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Jack’s Plan For Not Ending Corruption

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Today, we have a Guest Article from Jack Emery.  Jack wished to share his thoughts about my recent article, Bob’s Plan for ending corruption, which was published in the past week.  Jack sees it a bit different than what I wrote, and I welcome him sharing his view, the other side of the coin.  Thank you, Jack for sharing your thoughts with the LiP Community. MindanaoBob

Mindanao Bob has a plan for ending corruption in the Philippines.

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He’s right about it being one of the hottest topics on the blogs, the message boards, and, no doubt, in comments on his site.

I respect Bob’s opinions, but on this one I would like to offer a dissenting view.

First, let me be clear: I am not talking about high level corruption, such as paying off members of Congress or bribing judges.  That kind of corruption is bad news, but it happens everywhere.  We Americans are hardly in a position to throw stones.  After all, we just presided over a trillion dollar rape of the taxpayer, engineered by government officials with intimate ties to the Wall Street bankers who got the money. Nothing in the Philippines amounts to even a blip on the radar screen by comparison.

I’m also not talking about million peso bribes to get government contracts. Again, the Philippines barely makes the minor leagues, as compared to (for one example) the common practice where an American government official hands out a multi-billion dollar boondoggle to a favorite company, and then, a year or so later, gets hired as the new CEO of the same company, complete with million dollar compensation package and stock options.

But that isn’t the kind of corruption that fills the message boards with impassioned moralizing.  Most of the “corruption” that seems to set foreigners’ teeth on edge involves the kind of common situation where you need (say) an official paper from a government office, and you find that you have two choices:

  1. You can stand in long lines for hours, and probably get sent on multiple wild goose chases to other offices miles away, as you try to navigate a complicated system that you don’t understand, in a language that you don’t speak, and (maybe) eventually get what you need for the official fee of 10 pesos.  Or…
  2. You can pay someone — perhaps a government employee, perhaps an independent “fixer” — a few hundred pesos “expediting fee” and get what you need in ten minutes.

This kind of corruption, if you can call it that (I wouldn’t), is actually quite benign, in my opinion.

There are two basic ways to run a bureaucracy:

System A (the U.S and many former British colonies):  Government employees are paid high salaries financed by taxes and official fees.  The penalties for getting caught accepting  a bribe or “tip” are severe, so no one does it. A few bucks extra income isn’t worth blowing a job where you make an average of 70 percent more than someone doing similar work in the private sector.  (See Link)

System B (the Philippines and many former Spanish colonies):  Lower level government employees derive part of their income from their salaries, which are often very low, not enough to support a family on.  They get the rest in “fees” extracted directly from those who need a form stamped or a paper signed.

In economic terms, the outcome for the government employee is about the same.  In both cases, the total compensation for the employee’s services is determined by the marketplace, because employees  who think that they can get a better overall deal in some other job will presumably do so, under either system.

In System A, the employee’s income is entirely from taxes and official fees, so the taxes have to be high enough to cover the entire cost.  In System B, the taxes can be lower, since the salaries are lower, and part of the employee’s income is from “unofficial” charges.  Not surprisingly, taxes in System A countries are usually much higher than in System B countries.  In the U.S., government taxes rake in 29 cents out of every dollar of GDP, in the Philippines it’s only 7 cents (2008 figures).

But here’s another important effect: in System A, if you’re getting rotten service, there is absolutely nothing you can do about it.  There is no incentive for a government employee to be efficient, or even polite — he can stonewall you with impunity, safe in the knowledge that no one ever got fired from a civil service job for making the customers unhappy.

In System B, however, the customer who is asked for an “expediting fee” can always refuse to pay it, so here there is a strong incentive to get the job done quickly, even pleasantly. (One of the nice things about the Philippines is that even when bureaucrats are being obstructive, they usually manage to be polite about it.)

Of course, you may not get very good service if you stand on principle and insist on paying only the official fee, but even that is really an advantage, in a way, because you do have the option of (eventually) getting the job done very cheaply as long as you don’t mind standing in a lot of lines.  So in System B, we have a choice:  cheap but slow, or more expensive but quick and efficient.  In System A there’s no choice, we get to pay high taxes and often very high fees, for (usually) consistently wretched service.

Here’s a reality check: many of us have undergone the ordeal of obtaining a U.S. visa for a wife or fiance.  For most, it’s a very tedious, arbitrary, expensive, frustrating process that takes anything from six months to more than a year.  There is no good reason why it should be so difficult, but it is.  This is System A in action: lousy service, massive incompetence, no options, if you don’t like it, too bad. Under System B, though, you would pay someone a few hundred bucks and save yourself the grief.   If I had had that option when I applied for my wife’s visa, I’d have taken it in a New York microsecond.

As for the employment of “fixers”, I don’t see what the fuss is about.  Getting government approvals that you need is usually complicated — complicated is what bureaucracies do, it’s how they grow and prosper.  Someone who already knows what forms to fill out, which boxes to check, and which officials’ approvals are needed can get the job done far better and faster than I can.  How is this different from paying a lawyer to handle your divorce, or paying H & R Block to do your taxes?

Of course, we would all love it if dealing with government agencies were always so simple that anyone could get what they need quickly and efficiently merely by consulting the helpful government employees. But that isn’t how bureaucracies work, in the U.S. or the Philippines or anywhere else.  You can try to figure out the process yourself, or you can pay someone who knows what they’re doing. Especially at Philippines prices, I’ll happily pay for the help.

Another kind of corruption that everyone loves to kvetch about is the ever-popular police shakedown, in which police officers stop motorists or set up roadblocks and look for trivial or even invented violations so as to be able to collect “contributions”.  Annoying? Certainly. But in the city where I come from (Tempe, Arizona), traffic cameras are now everywhere, operated by a private company that receives a substantial percentage of the fines collected.  The cameras are (naturally) in the locations that produce the most money, meaning that they mostly catch drivers who didn’t even know they were doing anything wrong, and certainly weren’t doing anything dangerous. Everyone perfectly understands that the cameras have nothing whatever to do with traffic safety and everything do to with raising revenue.  Would you rather be shaken down once in a while for 50 pesos to provide a few beers for a Filipino cop who probably makes less  salary in a month than a typical American makes in a day? Or would you rather be randomly extorted for $190 traffic camera fines to line the pockets of the camera company fat cats every time you don’t slow down quite fast enough when the speed limit changes? Personally, I’ll take my chances with System B and the Filipino cop.

I suspect that the moralistic overtones that often seem to flavor opinions about these things really boil down mostly to cultural differences.  If you’re used to System A, System B probably makes you uncomfortable.  I’m not suggesting that it’s good for greedy government officials to abuse their authority for profit — we can all agree that it isn’t.  But it happens in all systems, and System A isn’t morally superior to System B.  It’s just different, in terms of what the culture considers to be acceptable.

Another cultural factor: some people really do prefer to live in a culture where there are rules for every possible situation and everyone follows them without question (I understand Germany is like that, and the U.S. is quickly getting there).  Others  of us like a more freewheeling culture where people prefer to live life by doing what seems to make sense at the time, rather than continually worrying about what the rulebook says.   If you absolutely hate the freewheeling-type culture, you probably aren’t going to like System B, and the Philippines may not be your best choice of places to live.

So I’d say, be careful what you wish for.  And keep in mind that when you tinker with the social fabric that determines how people make a living in a country, you may get unintended consequences. Suppose Noynoy really could push a button and put an end to all under-the-table payments? Obviously, the government can’t afford to hand out pay raises to make up for all the lost income.  Suddenly you have a million or so government employees who just got a massive pay cut.  To see what happens next, just take a look at Mexico, where a few years ago the administration did crack down hard on the long-accepted tradition of “mordida” (the “bite”).  One result: an epidemic of police officers who have decided they’d rather sell out to the drug cartels than subject their families to lives of poverty.

Anyway, fortunately, what I or any other foreigners do or think is not likely to change the Philippine way of doing things.

And that’s okay with me, because I like the Philippines just fine the way it is.

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Jack Emery

Jack Emery is a guest writer participating on the Live in the Philippines Web Magazine.

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ProfDon
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ProfDon

Jack, I disagree with much of what you have said, factual, conceptual and in your conclusions. 1. The US is a LOW tax country among high income (OECD) countries. As well, you first place the US as a high tax country with high government salaries, and then later complain about the poor service you receive (just like in a Filipino government office, without the expediting payments). 2. Your tax figure for the Philippines is also WAY too low. Total government revenues as a percentage of GDP is on the order of 14% the last time I looked. BTW, this does… Read more »

ProfDon
Guest
ProfDon

Sorry, hit the wrong button. to continue: “hence, they are the same” is wrong. Yes, we have corruption in the US with congressmen and senators in jail, and soon a governor too, but in general corrupt politicians and bureaucrats are caught and punished. Not here. As far as high-level corruption in the US a la this current economic fiasco, do you really credit this to corruption or to misguided policies. Hard to think of Greenspan as corrupt, easy now to think of him as misguided. I abhor W Jr. and think he will be seen as the worst president ever… Read more »

Jack Emery
Guest

ProfDon: Thanks for your thoughtful comment. If you’re in the Davao area, consider this a standing invitation to debate this over a beer some time. Let me add that I certainly acknowledge that reasonable minds can differ on these things, mine are just one person’s opinions. The country rankings that you mention on ease of doing business and corruption levels raise some interesting issues. I find many of those rankings hard to square with what I see on the ground, at least in the few countries that I have some experience in (mostly US, Mexico, and Philippines). For example, ease… Read more »

ProfDon
Guest
ProfDon

Will be in Davao for the festival August 20-22. Would love to talk with you. FYI, the ratings for the Doing Business ratings are done by domestic persons in each of the countries. Take a look at the website. As for the ese of opening a business, the ones to which you are referring are in the so called “informal sector”, meaning that they have no licenses, no permits, pay no taxes, violate minimum wages laws, pay no PhilHealth or SSS, violate all safety and environmental regulations, and so on. In part this is because this is because the Philippine… Read more »

Paul Thompson
Member

Jack; 2 July I went to re-new my Philippine Drivers License, drug test and medical took 20min. Then I’m in line at window #one, the people behind the windows had air/con, we had hot and muggy. Then I moved to window #two, and waited some more, I slid on down to window #three and paid my fees, all is completed, yet I waited at window #four, the longest to receive my finished license. Total time after medicinal /drug test 3.5 hours, if I could have found a fixer I would have paid him, and it would have been my first… Read more »

tony
Guest
tony

Your reasoning is flawed on so many levels. “It works so lets not fix it” is not logical and leads only to stagnation not growth.

PaulK
Member

Hi Jack – I can’t help thinking of an old saying when I read your last sentence: “If you’re not part of the solution, you’re part of the problem.” I truly can’t say what is right or what isn’t, nor can I identify problems and solutions. I can only observe and try to make what little sense I can out of things around me. Providing “grease” in the Philippines has been around for over 400 years. It was legal when introduced by Spanish colonizers as a method of increasing the speed and productivity of early native “workers” (whether impressed or… Read more »

Jack Emery
Guest

Nice summary of some of the history. Corruption or custom? Maybe some of each?

Peter
Guest

“I’m also not talking about million peso bribes to get government contracts.”

To me the worst kind of corruption is, after the million peso bribe to get the government contract to, say, build a road, the company builds the road below specifications (probably bribing an inspector as well) to save money and everyone suffers from poor infrastructure.

jack
Guest
jack

IMO I think your both right. Its clearly wrong to brib and accept bribs in any way shape or form. But.. Does the little stuff really hurt anyone? In the long run it may or may not.

Hummm Now im torn. Thanks guys lol.

Jim
Guest

Hi Jack- I refuse to accept your logic on this topic as I have seen in a former British colony Nigeria corruption at its most depraved and just look at the state its in along with most of Africa. Whether its the presidents office or the lowly clerk involved in taking a bribe its wrong because its theft, and it leads to poor productivity and ultimately inflation with little or no investment from big business which leads to slow growth for the economy.(Are you with me ……..just look around you). The only way the Philippines which I incidentally enjoy living… Read more »

Steven Hark
Guest
Steven Hark

Thanks to a very corrupt police force in Hong Kong Colony, Governor Murray MacLehose in 1974 set up an Independent Commission Against Corruption (ICAC) with incredible powers to investigate corruption and prosecute bribers and bribees. Unfortunately, the ICAC is still needed as there are always people who think that they can get away with a back-hander or two – it seems to be endemic in human nature – but thanks to the ICAC they all get caught eventually. Perhaps we need an ICAC here with, for the first few years the members being selected from overseas law-enforcement agencies.

Jack Emery
Guest

Steven — The Singapore model is really interesting, I think, especially to those of us based in Davao. Davao under the Duterte mayoral administration (in power for the last 10 years or so) reminds me a lot of the way Singapore was back when Lee Kwan Yew took over. You can do that kind of thing in a city; I’m skeptical you can do it with a whole country. But Davao is definitely prospering as compared to the way things were in the mid-90s, and Duterte has managed to do it even in a place where there is ongoing separatist… Read more »

jackF
Guest
jackF

BTW im not the Jack in the article im the one in the post above Jims two different people 🙂

Tom Martin
Guest
Tom Martin

I cannot agree with your article. If everything remained status quo nothing would every get any better. If there was not so much poverty in the Philippines and so many people suffering and anxious to get out of the Philippines and your suggestions would solve that problem I would be on board, but the system is not working for the poor. I would say the system might work for those of us that are expats and can afford to pay the bribes to get what we want, but we are guest in this country and the country should be for… Read more »

Jack Emery
Guest

Tom — Believe me, I’m very sympathetic to the problem of poverty in the Philippines. I just don’t see government as the solution. Does anyone seriously think that the plight of the poor in the Philippines would be improved if all Philippine laws and regulations were suddenly enforced to the letter? My guess is it would bring the economy to a standstill. The way I look at it, government everywhere is essentially a parasite whose main function is to divert resources away from productive uses to unproductive ones (e.g. useless bureaucracy) or even counterproductive ones (obstructive regulation, wars, etc.). To… Read more »

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