Markets vs. Duterte: Are blanket bans a good idea?

Bans, prohibitions, and crackdowns are some of Duterte’s favorite economic policies. But bans are the ultimate form of market regulation, and government should use them cautiously, not rashly.

In a previous piece, we explored President Rodrigo Duterte’s tendency to threaten, harass, and extort the private sector, especially big business.

Here we explore yet another aspect of Duterte’s relationship with markets: his penchant to ban, prohibit, or crack down on economic activities he deems inappropriate, repugnant, or simply bad.

II. Bans, prohibitions, crackdowns
Duterte is a big fan of bans. As long-time mayor of Davao City, he was famous for his draconian crackdowns on public smoking, fireworks, and illegal drugs.

Since becoming president, he has applied the same bans nationwide, and extended them to other things like those he deems harmful to the environment (like business in Boracay and open-pit mining) or exploitative (like “endo” and OFW deployment to Kuwait).

Banning things is a quick and easy policy. Sometimes it may actually work for the best (as when the government curbs pollution).

But when misapplied, bans tend to create unintended consequences. Most famous of all was America’s Prohibition from 1920 to 1933. It aimed to reduce the dangers of alcoholism, but instead it led to the creation of black markets, a substantial rise of alcohol substitutes (like tobacco, marijuana, and narcotics), a flowering of organized crime, and a cat-and-mouse chase between authorities and illegal suppliers.

Given this tricky balancing act, which of Duterte’s blanket bans are justified? Which are not?

1) Public smoking and fireworks

Products and activities that harm the environment usually inspire bans.

Owing to the air pollution and health hazards caused by public smoking, Duterte issued last year an executive order banning it nationwide and setting strict rules for designated smoking areas. In January, roughly for the same reasons, Duterte also called for a nationwide on all fireworks and pyrotechnics.

In economics, pollution is a sign of a “market failure” where society at large bears the costs of some people’s consumption of goods like cigarettes or fireworks. There’s more of these products than what society wants, so government might step in to curb them.

But blanket bans are hardly the only available option. Government can opt to tax these products instead to discourage people from buying and consuming them.

The new tax reform law (TRAIN) did exactly this: it raised the prices of cigarettes, petroleum products, and automobiles to help reduce the pollution and congestion they create.

Bans, after all, cannot realistically reduce use of cigarettes and fireworks to zero. If you take them away from people altogether, it might even lead them to undesirable behaviors or alternatives that could harm them more.

Research, for example, tells us that smoking bans may simply displace smoking from outdoors to indoors, working little to protect children from the risks of second-hand smoking. Bans on fireworks may also lead to the proliferation of black markets that produce louder and even more toxic wares.

2) Boracay and open-pit mining

Widescale environmental degradation has also led to a crackdown of businesses on Boracay Island, which Duterte has branded a “cesspool.”

Reportedly amiss in their compliance with building and sewage regulations, hundreds of businesses have already been ordered closed by the environment secretary.

The tourism and interior secretaries, meanwhile, are mulling a total closure of Boracay for up to a year to allow its “rehabilitation”. A similar ban is being considered for tourism hot spots like Panglao, El Nido, Coron, and Puerto Galera.

Before stepping down from office, former environment secretary Gina Lopez also banned new open-pit mining operations owing to the “risks” they pose to host communities. Earlier, the President also told the mining sector “the Filipinos will survive without you.”

Boracay and open-pit mining illustrate the harms caused by the private sector to society and the environment, and this could again justify government intervention.

But in all likelihood Duterte is overstating the environmental impact of these markets on the environment, and he therefore risks imposing equally overbearing or exaggerated government policies.

The Department of Environment and Natural Resources (DENR) itself cited studies saying water pollution levels in Boracay are actually lower now than in 2012, despite record-high tourist arrivals.

A year-long ban will also needlessly hurt tourism there: following Duterte’s statements, some tourists have already cancelled bookings. You can’t really blame them when Spokesperson Harry Roque says, for instance, that Duterte wants to “blow up” illegal structures there using dynamites.

The risks of open-pit mining also seem overblown. In other countries, for example, new technologies allow mining operations to be environmentally sensitive or even friendly. Harmful mining, in other words, is not an unavoidable outcome, and possibly reflective of bad, inadequate, or incompetent regulation.

Mining and quarrying also play key roles in our economy, and a blanket ban will harm regions like Mimaropa and Caraga the most.

Finally, cracking down on mining needlessly threatens the livelihood – and harms the reputation – of professionals such as geologists and metallurgical engineers.

3) Endo and OFW deployment

Duterte also likes banning contractual arrangements he deems exploitative.
For instance, ending contractualization – or “endo” from “end of contract” – was one of his key campaign promises. In his mind, such a policy will ensure job security for ordinary workers.
Hence, March last year the labor secretary ordered the regulation of contracting via manpower agencies. This proved lacking, however, and Duterte is soon set to sign a new EO totally ending endo.

Duterte also recently ordered a total ban on new deployment of OFWs (overseas Filipino workers) to Kuwait, following the tragic and gruesome death of a Filipina there. Concerned for other OFWs in the Middle East, the labor secretary also raised the possibility of a similar OFW deployment ban in other countries in the Middle East.

In economics, an imbalance of information held by buyers and sellers – known as “asymmetric information” – is also a sign of market failure. When workers are exploited by their employers – say, by not informing them of their rights or the full terms of their contracts – government might intervene to correct this imbalance.

Yet banning both endo and OFW deployment to the Middle East may hurt workers more than it will help them.
For example, banning contractualization in all its forms could be an overreaching policy that denies its flexibility as a labor arrangement in certain legitimate settings.

Economists in the government’s think tank warn, for instance, that such a ban could add to our overly restrictive labor laws, which have already hurt job growth and economic growth in the past. Ending endo, in other words, could hurt the very people it intended to help.

In February, Duterte seems to have changed his tune and called instead for a compromise on the issue – much to the chagrin of labor groups. But such wishy-washy policymaking raises the question: does Duterte really grasp the issues at hand and what’s at stake?

Meanwhile, although a ban on OFW deployments in the Middle East is well-meaning, will it truly eliminate any and all harm that could come to the 250,000-odd Filipinos working there?

Not all foreign employers are abusive murderers, and a blanket ban on everyone’s deployment – aside from being an impulsive and thoughtless policy – will deny good, legitimate job opportunities to thousands of Filipinos wanting to work there.

Government could instead exert stronger diplomatic efforts to protect our workers in the Middle East. Some militant groups claim that enough safeguards are, in fact, already in place, and Duterte just seems to be “making trophies out of every OFW’s miseries.”

Bans are a dictator’s best friend
Bans, prohibitions, and crackdowns are some of Duterte’s favorite economic policies. We haven’t even talked about his ban on 5-6 moneylending, the upcoming one on late-night videoke, and his war on drugs.

In some cases – as when pollution or exploitation occurs – bans might be justified. But bans are the ultimate form of market regulation, and government should use them cautiously, not rashly.

Aside from displacing thousands of people from their jobs and livelihood, blanket bans also inspire changes in people’s behavior – often unpredictable ones – and these could lead to unintended consequences.

If the government really wants to control people’s economic activities, there are alternatives. Government can impose high taxes instead (as TRAIN did on cigarettes, petroleum, and automobiles) or impose caps or limits on economic activity (like what the LTFRB did on Uber and Grab).

Some of Duterte’s bans also seem reactionary and whimsical. If government could provide greater, more detailed (even scientific) justification for such bans, all the better.

Most importantly, bans curtail people’s liberties and freedoms in a powerful way. In the hands of a self-confessed dictator, bans – whether justified or not – can be a pervasive means to regulate Filipinos’ economic activities, and we can expect to see more of it rather than less.
But how do we guard against brash and abusive bans? Again, where do we draw the line? /JC Punongbayan –

The author is a PhD candidate and teaching fellow at the UP School of Economics. His views are independent of the views of his affiliations. Follow JC on Twitter: @jcpunongbayan.


Visitor Counter