Addressing the Pandemic in the Philippines Necessitates

a New Economic Paradigm
JUNE 13, 2020 BONN JUEGO1 COMMENT

In his late-night Talk to the Nation on COVID-19 on 6 April, Rodrigo Duterte, the populist
President of the Philippines, echoed the affirmation of leaders from rich countries in North
America, Europe, and Asia: to do “whatever it takes” for the economy to survive the pandemic.
The problem, however, is that, on his own admission, Duterte is incompetent in economics. His
stubbornly militaristic mindset and police-centric approach to governance is even more
problematic when dealing with complex developmental causes and impacts of the coronavirus
outbreak.
Yet the Philippine state’s inadequate institutional capacity to respond to the epidemic goes
deeper. Given the national economy’s position in the hierarchical global economic system, its
structural weaknesses impacts on how effective the government’s response can be. The current
mainstream approaches to resolve the pandemic and the multiple crises of capitalism would fail
to address the convoluted historical process of maldevelopment of the Philippines. Thus, a
radical political strategy with a new economic paradigm for post-pandemic reconstruction is
needed.    
The Neoclassical Economic Team and the Missing Keynesians

On economic affairs, Duterte has relied on the “bright boys” of his cabinet – notably, Finance
Secretary Carlos Dominguez III, newly resigned Socio-Economic Planning Secretary Ernesto
Pernia, and former Budget Secretary and incumbent Central Bank Governor Benjamin Diokno.
Although they are competent technocrats, being trained in neoclassical economics, their faith in
market-oriented solutions does not provide the appropriate policy framework to contain the
health crisis and economic downturn.
While Duterte’s political style may be characterized as populism, his administration’s economic
policies are “very conservative.” Hence, his instruction to the Secretary of Finance to generate
funds through any means possible to sustain the beleaguered economy is to be carried out on the
terms of neoclassical macroeconomic theory. A core operating tenet of this orthodox economic
policy is that fiscal space (i.e. room in a government’s budget) is a prerequisite for government
spending, even when an expenditure is on purposes such as securing the well-being of citizens
during a pandemic. It undermines a basic Keynesian macroeconomic reality that the government
generates income through spending — which, in turn, increases the state capacity to provide for
the needs of the population. Neoclassical macroeconomics also claims that a government is
constrained by revenues, and that the capability of a state is reduced to its financial position. It
therefore disregards the possibilities for the state to exercise political will over economic policy
instruments and the scope for a government to mobilize the country’s real resources. 
Unfortunately, voices from Filipino critical, heterodox, or post-Keynesian economists are hardly
heard in public debates when their intervention is most urgently needed. 
MMT and Monetary Sovereignty

At this period of great uncertainty with a recession looming, the Philippine government may test
Modern Monetary Theory (MMT) as a viable macroeconomic strategy to manage the pandemic
crisis. MMT is applicable to a sovereign state like the Philippines with a central bank that issues
the country’s own currency and a floating exchange rate regime that is fully integrated into the
fiat monetary system of the contemporary world-economy. A fundamental principle of MMT is
“monetary sovereignty,” which suggests that the state creates money. Hence, the Philippine peso
is the creature of the Philippine state. 
The direct transfer of cash to the public and other targeted social support schemes are now being
undertaken by state agencies, cities and municipalities across the Philippine archipelago on the
basis of local ordinances and the Social Amelioration Program provided for under the Bayanihan
to Heal as One Act. This may be construed as an implementation of MMT insofar as it shows
that the government does not face financial constraints when printing and issuing its currency to
distribute to the population for local consumption of goods and services.
Contrary to Duterte’s alarmist pronouncement, the government cannot run out of money for this
purpose of transferring or handing out cash to the needy and insecure population simply because
the Philippine state has sovereignty over the issuance of the peso and a national central bank (the
BSP – Bangko Sentral ng Pilipinas) controlling monetary policy. At the moment, the Philippines
also has a relatively stable credit rating and a sustainable level of external debt. Through
legislation by the Senate and the House of Representatives, the Executive can instruct the BSP to
issue money or credit bank accounts without draining the nation’s reserves. In today’s modern
monetary system, this may be done digitally. 
By following the MMT, the Philippine government can take the perspective that the state issues
— rather than merely spends — money. As such, the state is not like the typical private
individual or household, whose spending is limited by its savings. Being the monopoly issuer of
its own currency and the sole taxation authority, the state can always credit a bank account to
make a domestic payment. The government cannot be insolvent; but it can default if it chooses to
do so. An option for the government is to make a self-imposed debt limit, and for a developing
country, in particular, it should be strategic with its foreign borrowings and avoid piling up
external debt burden.  It is imperative not to deepen unnecessary external indebtedness of the
government for expenditures and programs that can be covered in local currency during this
expectedly protracted economic hardship. The substantial increase in government debt now due
to deficit spending and external borrowings will still have to be addressed in the post-crisis
management of the economy. There is a danger that these deficits and debts would be managed
through austerity and deep cuts in state expenditures if neoliberal officials are elected in
government or appointed in the bureaucracy in the future.
Mobilizing Finance, Real Resources and Labour

In addition to the macroeconomics of MMT, the Philippine government may also implement
universal basic incomes and related social protection programmes, notably the provision of food
and other needs for subsistence of households while on lockdown and community quarantine, to
ensure cash flow for individuals and families, support reproductive life, and encourage both
productive and creative work. But these financial assistance would not go far enough. In war-like
economic conditions such as the COVID-19 pandemic, Keynes would remind us that the
technical problem of finance (i.e., the making and issuance of money to spend for necessary
expenditures) can be solved easily. The more crucial problem for the time being is
the mobilization of resources, when not just the demand- and supply-side problems come in to
play, but also where there is an organizational requirement for the government to deliver public
services efficiently and effectively.
The key to a strong economy has always been its productive capacity. During the pandemic, the
mobilization of finance should come with shifting and mobilizing the country’s real resources. It
is vital that the government’s pandemic response is comprehensive with a view to the action plan
for economic and social changes over the immediate and long-term.
The greatest—yet underutilized—assets of the Philippines are the labour of its people. Acting as
an employer-of-last-resort, the government should create jobs and facilitate employment in
activities that are currently most strategic (e.g., in healthcare, scientific research, farming,
education, information technology, retail and food sectors, construction and infrastructure,
sanitation and other public services). Give jobs at a living wage up to a point of full employment
and open opportunities for livelihood. Legislate labour laws to reduce working time to what is
just and socially necessary so as to observe a natural balance between work and leisure.
In essence, this emphasis on the strategy of job creation even in a time of a pandemic comes
from a particular sensibility of labour as a creative and productive source of social and economic
value. Labour is the lifeblood of the human economy and society; whereas the capitalist system
depends its survival and reproduction on the real subsumption of labour to capital and on the
market exchange for profits. Here, Marx’s argument comes to mind: “Every child knows a nation
which ceased to work, I will not say for a year, but even for a few weeks, would perish. Every
child knows, too, that the masses of products corresponding to the different needs required
different and quantitatively determined masses of the total labour of society.”
Paradigm Shift for a New Economy

The biggest constraint, however, to any progressive economic response to the pandemic is the
longstanding hegemony of neoliberalism that has resulted in the tragic underdevelopment of and
tremendous inequalities in the Philippines. From crony capitalism during the Marcos dictatorship
in the 1970s–1980s to the succeeding 30 years under different administrations with essentially
elitist liberal-democratic institutions, the neoliberalization process in the Philippines has
favoured the ideology of trade liberalization over industrialization, localized agricultural
innovation, agroecological transformation and food self-sufficiency. For decades, the country’s
economic managers and free-market ideologues have made Filipinos consent to the idea that it is
much cheaper to import manufactured goods, rice and other agricultural products than to protect
and nurture the nation’s manufacturing industry, agriculture, farmers and food system.
The macroeconomic techniques offered by MMT and Keynesianism may prove effective for the
Philippine government to keep the economy dynamic. But utilizing them requires strict
adherence to the principles of democracy and integrity in governance.
On top of adopting the perspectives of state money, labour and democracy, there is need to
redefine the role and restructure the responsibilities of the central bank in a way that contributes
to a coordinated economic and social reform process—specifically to strengthen the domestic
industry, manage the terms of trade, and institutionalize redistributive welfare programmes. To
this end, “inflation targeting” should not be BSP’s primary regulatory function and monetary
policy goal. Though central bank’s independence should be guaranteed, it must not be made
immune from democratic accountability.
It is particularly important in the wake of the pandemic that economic policies be used as
instruments of social justice to build conditions for a new economy, rather than the recovery of
the grossly unjust and highly unequal existing order. The synergy of economic activities between
rural and urban areas must be organized sustainably to attain the geographical development
objectives of dynamism with equity. Importantly, to genuinely enforce progressive taxation, the
government and the active citizenry have to collectively value every labourer’s contributions to
the socio-economy, reassess the ethics of inherited wealth, and dismantle rentier capitalism.
Indeed, the ongoing health, economic and existential crises ought to be taken as an opportune
moment to push for a shift in our thinking about the normative workings of the economy, the
significance of addressing systemic inequalities, and the moral value of human dignity and every
human life.
Paradigm shift now, and change shall come. 
 COVID-19: What has COVID-19 Taught Us about Neoliberalism?

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By Nela Porobić Isaković

Leer este artículo en español.

The COVID-19 pandemic has exposed the toxic effects of a system that

has for far too long dominated every aspect of our societies. Neoliberalism,

as an economic ideology of capitalism, has depleted our public services,

turned our education and healthcare into profit-driven businesses, hoarded

profits at the expense of undervalued and underpaid workers, favoured

profitability of a militarised world over human security and well-being, and

aggravated inequalities between people and countries.

In the midst of the pandemic, the full scope of the effects of neoliberalism is

being revealed. Not all countries and regions will be affected the same. Not

all people will be affected the same. The ability to isolate, work from home,

homeschool your children, stockpile your shelves, access healthcare, and

financially (and psychologically) put your life back together after the

pandemic is class, gender, race, age, and geography dependent.

We are at a cross-road

But even though the scales will be different, the problems will be similar.

There will be an impact on employment, and in fact corporations are

already asking for bail-outs; the care burden on women is already massive;

the state of emergencies proclaimed around the world will have an effect

on our freedoms and human rights; our mobility will be different. But while

we cannot (for the time being) do anything about how the virus operates,

we can use this momentum to start transforming how our societies operate.

The choice we face—locally, regionally, nationally and globally—is whether

we are going to succumb to disaster capitalism and the neoliberal mantra

of each person/country for itself, or are we going to use this opportunity (as

unwanted and dangerous as it is) to build societies that encourage

solidarity, equality, and caring for the environment and our fellow human

beings. We can start transforming how we interact with each other and with

the environment and how we respond to crisis so that we don’t only ‘flatten

the curve’ with respect to the spread of COVID-19 but flatten the

consequences of the pandemic.

Public interest should always be above private interest

Profit and private interest drive capitalism and the neoliberal system. For

decades we have been fed with a narrative of inefficiency of public

institutions and their supposed inability to deliver services in an efficient,

rational, and profitable way. International financial institutions have been

asking the governments to step back and create space for private

businesses to create wealth, supposedly because private profit is good for

everybody. The governments were to intervene only to manage problems

when they arise, which created an asymmetric relationship between public

and private that can only be described as private profits – public risks.

That narrative never posed a question of what profits have to do with

people’s and communities’ wellbeing. Governments all around the world—

from Sweden, United Kingdom, USA, Lebanon, Chile, South Africa, to

Australia—have surrendered to the idea of deregulations, fiscal

contractions, and privatisation of public resources. A recently published

report “Austerity: The New Normal. A Renewed Washington Consensus

2010-24”show how some of the most commonly considered measures

have been pension and social security reforms, flexibilisation of labour

rights, and cutting of the wage bill, reduction or elimination of subsidies,

strengthening of the public-private partnership, and healthcare reforms.

What these measures are really about is a reduction in the amount of

money spent on the public sector and expansion of private actors’

involvement in what is considered public domain. In a capitalist world,

private investments in public services can only make sense if there is a

profit to harvest. Everything else counters the logic of capitalism. Which is

also why in a capitalist world it makes perfect sense to continue to invest in

non-renewable natural resources despite the overwhelming evidence of the

destruction it brings with it. The mantra of capitalism is that freedom always

comes from individual’s personal responsibility, capacity, and hard work.

Inequalities are seen as a necessary part of any society and

competitiveness is encouraged at every point. Which is why, in a neoliberal

world, it is ok that the richest 1% in the world own twice as much as 6.9

billion people.

COVID-19 exposes the significance of public sector for our well-being

COVID-19 is a story about what that approach has done to the ability of our

public institutions to respond to the challenges we face today and the

challenges we will face ahead. The negative effects of a depleted public

sector were previously mostly visible to those that needed support the
most: the underpaid workers who needed to supplement their income with

social benefits that were constantly being rationalised and reduced; women

whose ability to work and earn money were dependent on accessibility and

affordability of daycare centers but whose numbers constantly kept

shrinking; those that could not afford private healthcare insurance but saw

the availability of public healthcare disappearing; and so forth. It was also

very visible for the underpaid medical workers, who, even during the period

before the virus, struggled with a depleted healthcare system. Today,

people in different countries are organising collective applauses for the

medical staff, wanting to show their gratitude for the tireless efforts of the

medical staff. That is great for morale, but medical staff would not need our

applause if they were sufficiently staffed and properly equipped to begin

with.

The depletion of the public health has a differentiated effect on women.

Women who provide most of the informal care within families experienced

their care burden increase simultaneously with the shrinking of the public

sector. And now, with most of the formal and informal care for the many,

many thousands of hospitalised and those that are confined to their homes

being provided by women, it is becoming increasingly clear that there are

huge gendered aspects to the ability of our healthcare systems to respond

to this challenge.

But today it must be evident for everybody that a depleted public sector

cannot properly respond to the challenges ahead. The private actors—

private clinics, industries that could produce the much-needed technical

and other equipment, pharmaceuticals etc.—while they were earning

enormous profits before, do not recognise their obligations towards the

public interest today, nor are they being called upon by the governments.

While the neoliberal ideology has instilled in our public conscious that

public institutions are inefficient, we now see very little of that private

efficiency we’ve been told we would get.

Things can be done differently

However, there are examples that show that it is possible to reverse the

process. Spain has temporarily nationalised all private hospitals and

healthcare providers, something that was impossible to discuss prior to the

outbreak. But it makes sense. Public interest must come before private

interest—always—but in particular during crises like this. So why only

understand healthcare as a public right and public interest in times of

crisis? Why not always remove the profit out of the equation?
Global solidarity matters

There is also correlation between depletion of the healthcare sector

and rising debts. Countries that are heavily indebted are often faced with

conditionalities from international financial institutions that basically use

loans as trojan horses. Through conditionalities that accompany the loans,

austerity measures are institutionalised, and the privatisation of public

services is asserted to be an ideologically neutral, objective, and inevitable

way out for governments to meet the conditionalities. The privatisation of

services plays a hugely important role in minimising states’ abilities to

interfere as the central point of neoliberalism is private actors first.

Privatisation also serves to cut public spending in half so that the debt can

be served.

International financial institutions, in particular the World Bank and

International Monetary Fund (IMF), play a key role in propagation of

neoliberalism. The ability of disaster capitalism to capitalise on COVID-19

will greatly depend on the position these institutions take. The outlook is not

encouraging. In one recent development, the IMF rejected Venezuela’s

request for USD 5 billion to help strengthen the response capacities of the

country’s health system in relation to this pandemic. Venezuela was

rejected because the IMF could not decide who the legitimate leader of

Venezuela is. The inability of the global regime to see beyond ideological

differences and political competitiveness can be directly deadly in a country

that is already on its knees. In a recent press release, Juan Pablo

Bohoslavsky, the UN Independent Expert on the effects of foreign debt and

human rights, said such a decision may amount to gross violation of human

rights and would require accountability from the institution and its deciders.

In our quest to transform the political and economic system that has

claimed a right to decide who gets to live and who should die, we must

transform how the international financial institutions are allowed to do

business. We must introduce global solidarity as its core principle.

Alternatives beyond neoliberalism do exist

As the pandemic progresses, we are seeing different acts of solidarity.

Young people forming groups to deliver food for the elderly or walk their

dogs, or people sharing their books and recipes, how to do gardening, and

other ordinary things that in times of crises become a testimony of our

humanity, a testimony to the importance of the collective. Other

extraordinary things are happening. Things that before came with a price,

such as theatre visits or yoga classes are now being broadcasted for free
on different online platforms; educational tools are made available to

everybody; even the environment seems to be doing better. Labour rights

seem to be returning and paid sick leave, paid vacation, and other

measures are being granted.

All of this testifies to the vast possibilities and alternatives beyond

neoliberalism and exploitation. But in order for this amazing demonstration

of solidarity to continue, we need to create systems that can foster that

solidarity beyond this crisis and place it at the very centre of our economy,

our political system, and our interaction with each other.

Development as Freedom is a popular summary of economist Amartya

Sen's work on development. In it he explores the relationship between

freedom and development, the ways in which freedom is both a basic

constituent of development in itself and an enabling key to other aspects.

No knowledge of economics is assumed — there is no mathematics at all,

not a single equation — and the more philosophically complex material is

concentrated into a few places. And, while there's the occasional historical

analysis, most of the examples are recent or even current. Sen's prose

does have a tendency to the wordy, lacking concision, but the result is
nevertheless broadly accessible. Covering a diverse range of topics, it

should have something for anyone involved with development.

Rather than the common focus on income and wealth, or on mental

satisfaction (by utilitarians) or processes (by libertarians), Sen suggests a

focus on what he calls capabilities — substantive human freedoms. And he

argues for a broad view of freedom, one that encompasses both processes

and opportunities, and for recognition of "the heterogeneity of distinct

components of freedom".

"An adequately broad view of development is sought in order to focus the

evaluative scrutiny on things that really matter, and in particular to avoid the

neglect of crucially important subjects."

Though of course it is — and must be — a matter of debate as to what is

important.

Freedom is both constitutive of development and instrumental to it:

instrumental freedoms include political freedom, economic facilities, social

opportunities, transparency, and security, which are all different but inter-

connected. Sen ranges widely in illustrating this, considering the contrast

between China and India, education and basic health care as drivers of

growth, and mortality reduction in 20th century Britain.

Chapter three is more theoretical, with Sen himself suggesting some

readers may want to skip sections. In it he explores different informational

bases for evaluating justice — utilitarian, libertarian, and Rawlsian — and

argues for a focus on the capabilities of people to do and be what they

value. He stresses that this is not an "all or none" choice — that even if an

approach has limited application, answers to some questions may be

useful.

Further chapters apply these ideas to specific issues. Sen argues that

capability deprivation is a better measure of poverty than low income,

because it can capture aspects of poverty hidden by income measures.

Illustrative examples include differences between the United States and

Europe in healthcare and mortality, comparisons between sub-Saharan

African and India in literacy and infant mortality, and gender inequality and

"missing women".

In chapter five Sen ventures into some of the most contested areas of

economics. He surveys the role of markets, their efficiency, their ability to

provide public goods, and their relationship with the state. And he

considers the targeting and means-testing of welfare, suggesting that

capability-directed provisioning may create less distortion of market

incentives.

Economic needs are considered by some to be more important than

political freedoms, but the opposition is, Sen argues, mostly illusory. He

also reminds us that democracy, as well as being an end in itself, plays an

instrumental role in giving people a voice and a constructive role in shaping

values and norms.

"Political rights, including freedom of expression and discussion, are not

only pivotal in inducing social responses to economic needs, they are also

central to the conceptualization of economic needs themselves."

It is also important to support the effective functioning of democracy: formal

rules are not enough without good democratic practice.

In chapter seven Sen summarises some of his best-known work, on

famines. These are usually caused by a lack of purchasing power or

entitlements, not by actual food shortage — famine-struck areas

sometimes continue to export food — and are easy and cheap to avoid,

with state employment schemes the most straightforward approach. Large-

scale famines have never happened in a democracy and, Sen argues, are

unlikely to: they can only happen in authoritarian systems lacking openness
of information and transparency. A similar analysis may be applicable to

the Asian monetary crisis at the end of the 1990s.

Another focus of Sen's work has been the role of women in development.

Here he argues that, while improving their well-being is important,

enhancing their agency is just as critical. One notable illustration: women's

literacy and employment levels are the best predictors of both child survival

and fertility rate reduction.

Looking at population growth and food supply, Sen counters doomsday

predictions of imminent food shortage. And he points out that Kerala has

been more successful than China in limiting population growth, suggesting

that China might have done nearly as well without the use of coercion.

Turning to human rights, Sen briefly rebuts criticisms of the concept's

legitimacy and coherence. He then treats at length the "Asian Values"

cultural critique. Looking at historical examples, he argues that "Western

traditions are not the only ones that prepare us for a freedom-based

approach to social understanding" — and that diversity and pluralism are

the norm, not the exception.

Next comes some more theory, in the area of social choice and individual

behavior. The conclusion to be drawn from Arrow's Theorem is not that

democracy is impossible, but that we need a richer informational base,

while Hayek's "unintended changes" may nevertheless be predictable.

Against the idea that selfishness is the only motivating force of importance,

Sen stresses that capitalism itself requires other values, touching on

business ethics, contracts, the Mafia, and corruption.

In his final chapter Sen surveys the relationships between justice, freedom,

and responsibility. And he reiterates the advantages of capabilities over

narrower measures of human development. The idea of "human capital" is

a step forwards, but is still too narrow in its restriction to effects on

production; it fails to capture the direct contribution of human capabilities to

well-being and freedom and their indirect effects on social change.