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.
Bonn Juego is a researcher and teacher in international development studies at the University of Jyväskylä, Finland. He tweets at @Bonn_Juego.
Photo: PCOO EDP
Developing Economics 
Just a Filipino student interested in economics, does this mean that the debt by the government is Keynesian response?
LikeLiked by 1 person
Hi! Being Keynesian does not mean that government must run budget deficit, or be indebted. Keynesianism is a theory of the economy which justifies the use of the state budget to balance economic life. Government debt or budget deficit is OK so long as this leads to the development of the domestic production structure, creation of jobs, job guarantee program, and aim at full employment.
The desirability of a budget deficit or a budget surplus depends on the situation. Austerity (to save or run a surplus) is fine during periods of economic boom, but not during periods of economic crises, slump or downturn.
LikeLike
I am sorry, and really with due respects, I read through the long article, but all I get is the sense of winding flowering ivory tower economic phraseologies, the neoleralism-isms. It’s all too high up in the air for me. I don’t see any on-the-ground suggestions that can chew on.
Your cut-and-paste comment on MMT sticks out to me like a sore thumb. I really would love to see you explain in practical terms what it all means. There are many many unresolved issues and questions to be asked. And we can only get into the Q&A after a practical proposal of the MMT thingy. Forget about theory, we all know what its about. Please explain the practice. Suppose Philippines agree to your proposal, how do we proceed?
LikeLike
Hi. Sorry also that I have doubts that you’ve actually read and understood the article, given your sweeping statement, particularly dismissive of the importance of economic theory in understanding government’s policy-making process. Part of the objective of the article was to counter the theory underpinning the policy of Duterte’s economic team. Specifically, it argues against Duterte’s claims and perspective that the government does not have money and cannot do social provisioning for the Filipino citizen.
As it is clear now, the Duterte administration has the wrong priorities, tremendously wasting their — our — time.
The article suggests that the government “may test” MMT as a plausible macroeconomic strategy
LikeLike
The article suggests that the government “may test” MMT as a plausible macroeconomic strategy – first to be proposed by the Executive for approval by the House and Senate, and then for the eventual implementation of the Bangko Sentral and the appropriate Executive offices and LGUs. All payables in Philippine peso — like direct cash transfers and food supply to households as well as the necessary services and labor to deal with the pandemic — can be covered by the government during the pandemic.
The article asserts that the technical problem of finance can be easily resolved, but the more difficult and crucial problem is ‘organizational’ to implement the democratization of money and the needed social provisioning. Apparently, the Duterte administration have an ineffective theory and practice about governance in pandemic times.
Yet, as spelled out in the article, MMT is just one proposal for the holistic socio-economic and political paradigm shift that I’m envisioning for the Philippines during this crisis moment.
LikeLike
Why is it each time I have a querry on MMT the advocator will always say the same things — you never read, you don’t understand, you are old-fashioned, it’s nouveau ideas get used to it etc..Why don’t you stop belittling the intelligence of those who hold a contrarian view and try to convince us by engagement. I read your high theoretical writings. In my case I really like to ground my arguments on practical approaches. I have never ever seen any literature on this. I really like you to enlighten me so we can have a meaningful exchange of ideas in the Q&A.
LikeLike
Hi! First, you made strong, if not condescending, statements: “I don’t see any on-the-ground suggestions that can chew on,” on top of your dismissive comments about academic language and theory appreciation — and to think that this particular peer-reviewed channel is largely ‘academic’.
Secondly, what’s your “contrarian view” and what actually is your question?
LikeLike
Hi. Sorry also that I have doubts that you’ve actually read and understood the article, given your sweeping statement, particularly dismissive of the importance of economic theory in understanding government’s policy-making process.
Part of the objective of the article was to counter the theory underpinning the policy of Duterte’s economic team. Specifically, it argues against Duterte’s claims and perspective that the government does not have money and cannot do social provisioning for the Filipino citizens.
As it is clear now, the Duterte administration has the wrong priorities, tremendously wasting their — our — time.
The article suggests that the government “may test” MMT as a plausible macroeconomic strategy – first to be proposed by the Executive for approval by the House and Senate, and then for the eventual implementation of the Bangko Sentral and the appropriate Executive offices and LGUs. All payables in Philippine peso — like direct cash transfers and food supply to households as well as the necessary services and labor to deal with health and economic crises — can be covered by the government during the pandemic.
The article asserts that the technical problem of finance can be easily resolved, but the more difficult and crucial problem is ‘organizational’ to implement the democratization of money and the needed social provisioning. Apparently, the Duterte administration has an ineffective theory and practice about governance in pandemic times.
Yet, as spelled out in the article, MMT is just one proposal for the holistic socio-economic and political paradigm shift that I’m envisioning for the Philippines during this crisis moment.
LikeLike
We have a start here, a very small step.
Let’s decouple the pandemic situation from MMT implementation. Let’s just focus on MMT. As I said, I appreciate the theories, but to me, advocators are coming up short on the practice side. I want to see how it will be implemented. Then as you explain, we can have the Q&A. That’s how we can progress meaningfully.
You mentioned Executive obtaining approval from Senate and then implementation. Let’s clear up any confusion here. Are you talking about the approving the use of MMT or the Budget? I’m not quite sure MMT requires legislative action, after all, as you said so, it is just a socialeconomic methodology. But for discussion sake, let’s just said the country agrees to practice MMT. No arguments here. So the Budget remains. Of course this will go through the normal process of Executive to Congress then Senate approval. Let’s agree all went well and good.
Then you say it goes to the Central bank for implementation. But Government spending is a fiscal management under the Budget Office and Treasury Dept, nothing to do with the Central Bank. So I’m a bit confused.
I’m trying to understand the MMT Practical 101. Let’s work this process out through Q&A. So perhaps you can explain what you mean by central bank implementation, What is it they are implementing?.
LikeLike
Whilst you pointed the condescending finger at me, I note too your view of the Duterte admin is in somewhat similar mode.
Too bad you do not wish to engage. I thought we could have a running Q&A and have a mutual gain in better understanding MMT on the practical aspects, which is one perspective I noticed that MMTers understandably do not wish to expound.
LikeLike
1. The article is a commentary of current events. It’s informed by reality-based economics — as such, relevant, appropriate and effective economic strategies and policies depend on context, initial conditions, mission and objectives. It offers a heterodox development alternative for the country – and for the incumbent administration to consider – at this historic juncture because “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.”
LikeLike
2. I am for economic democracy, which includes the principle of monetary sovereignty and the democratization of money. The macroeconomics of MMT can be accommodated by any type of regime across the political spectrum. Even autocrats and dictators can do MMT. Thus, it’s my normative suggestion that budgetary allocation be done through/with congressional oversight in the spirit of representative democracy.
The Executive proposes to Congress the budget expenditures and allocations of the government for its economic priorities. Operating within the framework of MMT, both the Executive and Legislative offices would understand that the national development plan is not limited by tax revenues — but they should be mindful of the limits of the country’s real resource constraints (human, labor, natural, technological, etc.) as well as existing foreign debt.
LikeLike
3. About the relationship between the Central Bank and Treasury, recall that in the Philippine government set-up, the Bureau of Treasury is under the Executive’s Department of Finance.
MMT proponents would like a merger between the Central Bank and the Treasury functions. In particular, this means that: the Central Bank does not only do monetary policy, but also fiscal policy; and the Treasury/DOF does not only do fiscal policy, but also monetary policy.
The key here is policy coordination. As suggested in the article, the BSP should be reoriented and restructured: “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… ‘Inflation targeting’ should not be BSP’s primary regulatory function and monetary policy goal.”
Inflation issue (which is traditionally dealt with by the Central Bank) will have to be managed through taxation (which is traditionally the function of DOF/Treasury).
LikeLike
4. There is an obvious power asymmetry in the relationship between a government and an individual citizen — hence, the latter can only afford to be critical (not condescending) towards the former.
Still, I think, overall the article offers analysis, critique, proposals and alternatives.
LikeLike
5. The scope and extent of the socio-economic proposal of the article is much broader (in fact, more radical) than just the rather limited macroeconomic strategy of MMT.
Above all, it sketches out and calls for a ‘paradigm shift’ for present-day Philippines because “a radical political strategy with a new economic paradigm for post-pandemic reconstruction is needed.”
LikeLike
6. If you’re primarily interested about MMT for implementation in the Philippines, please follow this group who knows much more about its viability for contemporary Philippine government, economy and society: https://joeam.com/2015/10/25/money-matters/.
LikeLike
Hi Bonn
Thanks for breaking up your comments, apparently to make it easier for responding. I’ll try to digest what you are saying and reply if appropriate.
But just to understand, I’m not too keen to go into high abstracts.
LikeLike
[…] The article was first published in the Developing Economics […]
LikeLiked by 1 person
[…] In the academic circles, Bon Juego wrote about what is good about MMT, and it could be a powerful tool during this pandemic. […]
LikeLike