Business World, 13 October 2014


In mid-September the City of Manila provisionally lifted the infamous truck ban which it imposed via City Ordinance 8366 in February 2014. The ban had wreaked havoc on the logistical flow in the country’s premier Port of Manila. The intent was to ease the traffic congestion in the City of Manila. Instead it created monstrous traffic jams in the Greater Manila Area and in the City of Manila itself, thus defeating its original purpose.

Here was yet another instance of a local government unit passing an ordinance to remedy a local problem that ends up holding the whole country and economy hostage. A pall of helplessness descended on the whole business community about getting relief from a dire predicament. Yet another bitter pill to swallow for those living and doing business in this contradiction-ridden country.

The Tampakan gold and copper mine project in South Cotabato is another case. After decades of delay, the project finally got the Department of Environment and Natural Resources (DENR) Environmental Compliance Certificate (ECC), but the provincial board of South Cotabato dropped a bombshell ordinance prohibiting open-pit mining. Open-pit mining is allowed by the Philippine Mining Act of 1995. The Office of the President found the granting of the ECC by the DENR in order but was in a quandary about the local ban. The project has ground to a halt. Six billion dollars in foreign investment lost; two thousand good-paying and permanent jobs and billions in future foreign exchange earnings down the drain. Also flushed down the toilet was the associated 500-megawatt power plant that would have shared some of its juice with the Mindanao grid to help ease the crippling power crisis in Mindanao. Yet another black eye on our ability to attract foreign investment. Already we are last in share of FDI in the region.

“As long as we are within the law we will enforce the law whether they like it or not. The law is the law,” was Manila Mayor Estrada’s boast of the truck ban issue in February this year. The Local Government Code grants local jurisdictions the autonomy to pass ordinances for relief of local problems.

But what if those ordinances adversely affect projects of national interest or the operation of a nationally vital infrastructure? President Aquino faulted foresight malfunction when he told reporters: “It’s a city ordinance that perhaps, nobody envisioned how bad this would amount to.” But this genre of problems has transcended foresight malfunction. One can almost predict what will happen when the stakes are enormous and it takes so little — as few as three votes in the Sangguniang Panlalawigan — to hold up a project. The helplessness of the central government to resolve the conflict with dispatch shows that all the aces are in the local government’s hand.

When local governments can veto nationally important projects and/or craft a legal quasi-blockade of nationally valuable assets within its jurisdiction, the whole nation falls into the “tragedy of nth best”: unlike the “tragedy of the commons” where tragedy flows from overuse, the tragedy of the nth best flows from the non-use or inefficient use of national assets. The veto drives out formal operators and effectively leaves the field to informal operators that can’t be regulated.

Think for example of the Three Gorges Dam, generating the world-leading 22,500 megawatts of electricity. To complete it, 1.2 million residents and 1,300 archeological sites in Hibei province were relocated to give way to the 600-km-long reservoir. Some four million more will be relocated over time. The project has thus replaced a big chunk of the mostly coal power-generated electricity in China with clean hydro power and reduced major flooding episodes downstream from 10 year to a 100-year frequency. It is a major boon for the whole Chinese nation. Had Western values and institutions held sway in China, such projects as the Three Gorges Dam would never see the light of day. It would have been buried under an avalanche of environment-, indigenous peoples- and culture-defensive lawsuits, writs of kalikasan, and local ordinances. As a nation, we have inadvertently and by degrees tethered ourselves down the “think small” or, as my favorite transport expert Rene Santiago calls it, the “jeepney mentality.” No wonder that mediocrity dogs us everywhere.

In the Economics of Social Choice, which seems pertinent here, there is result due to what Economic Science Nobelist Amartya Sen called the “Impossibility of a Paretian Liberal.” He showed that the delegation to individuals, natural or legal, of the decision-making power in certain local spaces will sooner or later come into grief with the socially innocuous criterion of everyone in the larger community being made better off (Pareto efficiency). The delegation to local jurisdiction of autonomy over local assets as suggested in Sections 2,5,16 and 26 of the Local Government Code comes immediately to mind. The Code and many other enactments conferring similar autonomies do not provide the State with a trump card to resolve such impasse.

At present the only modality to mediate these conflicts is the courts of law, which have proven to be many times fickle or opportunistic. We need more transparent and expeditious modalities to resolve local-national impasse. Absent those, our future will be an orgy of local political opportunism.