by Calixto V. Chikiamco

I can't get over the fact that the Reverend Thomas Malthus seems to very much alive in the ideas of some ostensibly intelligent men. Often, I encounter people who seem to think, like the 18th century English economist Thomas Malthus, that high population growth depresses a country's standard of living. They spew out vitroil at Cardinal Sin and others who oppose population control, painting them as enemies of economic development.

A few months ago, a respected business leader and Ramon Magsaysay awardee suggested that unchecked population growth was a major hindrance to the country's growth.

I thought all along that these neo-Malthusian beliefs were dead and buried long ago - a victim of the progress and improved standard of living humankind has experienced since the death of Rev. Malthus. The Malthusian nightmare of unchecked population growth dividing dwindling resources has never materialized.

On the contrary, population growth not only leveled off and turned negative in developed countries, but also global resources have become more abundant. Especially in the information economy, the supply of digital products, consisting mainly of bits of ones and zeros, multiply like loaves of bread and this has enabled mankind to become more productive.

No, I haven't been converted by my former economics professor, Dr. Bernie Villegas, to the ultraconservative Roman Catholic Opus Dei sect. I am, in fact, a liberal, believing that Filipino families should be given information and choice about family planning. But I think the idea that population growth affects the country's economic development negatively is pure bunk.

I suspect that these neo-Malthusian nostrums are fed by elitists who see poor people having large families and immediately conclude that population control is the answer to the problem of poverty. In the seventies and eighties, the Rockefeller Foundation fed this "overpopulation" myth to the developing world. It was meant to counter the communists who were saying that class oppression was preventing Third World countries from developing.

The Rev. Malthus saw unbridled lust as promoting population growth. Only famine and war could check population.
But he failed to see that having children could be a rational economic decision for poor families. For poor farming families, children are often cheap, unpaid labor and a source of social security in old age. As urbanization and incomes improve, the demand for children wanes. The supply of children also diminishes as the opportunity cost of fertile working women rises. Population growth naturally declines with development, urbanization, and institutional forms of social security.

But the most telling arguments against the neo-Malthusians have been delivered, not by ultraconservative Catholics, but by a Jewish intellectual - the late Julian Simon.

Simon was an economist whose most famous book was The Ultimate Resource. For Simon, the ultimate resource was people. Stuff like oil, coal, and wind wasn't a resource unless combined with the human intellect. Since the amount of the human intellect was increasing, both through population growth and education, then the amount of resources would grow, supplying the world with enough to keep the standard of living rising.

History has proven Simon right. In the sixties, while the doomsayers and neo-Malthusians were saying that the world would soon run out of resources, Simon bet that the prices of commodities would fall and that global standards of living would rise. With many people living longer and better and energy cost per unit of output far lower in the nineties than in the sixties, Simon easily collected on that bet.

Simon was a man who celebrated human beings. His disciple, Stephen Moore, said that Simon would wonder why when a cow is born, per capita GDP of a nation rises, but when a human baby is born, per capita GDP decreases!

Reading his essays, one would think that they were written by a popish Catholic rather than by a Jewish intellectual. For example, in his essay "Population Growth is our Greatest Triumph," he says: "The increase in the world' population represents victory over death. In the 19th century, the earth could sustain only one billion people. Ten thousand years ago, only one million people could keep themselves alive. Now, five billion people are living longer and more healthy than ever before, on average. You'd expect lovers of humanity to jump with joy at this triumph of human mind and organization over the raw force of nature. Instead, they lament that there are so many to enjoy the gift of life."

But Simon, the "doomslayer," was no preacher relying on faith. Instead, he backed up his arguments with facts, figures, and logic. He marshaled indisputable evidence that population growth doesn't hinder economic development.

Simon lamented the pessimistic and simplistic views of environmentalists and neo-Malthusians. He said that not population growth, but lack of economic and political freedom is the cause of underdevelopment and the degradation of the environment. He noted, quite correctly, that in the last century, it was only in the former totalitarian states, the Soviet Union and Eastern European countries, where life expectancy fell and the quality of the environment deteriorated.

Here, we should be careful about our rent-seeking elite using Malthusian arguments to deflect attention from the real causes of poverty: protectionism, poor governance, uncertainty of property rights, and the absence of the rule of law.

As Simon wrote: "The world's problem is not too many people, but lack of political and economic freedom. Blaming population for poor countries' problems is a tragic intellectual error."

Whenever friends ask me why I'm so pessimistic about the Philippine economy, I, trying to sound erudite, would answer: "path dependence."

Of course, the remark always throws them off. I'd feel like the person in the dining table who says, "please pass the sodium chloride" when I mean "table salt." Or, I'd feel like the guy who announces that he's going to exercise in the natatorium when he means the swimming pool.

In simplest terms, path dependence means "history matters." An economist put it this way: path dependence means "that what happened at an earlier point in time will affect the possible outcomes of a sequence of events occurring at a later point in time."
This reminds me of the times after the First Quarter Storm when we used to visit the renowned nationalist historian, Renato Constantino, who would lecture to us: "The present is the product of the past. If we see the present as past, we can glimpse the future."

Path dependence, however, is a concept that grew out of economics, not history. The concept was formulated by economists Paul David and Brian Arthur, who studied the history of technology.

Both economists wondered about the persistence, if not victory, of "inferior technologies" in the marketplace. To name a few: The Dos and Windows operating system over the Macintosh, VHS over Beta, alternating current vs. direct current, etc.

Paul David's pathbreaking work on the history of the QWERTY keyboard first illustrated the mechanism of path dependence. According to David, Qwerty is a clumsy arrangement for a keyboard. It was developed in the 19th century for typewriters when mechanical keys tended to jam.

However, the Qwerty arrangement has persisted through the years, even when computers replaced clunky typewriters. Some supposedly superior ways of arranging the keys never took hold in the market.
For economists, the Qwerty lesson was disturbing: it meant that markets can fail and "inefficient" or "inferior" solutions can prevail. Because of some historical accident, one technology can gain a marginal advantage over another technology. Over time, this lead becomes insurmountable. The cost of switching from one technology - say, a Qwerty keyboard or a Windows operating system - to another becomes so prohibitive that the market is "locked in" to a particular path.

Why does this happen? According to Arthur, the key mechanism of path dependence and lock in is "increasing returns."
Increasing returns describe self-reinforcing processes. I will choose Windows over Mac because others are using Windows. My choosing Windows further enhances its value and attractiveness to others, thereby enticing others to use it and increasing its value and attractiveness even more. I will also be loath to switch to Mac because I have invested so much learning Windows.

Finally, the high fixed costs of developing Windows and the small marginal costs mean that the more Bill Gates can sell, the lower his average cost will be. Bill Gates, therefore, has a strong incentive to increase market share. A large market share tends to be self-reinforcing because as we have seen, there are strong incentives for people like me to stick to a particular technology.

Some economic historians and political scientists have used the concepts of "path dependence," "lock-in" and "increasing returns" to explain why inefficient institutions persist.
Economic and evolutionary theory would suggest that inefficient institutions should die out in competition with efficient institutions. However, that's not what we observe in the real world, where there are many inefficient institutions, particularly in poor, developing countries.

Here's where the theory of path dependence comes in. More than economic goods and technology, political goods are subject to increasing returns. Political institutions have high start up costs. Once established, however, there are strong incentives to keep an institution in place. There will arise many political actors who would have "invested" in a particular institution.

Moreover, in politics, picking the wrong horse generates high costs. There will be a strong tendency to be identified with the winner, just like a computer user who doesn't want to end up with a Commodore or Macintosh computer.
Unlike in economic markets, setting up rival or alternative institutions isn't easy to do in politics. The product of politics is public goods. But the benefit of public goods can't be limited to those who produce them. There's strong incentive for individuals to "free ride." Therefore, public goods tend to be underproduced by private markets.
Path dependence is my long convoluted way of saying that the Philippines is very much a product of its past. Historical accidents - import controls, the Laurel-Langley Agreement, the US Sugar Quota, martial law, etc. - have made rent-seeking such a strong feature of Philippine economy and politics. The track or path the country has descended is that of rent-seeking, or using the state to generate profits. It won't be easy getting off that track.

Thus, for example, a weak judiciary and bureaucracy serve the interests of the Philippine elite, or those who have grown from the weakness of the state. It won't be easy to reverse this process because a weak judiciary and bureaucracy strengthen those very actors whose interests lie in weak governmental institutions.

The country has not had the kind of social catastrophe - revolution, invasion, race riots, etc. - which its other more dynamic Asian neighbors experienced and which can make possible a divergence from its present path. Its only hope is that globalization will increase the costs of continuing its present path and force much needed changes. But given the path-dependent nature of Philippine politics and economics, Edsa 2 notwithstanding, I'm not holding my breath.

Quick, which is the most talked about political topic today?

• a) Will Paranaque Mayor Joey Marquez run for congressman under the Lakas banner?
• b) Will Kris Aquino run for political office, just to spite her former lover?
  
• c) Will President Arroyo run in 2004?

If your answer was a or b, you will get a Kalabasa award. If your answer to the most talked about question was c, congratulations, you will get a gold medal for being an acute political observer. The fact is with election season coming, the question of whether President Arroyo will run is the political topic of the day, and not whether Lakas will drop beleaguered Paranaque Mayor Joey Marquez from its ticket.

However, if your answer to the question as to whether President Arroyo will run is no, you are definitely in the minority. The overall consensus is that God and US President George Bush will whisper to President Arroyo to “please run in 2004.”

I’ve said before that I don’t believe President Arroyo will break her word and seek an electoral mandate. I’ve taken a few bets on this and I’m definitely dejado, with the odds heavily running in favor of those saying she will be a candidate. As Senator John Osmena says, “she swims like a duck, she quacks like a duck, she must be a duck.”
President Arroyo may claim that spiritual guidance is the source of her decisions, but it’s the economist in her that will determine the outcome of the question whether to run or not.

This means that she will calculate her personal costs versus the personal benefits of running or not running, and multiply that decision by the probability of the outcome.
In other words, if running is on the net, good for her and she has a good chance of winning, she will run. However, even if she concludes that running is good for her but there’s a fair chance she will lose, she isn’t going to run.
The results of the recent Pulse Asia survey may not be God’s voice, but it’s a fair indication that she will face pretty high hurdles.

The campaign season hasn’t formally opened yet, so the opposition still hasn’t laid out all the dirt it can show, yet she’s already hurting with the lowest approval ratings since she assumed power.
A keen political observer told me that an analysis of President Arroyo’s political history will show her to be risk-averse when it comes to running for political office. “She’s not going to make the leap, unless she’s assured that she will land safely on the other side,” he said.

She could have run for president in 1998 because her popularity ratings were very high. She could have given former President Estrada a stiff fight. But she took the safer route, running for vice-president under the Lakas banner with Speaker Jose de Venecia. In the process, she abandoned Kampi, which former Congressman Jose “Peping” Cojuangco Jr. helped her form (and this could have started the friction between her and Cojuangco).

At the start of her political career in 1992, she could have run for senator under the Liberal Party with former Senator Jovito Salonga running for president. After all, the Liberal Party was her father’s party. But in 1992 and again in 1995, she run under the more powerful LDP, which could guarantee her a good shot at winning.

President Arroyo must also weigh her chances of winning in 2004 against the costs and benefits of getting a six year term. The costs will surely escalate. The Jose Pidal controversy has not been good for her family or her marriage. If Senator Panfilo Lacson and the opposition make good on their threats to expose more scandals in her administration, there are sure high costs to her, whether these accusations are true or not.

There are indications that the benefits of winning may not be enough to offset the costs of running. Even if she wins, governing the country for the next six years would be rough. The Pulse Asia survey shows that the public believes that the Oakwood mutineers had legitimate reasons for staging their mutiny. This will only embolden the putschists and the coup plotters. Her getting an electoral mandate will not stop the coup plotting and the destabilization efforts because the coup plotters could always say she cheated or bought her electoral victory.

The deteriorating fiscal situation would also make her government in the next six years very fragile. Her government will be vulnerable to “event risk” – a negative political event that could plunge it into fiscal and economic crisis. Should she renege on her promise not to run, it’s unlikely she’s going to get any cooperation from the opposition with regards to raising tax revenues.

Moreover, preliminary surveys show that not a single Cabinet member is likely to make it to the senate, while opposition candidates like former Senator Juan Ponce Enrile, Ernesto Maceda, and Francisco Tatad are within the magic circle. It’s probable that the opposition will control the senate in 2004 and make it very difficult for her to govern. President Arroyo may be playing coy because it’s politically beneficial to her. But when it comes time for her to decide, she will do decide, not on the basis of what God tells her, but on the cold calculus of costs, benefits, and probability.

The trade talks in Cancun, which was supposed to move into the next phase of global trade liberalization, collapsed last week.

A huge bloc of developing countries, joined by the Philippines, opposed further liberalization in agricultural products and insisted on the removal of agricultural subsidies by rich nations. With the trade talks over agriculture deadlocked, developing countries refused to move to a new agenda intended to remove bureaucratic layers hindering trade.
The anti-globalization activists were predictably elated. Professional anti-globalization activist Walden Bello was shown in pictures jumping with joy over the collapse of the trade talks.

Unfortunately, our government officials were similarly overjoyed at the outcome of the Cancun round. “(We are) elated that our voice has now been heard,” said Trade and Industry Secretary Manual Roxas III.

This joyous celebration over the failure of the Cancun talks is premature and wrongly predicated. The Philippines could end up being a loser.

Firstly, the Cancun talks weren’t just aimed at improving trade in agriculture, but also at reducing the bureaucratic red tape that hinders global trade. The Cancun talks were supposed to come up with new and simplified rules that would reduce corruption and facilitate trade, so when the trade talks stalled over agriculture, the developing countries lost an opportunity to tackle bureaucratic corruption and waste in their own economies.

Secondly, the collapse of the multilateral process of securing access to the rich markets would mean everybody for itself. In this process, preferential access to the rich markets of the United States and the EU would have to be done on an individual country basis. Individual developing countries, however, have less leverage in extracting trade concessions from the rich nations.

What’s likely to happen is that the “hares” like Singapore and Chile would likely forge their own bilateral free trade deals, leaving the “turtles” like the Philippines behind. For example, Singapore recently signed a free trade agreement with the United States, joining a few select countries like Jordan and Mexico that have done so. What this means is that if you are an investor who wants to sell goods to the United States, you would most likely locate in Singapore because the latter’s goods can now enter the United States duty free.

Singapore would now be sucking up the investments that would have stayed in countries like the Philippines had multilateral negotiations like the one in Cancun resulted in the general lowering of trade barriers.

China, a supposed ally of the Philippines, in the stalled trade talks, doesn’t have much to lose. Because of its cheap costs and geopolitical importance, China will have leverage in its bilateral dealings with rich nations. For example, the overvalued yuan is disrupting the global balance in trade and leading to undesirable large trade surpluses for China. But it’s unlikely that the United States would press China too hard to revalue the yuan for fear that it would alienate an important ally in the global war against terrorism. Besides, many American companies have relocated their factories to China and will lobby their government to go easy on China.

It’s therefore puzzling why our government officials are jumping with joy over the collapse of the trade talks because we will be the ones who will be left behind.

Lastly, the collapse in the Cancun trade talks will not solve the problems in Philippine agriculture. As former Agricultural undersecretary and economist Arsenio Balisacan commented, “The root of our problems is not the WTO or free trade. Many Asian countries have been able to develop their agricultural sector despite the WTO.”

“Our problems in agriculture stem from the government’s lack of support for the sector as well as the lack of good policies that would encourage its development. Long before the Philippines joined the WTO, our agricultural sector was the most pathetic in Asia and it had continued to be like that even with our joining the WTO,” said Balisacan.

Our farmers cannot even be said to be victims of globalization because they haven’t been able to participate. With lack of farm to market roads and other infrastructure support, our farmers have no physical access to the global markets that are supposedly victimizing them.

Our agricultural sector suffers, not from the effects of globalization, but from lack of budgetary support, spending on subsidies for the National Food Authority, lack of research and development, overprotection for the low-valued added grains sector, and uncertainty over the property rights environment caused by the agrarian reform law. It would be well for the government to address these problems rather than high-fiving over the collapse of the Cancun talks.

Unlike in the fable where the turtle wins the race in the end, the Philippines could end up being “kulelat” or dead last again.