Bringing back the State

By Artchil B. Fernandez

Faced with recent skyrocketing price of rice (P20/kilo is daydreaming – Du30), Bongbong Marcos (BBM) did the unthinkable which likely shocked (in private) his economic managers.   He issued Executive Order (EO) No. 39 imposing price ceiling on rice.  EO 39 ordered that regular milled rice should be sold at P41/kilo while well-milled rice is set at P45/kilo.  Prior to the order they are sold between P50-60/kilo.

This State intervention in the market has probably upset BBM’s economic managers who are all champions of neo-liberal economics.  Finance Undersecretary Maria Cielo Magno was forced to resign after she publicly criticized EO 39 and is returning to her teaching job at the UP School of Economics (UPSE).  UPSE by and large is the bastion of neo-liberal economics and her fierce objection is understandable.

Finance Secretary Benjamin Diokno admitted he and other economic managers of BBM were caught off-guard by the issuance of EO 39.  “Nagulat syempre” (We were really surprised) he said in a press conference.  But as good foot soldiers, Diokno and company had to toe the line despite their abhorrence to State intervention in the market as staunch neo-liberals.  Neo-liberal economics after all holds sway in the Philippines.

Neo-liberals believe the market should be left alone and is capable of achieving equilibrium with their blind faith in the “invisible hand.”   They argue that the market functions best with minimal State interference (Friedman and Friedman 1980; Hayek [1944] 1976).  Neo-liberals insisted on a minimalist State, its role restricted only to enforcement of rules.  “Government is needed only to enforce these abstract rules, and thereby to protect the individual against coercion, or invasion of his free sphere, by others” (Hayek 1988).  The market should be left alone by the State thus neo-liberals are allergic to any State intrusion into the market.

After the Second World War, neo-liberals waged a relentless war against dirigiste and State interference in the market.  In mid-70s and early 80s, the neo-liberals were triumphant with the victory of Margaret Thatcher in Great Britain and the election of Ronald Reagan in the US.  Both were champions of neo-liberal economics and tirelessly worked to diminish and dilute the role of the State particularly in the market.  Neo-liberals were ascendant globally especially after the end of the Cold War and the collapse of the Soviet Union.  This prompted Fukuyama (1992) to declare an end of history.

Fukuyama’s prognosis however proved to be premature.  Market failures such as monopolies, incomplete markets and imperfect or asymmetric information, adverse selection and moral hazards, externalities among others disproved the invincibility of the “invisible hand.”  The 2008 global financial meltdown showed the market is not omnipotent nor it is self-regulating.  Perennial crisis in fact plagued the market.

The inability of the market to get out from the cycle of crisis led to the re-evaluation of neo-liberalism and prompted clamor to bring back the State.  Even prior to the 2008 financial collapse there were already voices calling for the return of the State as indicated by the 1997 World Bank Development Report (State in the Changing World).

With the market in perpetual crisis and in the aftermath of the 2008 global recession, the State is making a comeback.  But what returned is not the old dirigiste or developmental State but what the Economist (15-21 Jan 2022) called a “bossy State.”

Is the “bossy State” what BBM had in mind when he issued EO 39?

The “bossy State” has renewed interest in industrial strategy-state support for favored firms to create jobs, protect national security; initiates new forms of “soft protectionism” and “righteous indignation;” increases taxes on behemoth companies; and works to avert climate change.  A “bossy State” is an activist State.

It appears none of the above is the concern of EO 39.  The order did bring back the State by intervening in the market but it was a misuse and misplaced exercise of State power.  Through EO 39, BBM is simply “bossing” the market.  Its issuance created more problems for the public – consumers, suppliers and producers.

BBM mandated that regular and well-milled rice should be sold at 41 and 45/kilo respectively.  He failed to consider that many rice traders bought their stock at higher price and ordering them to sell at loss is unkind and unjust.  The 15,000 pesos subsidy of the government to rice traders is paltry.  Many traders are outraged by their losses and it is highly questionable if the government can continue giving out measly subsidy to them.

If BBM is really serious in bringing back the State and defy the neo-liberals, he should provide substantial subsidy to rice farmers, especially the small ones.  They are groaning under high prices of fertilizers, pesticides and other farm implements yet BBM chose to subsidize the traders albeit small instead of the farmers who are the producers.  Providing adequate government-support to farmers and the agriculture sector is the real way to bring back the State i.e. “bossy State.”  EO 39 on the other hand ignores the farmers.  EO 39 in fact led to losses of farmers as farm gate price of rice went down.

Repealing the Rice Tarrification Law (RA 11203) is another way for BBM to truly bring back the State.  The law liberalized rice importation and removed the government from the market.  Filipino farmers suffered tremendous losses (P95 billion in 2019) due to the flooding of imported rice in the country.  The law undermined the government’s role particularly the National Food Authority (NFA) in the market.  If BBM really wants to return the State, he should repeal RA 11203 not issue EO 39.

It is clear EO 39 is an abuse of State power and not a positive exercise of State power.  Neo-liberals are unhappy with EO 39 and so are small farmers and ordinary Filipinos.  By issuing EO 39 junior is just mimicking his dictator father.