A VIEW FROM THE CENTER: Federalism trumps unitarism economically yanskie

A VIEW FROM THE CENTER: Federalism trumps unitarism economically Featured


Where does economic value added really come from? A good economist will tell you that value added ultimately comes from human ideas, which in turn come from learning based on actual results, what is fashionably termed now as “evidence-based.” And what is the mother of all inventions? Necessity.

Question for the Unitarists: Are the needs of all 20 million Filipino households scattered over 18 regions the same? This is the most terrible aspect of Unitarism as applied to a freedom loving people brimming with ideas on solutions based on their direct observation on what works in their locality; but the Unitarist system smothers all such initiatives because the power over budgets and program design are centralized in Malacañang. This is where Rizal noted the apparent apathy resulting from the colonial centralization of governmental powers that is the precursor of our Unitarist system now.

Even assuming the needs were the same among regions (say, low agricultural productivity), different regions have different cultural, natural resource endowments, labor profile, weather patterns, etc. AND previous learnings that would make for much better agricultural development programs that harness local talent and studies to craft an efficient and effective program that would be very different from the other regions.

“It is one of the happy incidents of the federal system,” Justice Louis D. Brandeis wrote in 1932, “that a single courageous state may, if its citizens choose, serve as a laboratory; and try novel social and economic experiments without risk to the rest of the country.”

In a federal system like the US of A, ideas developed in one state, say California, are tested and are improved in situ and whatever the lessons gained, they diffuse throughout the rest of the country. Some examples cited in the US are airline deregulation which was first a policy of one state before it became a US federal policy for other states to adopt. The first state to adopt deregulation demonstrated the massive impact on competitiveness and consumer protection and this naturally called attention to itself, adopted nationally and the country has been reaping the economic gains since then.

It has been noted too that California demonstrated to the whole US how NOT to deregulate the electricity industry as the advantages were not offset by the costs and risks and this evidence based experimentation allowed under federalism saved the other States from making mistakes if they all did it at the same time because of a unitary political structure.

And many lessons were learned too at the state level on handling welfare and school choice programs in the US that continue from one administration to the next.

In a unitarist system, with it’s “winner take all” implications for a winning Presidential candidate, the immediate impetus is to kill all programs, working or not, simply because they are associated with a previous administration. No bother to even learn or study lessons for a better version. Just throw it out the window. What a huge waste! Not only was there no contribution from 18 regions, but the only singular program is killed off as a typical reaction of an incoming administration. (Thankfully, PRRD already declared he will copy working programs of the past if they indeed work and are sound). This will not happen in a Federalist country as there is no “one program for all” to begin with. Less waste, more empowered locals, better outcomes. Simple.

People’s preferences for prioritizing government budget use to address needs vary over time and across states. What is a priority for Ilocos is not the same for Sulu or Zambales. Let us not forget that government budgets and how much bang you get for the buck is the single largest factor for successful economic stimulus a government has at its disposal. But if this buck could get a multiplier effect of say 5 (very stimulative) or just 2 is a direct result of the fit of the project to the preferred problem being addressed.

We must also seriously consider the concepts of subsidiarity as having important economic aspects over its opposite, what I term as superiority (strengthening the strong in the hope that their actions will trickle down to the rest) that is inherent in a unitarist system (while subsidiarity underpins sound federalism).

Simply stated, the principle of subsidiarity in federalism allows for specific economic assets to be aligned with the political jurisdictions that will exist in a federal country (district, province, region/state, federal/national government). So assume that say given the present road networks and technology, a Triple A slaughterhouse has an impact area of 50 square kilometers of community livestock raising towns. Under the principle of subsidiarity, this project is best done at the district level (not barangay, town, region or national) and will be fully utilized when designed with the nuances of the raisers there. If instead, the Department of Agriculture says, under a unitarist system, that as a matter of policy “all Triple A slaughter houses must be in the provincial capitals of every province,” then you would have lots of underserved livestock raisers, making their costs more than what it should have been, making them less competitive and meanwhile it may turn out that there are not much raisers near the provincial capital affecting the multiplier impact of the project.

By relying on the Unitarist Superiority model and not the Federalist Subsidiarity model (espoused by Pope Francis in Laudato Si encyclical) a lucky contractor can win a nationwide bid (only a strong contractor can win this) and meanwhile the sleepy periphery will awake to a new project partnered with strong contractors and just giving menial jobs to the locals (trickling impact; what I call Pinatulo or the trickle down system).

Subsidiarity, through federalism, ensures that all resources and capabilities are optimized before engaging the higher governance levels and this will obviously lead to better economic use of scarce resources to provide a dignified life to our 107 million citizens.
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