IS the Philippines a Stalinist society or what? Just by looking at the regulatory barriers being put up by the government on business activity, one might think Filipinos live under a highly regimented, bureaucratic and authoritarian form of government and not a free society.
On the other hand, we are probably not a free society. Consider the findings of the International Finance Corporation, the private investment arm of the World Bank, on the “ease of doing business” released the other day:
It takes 11 steps to launch a business over 48 days on average. In the rest of the Asia Pacific Region, one only needs eight steps over 46 days. In advanced countries, particularly the members of the Organization for Economic Cooperation and Development (OECD) composed of the United States, Britain, Japan, Belgium, Australia, Canada, among others, all one needs is six steps over 16 days.
Surely, an entrepreneur would need to get licenses and permits to operate a business. An entrepreneur in the Philippines would need 197 steps and 23 days to complete the process. In the Asia-Pacific Region, all it takes is 18 days, and in the OECD countries 14 days.
You want to register a property? It takes eight steps over 33 days here against only four steps over 86 days in Asia-Pacific. In OECD, it takes five steps over 32 days.
Even closing a business takes a lot of hassle. The process takes almost six steps over 38 days, as against two steps over 23 days in Asia-Pacific. In OECD, one only needs a step to close a business over seven days.
The report also highlights the “rigidity” of the country’s labor markets, indicating the entrepreneurs’ difficulties in hiring and firing, thus hindering the creation of more jobs.
Overall, the Philippines ranked 126 over 175 countries, indicating a certain unfriendliness to business and entrepreneurship. When ranked per category, the IFC report shows that the Philippines ranked 108 in terms of ease to start a business, 113 in dealing with licenses, 118 on the employment of workers, 98 on registering a property, 101 on getting credit, 151 on protection to investors, 101 on paying taxes, 63 on trading across borders, 59 on the enforcement of contracts, and 147 on closing a business. Worse, we ranked 121 in 2005, an indication that we are not reforming our bureaucracy!
Conclusion? Despite our pretensions to private-sector led development, this country is not yet fully open for business. Nobel Prize economist Amartya Sen argues that the citizen’s freedom to transact business with one another is part of human rights.
Development, according to Sen, is all about choice and certainly this tangle of regulations suggests that the state is depriving the people of their right to grow and prosper.
Right now, the Philippines is saddled with a lot of challenges: joblessness, high underemployment, high cost of living, diaspora of skilled professionals, poverty, rapid rural-to-urban migration, criminality, low quality of life, and low tax intake.
The State could not address all these problems. These are essentially economic issues that could be addressed quickly by higher economic growth. When entrepreneurs are free to set up business, and the regulatory environment are conducive, they are going to hire people who would have the purchasing power to buy goods and services and send their children to school, thus setting up an upward spiral of economic activities. When people find it easy to set up shop, they are likely to register their business, thus boosting the country’s tax base. These are fairly simple truths that the government needs to recognize and do something about.
In the last State of the Nation Address, President Arroyo said that the government is allocating billions of pesos for mega infrastructure projects. That is nice, except that the roads, bridges and highways and structures that such government money will build will not yield optimal economic returns to society if entrepreneurs are shackled by crippling regulations.
Supposedly, reforming the tangle of regulations is easier to achieve. The government will not spend much effecting these changes. All the government needs to do is muster its will for change and streamline its operations.