the Senator looked and sounded like an elderly statesman, as in the old days. This time, on this TV show, he seemed to have a perpetual grin on his face. He brought his decades-long advocacy to this level in which he predicted that in two years’ time, legislation would put in place the Federal Republic of the Philippines.

His thick crop of white hair, more pronounced and visible now, and familiar slightly hoarse voice, bestowed on him the same gravitas as in those days when he was introducing bills in the Senate, one of which became the much-discussed decentralization law of 1991.  

That law actually was a breakthrough in the advocacy to give local governance and, by extension, their local communities, greater say in the management of their affairs.

Prior to that law, there were victories achieved in the creation of development councils at regional, provincial, municipal/city and barangay levels which oddly enough, under martial law,  have provided mechanisms for greater participation of sub-national levels of governance in the planning and implementation of projects.

Several decades later, under the decentralization law authored by Sen. Pimentel, responsibilities for key programs in agriculture, health, tourism, and other sectors were devolved to the local level. He himself acknowledged that not enough financial resources have been given to local governments to be able to implement these programs.

He said that under that law, local governments are getting only 20% of revenues collected. In contrast, under a federal set-up, local governments would get 80% of total revenues and other income generated from other sources.

With this larger share of income, local governments will take care of building their schools, hospitals, and other infrastructures, and run their services. At the national level, the Government will take care of security, diplomacy, and overseeing the maintenance of standards for health, education, social welfare and other services. Provinces will be grouped into Federal States with Metro Manila as the seat of the Federal Government.

Greater administrative and financial authority will be devolved to sub-national levels or States and a capital designated for each cluster of member provinces. Sen. Pimentel sees no problem in creating this institutional framework. Asked on who would take care of States which are relatively more disadvantaged resource-wise than others, he said a Bank would be created where these States could secure loans.

Politically, he sees federalism as solving Muslim Mindanao’s propensity to secede. Under Federalism, it will be granted its own State to run and manage without dismembering the Republic. Federalism is the long sought-after solution to the Mindanao conflict which has cost so many lives over the years of struggle and conflict among Filipinos.

This line of thinking by Sen. Pimentel and others in his group, which now has expanded to include other political parties, validates the significance of federalism at this stage of our national life. We must be aware, however, that federalism has two faces. After listening to Sen. Pimentel, I refer back to the digital notes I made some time back when decentralization was first talked about among colleagues involved in participatory development.  

I will pick some relevant notes for this column –

I find as quite relevant what Donna Barry of Penn State University has said on the subject of federalism in relation to democracy and markets in her paper, “Two Faces of Federalism”:

“In the past 15 years, research on newly democratic countries has come to reflect two increasingly divergent views of federalism. For one school, the division of powers among two or more levels of government provides a critical anchor for developing democracy and markets. For the other school, federalism creates yet another set of problems that new democracies must somehow overcome.”

On the threshold of new changes in our form of government, it is best to reflect on both the benefits and perceived disincentives in adopting federalism. First, on the benefits:

“For its proponents, federalism provides a number of political advantages that help to strengthen democratic governance. One is responsiveness. Where regional governments possess substantial authority, they can react more quickly and effectively than central governments to satisfy the preferences of the local citizenry. Central governments, in this view, are simply too large and too slow to identify and respond to all of the diverse demands of citizens in different regions.

“A second advantage is that federations provide more opportunities for meaningful citizen participation in public decision-making below the central level Public participation, in turn, should increase the accountability of regional and local officials. Citizens have more opportunities and more incentive to choose their representatives and to monitor their work.

“With expanded participation comes a third advantage – increased political competition. Regional- or state-level elections multiply the potential “entry points” for new candidates and parties, and thus provide additional opportunities for representation of diverse groups and interests. In newly democratizing countries, the opportunities are especially important for opposition groups. As a result, increased participation and competition make it less likely that new democracies will revert to old authoritarian modes of rule.

“Advocates of federalism also see important economic advantages as well. One advantage is that regional/state governments compete among themselves to attract business, investment and skilled labor. Such competition typically makes it costly for any government – central or regional – to impose excessive regulations or taxes. And the less the government regulation, the more effectively the economy can develop.

“In other words, economic competition across regions helps to limit the role of government in the economy. If one regional government imposes higher taxes or excessive regulations, businesses and investors will seek another region with less burdensome restrictions. And if a regional government is ineffective in providing public services – such as education or public safety – then residents with the most valuable skills will move to regions that perform more effectively. In this sense, citizens, businesses and investors all ‘vote with their feet,’ i.e., they move to regions with more effective public services and less burdensome government involvement in business.”

In this era of globalization, there is a push towards decentralization: “Increasingly open trade and investment flows demanded smaller and more flexible organizations that could adapt readily to changing market conditions – in government as well as in business. For regional governments, dependence on the center thus became a serious economic disadvantage.”

On the other hand, here are some observations and insights from “real world” federalism and decentralization as cited in the paper:

-Any region that pursues economic reform by itself is unlikely to solve economic problems that are essentially national in scope. And many regions face concentrated costs – for example, the closing of a major factory has far more impact at the regional than at the national level. As a result, many regional governments have appeared unwilling to support needed but painful economic reforms.

-In some cases, regional governments have pursued policies directly at odds with the center’s. Thus federal governments seeking to limit government spending and maintain monetary discipline have faced regions with expanding government payrolls and rising budget deficits. The problems have been even greater where subnational governments have had the power to borrow money to finance government spending. They could spend with impunity, while leaving the federal government to rescue them from default.

-Regions may pursue policies that are popular locally – such as providing government jobs, overspending and the like – but at the expense of effective management of the economy as a whole.

-Since regions typically have few tax sources of their own, they may end up relying on a “quasi-fiscal” strategy to raise revenues… Such regions impose a variety of regulations, licensing requirements and other devices as a way of raising revenue indirectly. But the various fees raise the fiscal burden on businesses and citizens, and make government finances less transparent. The end result is to undermine economic development.

-Regions that require residency permits, for example, or impose other similar rules, limit mobility of labor. Regions that require government purchasing to be limited only to internal suppliers may end up spending far more, or compromising on quality or fit. Regions may also adopt protectionist strategies that shield local enterprises from central taxes and regulations… Thus regions may compete with each other, but in ways that undermine rather than enhance the country’s overall economic performance.

- Another view suggests that federalism simply multiplies the number of governments – and number of government officials – with the power to demand bribes, kickbacks, or other forms of payment.

-A third view suggests that regional governments face more problems in promoting transparency of governmental activity. Given their limited resources, regional governments often find it difficult to publish full and timely information about their activities on a regular basis. It is typically far easier to find information on government policies and performance for countries as a whole than for individual regions. And if information is lacking about state/regional government activity, then there are fewer opportunities for citizens to hold their government accountable.

- State governments added more employees to their payrolls, ran substantial budget deficits, and borrowed with impunity – leaving the federal government to bail them out. Central government efforts to control inflation and promote sound fiscal policies were thus impaired by the inability to constrain regional governments.  

According to one assessment, devolution [in one country] had created “predatory federalism” that undermined federal government’s economic policies.

On account of these negative experiences, the paper notes:

“… now the prescription for reform emphasized a combination of more centralized government and privatization of public services. Newly democratic federations have attempted to follow suit, by imposing more fiscal discipline.”

These observations have been derived from the experiences of what have been termed as Third Wave countries or new democracies, but they may be relevant as we embark on a yet unchartered course towards Federalism in our country.

Indeed let us have Federalism without tears by anticipating constraints and lining up options to address them more systematically which will serve as better than resorting to sloganeering and reciting “hugot” lines. ###

NMP/27 May 2016/5.38 p.m.