NO FREE LUNCH

Fighting bad policies

Cielito F. Habito
Philippine Daily Inquirer, October 14th, 2014

It is the greatest happiness of the greatest number that is the measure of
right and wrong, wrote 18th-century British philosopher Jeremy Bentham.
With further elaboration by John Stuart Mill, Benthams principle later turned
into the goal of seeking the greatest total happiness (greatest good), period.
That became known as Utilitarianism, a theory in normative ethics holding that
the measure of correct action is the maximization of utility or total benefit.
Many of us would be uncomfortable defining that as a societal goal, implying
that maximized economic growth is the end-all of economic policy. To be truer
to Benthams original wording, that aim is now widely qualified to consider,
just as importantly, the incidence and distribution of that growth, captured in
the now commonly used phrase inclusive growth.
Imagine a hypothetical country of 100 million citizens. Suppose a lawmaker
sponsors a bill that would have government collect P100 from each citizen
every year, and the P10 billion raised will go to 100 specific individuals who
are free to use it as they wish. Outrageous? (Or sound familiar?) American
economist Mancur Olson, in his book The Logic of Collective Action: Public
Goods and the Theory of Groups argued that such a law, unfair as it may
seem, is likely to pass.
The reasoning would go this way: First, the 100 favored individuals will find it
so much easier to organize themselves to fight for the law than for the other
99,999,900 to organize to resist it. Second, the overwhelming majority who
stand to lose only P100 each have little incentive to move, compared to the
100 who stand to gain P100 million each. That is the tragedy with people
acting only in their own self-interest. And third, the lucky 100 would gladly
spend large sums of money to lobby legislators and get the media to support
the bill. With an annual windfall of P10 billion (or P100 million each) to look
forward to, they wouldnt hesitate to spend a fraction of this amount to get the
law enacted, while the silent majority sinks into apathy and default. There may
be a handful of idealistic citizens who would mount a resistance, but they
would be no match against the millions in lobby money mobilized by the lucky
100. And so, in Olsons prediction, the patently unfair proposal manages to
become part of the law of the land.
Olsons theory helps explain why we see so many clearly bad policies around,
and not just in our own country. The award of high-tariff protection to certain
favored industries or firms is a traditional example. So are government-
condoned monopolies that are clearly inimical to the common good. The long-
running debate on open skies over protectionist arguments of domestic
interests could be another case in point. The list can go on and on.
Elsewhere, massive subsidies by rich governments to their relatively small
farm sectors favor only a few, and have time and again been shown to hurt
the majority of their citizens (along with small farmers in developing countries
like ours). And yet, those governments have stubbornly held on to these
subsidies through the years, making it the single biggest snag in World Trade
Organization negotiations. Every country has its share of such perverse
policies, or those that demonstrably go against the welfare of the majority in
favor of a few, even in the most democratic societies.
Not a few believe that it was Olsons principle at work that led to the mangling
of the Ramos administrations original proposed configuration for the
Comprehensive Tax Reform Program by the time it passed Congress in 1997.
Among other things, the law as passed then omitted the provision for
automatic inflation adjustment (indexation) of the sin taxes. Subsequent
efforts to revisit the sin taxes attempted to correct, with varying levels of
success, this major flaw that led to the large erosion in the real revenues from
the tax over the years. In its last version passed in 2012, the Sin Tax Law
finally provided that excise tax rates will increase by 4 percent every year
but strong forces still managed to get Congress to make this take effect only
in 2016 for distilled spirits, and in 2018 for cigarettes and beer. Not
surprisingly, there are new efforts to reopen the law at this time.
Years ago, a reformist neophyte legislator told me of her first brush with
political reality, as she fought the strong lobby to water down the excise tax bill
on the sin products. Unsuccessful in her plea to party mates not to give in, she
reluctantly relented and told them: Ok, I will vote with you now, but I hope this
will not happen again. The flippant response she got from her more seasoned
colleagues was: On the contrary, it will happen again, and again, and again.
Was Olson right? Are long languishing but long-needed legislation like the fair
competition act, national land use act, and freedom of information act naturally
doomed to failure?
Actually, Olsons thesis has not gone unchallenged. It has been argued that
Olson neglected the power of ideological motivation, not just money and
concentration, to spur activism. Also, contrary to Olsons characterization,
weak and diffuse groups could possess a paradoxical political advantage:
precisely because they are weak and diffuse, the wider public may see them
as less self-interested and thus more credible. A more recent and compelling
reason to question Olsons conclusion is the rise of the digital age and social
media, which now makes it so much easier for people to find each other and
organize to publicly advance their shared interests. So there must be hope,
after all.


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