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WILL it be easier, especially for the micro, small and medium (less than P100 million assets) enterprises to do business under a federal set-up? Since Federalism essentially means a smaller sovereign state (the region) within a larger sovereign state (the federal government) wouldn’t it make it harder for this economic sector, a sector that accounts for over 60 percent of our employment and makes up 99.5 percent of total enterprises, to do business? (These figures are a dead giveaway that MSMEs suffer from low productivity and that economic opportunities are concentrated in a few regions and a few (.5 percent) of the total number of enterprises.

 

Last week, the Center for Philippine Futuristics Studies and Management, Inc. held a conference with this theme where the keynote address was given by retired Chief Justice Reynato S. Puno. Speakers from Germany and Canada gave excellent inputs on their respective countries’ experience with federalism and business operations. Both have robust MSME sectors.
For the Philippines, since I too am an entrepreneur within this category and a strong advocate for federalism to equalize development opportunities to spread benefits and reduce poverty where it is raging (areas further from Metro Manila), I certainly desire that doing business be made simpler. Because the reality now, under a unitary government set-up is, it is clearly disadvantageous to the MSMEs, particularly those that are in the regions further from Manila. Why?

 

The first thing to note is that because NCR, Calabarzon and Central Luzon regions, just three regions out of 17 (PRRD nixed Negros Island Region last month), captured almost one-half of total government expenditure in 2016 and having the remaining 14 regions share in the remaining 50 percent, it is but a certainty that MSMEs in those 14 regions will struggle. For government itself is an important market for this sector and having smaller regional budgets deprives them of a more vigorous market for products and services that they can offer. Well, even in the NCR and its two neighboring regions in the north and south, because of the overly large expenditures, it makes it also difficult for MSMEs to muscle in on the big boys who are obviously well-connected and have easy access to government officials and natural resources.
Federalism assures a much better distribution of government expenditures and that alone will encourage MSMEs in other regions to sprout up and meet new demand for goods and services.

 

But what about business permits? Wouldn’t it be more difficult since now you would have local, regional and national offices to register with? Mr. Julian H. Payne, the president of the Canadian Chamber of Commerce of the Philippines, said that in Canada a business registers with the appropriate set of government offices that is matched with its scope of operations. Meaning, if an enterprise will do business all over Canada, then it gets a federal registration and permits, while if it’s business is limited to one province (their term for a region) then the permits are only applied in that province.

 

If the Philippines had a federal government structure, then the bulk of the MSMEs would only need to register and be permitted mostly at the municipal and probably regional levels but not anymore at the national level. Even businesses that were only limited, say, to a barangay would only need to register and be permitted at that level. Can you imagine the explosion of new and creative enterprises when both expenditures are increased in faraway regions and it is much easier to register and get permits? Maybe this alone will be a big boost to stop our country’s shameful slide in its economic standing among comparable members of Asean where we are at the bottom of similar countries that did not have a wrenching war and its impacts to overcome. Not only do we have a low per capita GDP but according to the ADB, in 2016 only Myanmar and Laos had slightly higher poverty rates than the Philippines. So, we have low GDP and on top of that, it’s concentrated, leaving behind mostly crumbs or trickles for the majority, thus high poverty rates.

 

In Canada as in the US, states can make up their own sales tax and other income tax rates and a federal Philippines would be no different. A regional government, say, Region 8 which had a poverty rate of 37 percent in 2014, could determine a more attractive mix of taxes for the business sector and provide incentives for particular industries that make use of the local skills and resources in the area. They will be free to do that at the regional level which gives a sizable enough population (about 6 million people, or 1.2 million households) and combined with a heftier government budget will be an attractive enough market for regional and local enterprises to go after.

 

When surveyed, MSMEs in developed federal countries spend their energy dealing with the internal dynamics of the enterprises like labor productivity, R&D and innovation, making it more efficient and good enough to go global. Witness the great products from Thailand, etc. Here, because of a very centralized government, MSMEs report that most of their time is spent with external factors like business permits, corruption and taxes. Many transactions are handled by “facilitators and fixers” as red tape and delays can be legendary. This sucks away energy that could have been used to run a better MSME.
Yes, federalism bodes well for the MSME sector. Much more than our present unitary system where the data on their economic performance is very disappointing. Since we encourage our returning OFWs to venture into this sector, we must prepare for the ground to be more fertile that what it presently is.

 

A co-convenor of Subsidiarity Movement International, and Federalist Forum of the Philippines, the advocates for the bottom-up development model as well as proper decentralization; and the strengthening of regional governance. He served for 12 years in the Regional Development Council of Central Luzon as chair of the economic committee. He is a member of the board of advisors of CDPI.
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