Business World, 17 February 2016


The management of the government is one of the most important public goods. We all benefit from an efficient, effective, and responsive government. But we all suffer, if the government is inept, ineffective, and unresponsive.

‘Good government’ has both the properties of public goods: nonrivalness and non-excludability. Non-rivalness means that the additional cost of providing the good to another individual is zero. Hence, it is not desirable to exclude anyone from the benefits of the good since it does not take away from the enjoyment of others. With private provision, there will be underconsumption and or undersupply.

Non-excludability, on the other hand, means it is not feasible or it is very expensive to exclude anyone from the benefits of the good. An example of this is national defense, at the national level, and streetlights, at the local level.

Given non-excludability, there will be a free rider problem, that is, individuals would be reluctant to contribute voluntarily to support public goods since the government will provide them anyway. Consequently, the market typically would not provide such goods, and when they are privately provided, they will be undersupplied.

When the government is unable to provide adequate and reliable public infrastructure so that investors are attracted to invest their money into industrial and commercial firms and modern farms, then the whole economy and its people suffer. (See Table 1)

When the government fails to reduce the cost of doing business and hence discourage firm owners from investing in small, medium and large enterprises, then the whole country and its people suffer.

When the government fails to build modern airports, new highways, rapid urban transit system, and affordable power plants, the economy and its people suffer.

When the government fails to reduce transaction costs — such as for example, getting driver’s license, registering cars, requiring the updating of birth certificates every six months, constantly requiring the issuance of an updated clearance from the National Bureau of Investigation — that means additional costs to the economy and its people.

It is in this sense that efficient, effective and responsive government is a public good.

But what’s the real score? Are the costs of doing business in the Philippines rising or falling? Unfortunately, the recent numbers suggest it is getting worse, not better.

Out of 189 economies, the World Bank ranks the Philippines 103 in terms of ease of doing business in 2016, 6 ranks down from last year’s rank of 97.

According to the World Bank, the Doing Business survey “sheds light of how easy or difficult it is for a local entrepreneur to open and run a small to medium — size business when complying with relevant regulations.”

“It measures and tracks changes in regulations affecting 11 areas in the life cycle of a business.” The 11 areas include: starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting minority investors, paying taxes, trading across borders, enforcing contracts, and resolving insolvency.

The Philippines’ ranks in 2016 and 2015 of these various areas are shown in Table 2. Also shown is the deterioration in ranks. Except for getting electricity which improved by two ranks (from 21 in 2015 to 19 in 2016), the ranks for all other areas worsened.

Starting a business in the Philippines had the steepest drop of 8 ranks: from 157 in 2015 to 165 in 2016. This means that it is easier to start a business in 87% of the 189 economies surveyed by the World Bank. That’s nothing to brag about.

In terms of overall ease of doing business, more than half of the economies studied are perceived to be doing a much better job than the Philippines.

This administration and the next have their priorities cut out for them. Clearly, it can’t be more of the same; it can’t be business as usual.

The next government must create a much more welcoming economic environment and should be more efficient, effective and responsive in order to encourage the creation of more firms and modern farms, which in turn, would create a lot of decent jobs.