Profit, Corruption, and Red Tape in Doing Business in the Philippines

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Hiring and Profit in the Philippines

Textbooks and courses on business administration, management, and entrepreneurship with their emphasis on attaining business forecast and maximizing profit always imply that productive capital in doing business (such money, stocks, land, equipment, machinery, etc.) is a priority over labor (or workers’ welfare).

The common practice of some businesses is to sacrifice the wage and benefits of workers to lower production cost and thus attain their forecast and earn higher profit levels. This indicates a capitalist thinking which gives more importance to productive capital rather than labor. One unfair labor practice that shows this priority of the growth of capital rather than labor is the “casualization” of labor in developing countries like the Philippines.

To lower labor cost in order to increase profit is the hiring of casual workers from agencies with work contracts with less than six months to prevent employees to become regular or permanent under the Philippine Labor Code and thus save money by not spending for their social benefits. This practice indicates that businessmen/women are not really more concerned with the welfare of the workers by providing them permanent jobs and sufficient social benefits in the name of Christian charity and social justice but with the increase of profit or capital for their business.

The hiring of students as casual crew in fast-food chains rather than permanent employees is another example of this “casualization” and prioritization of capital over labor. The hiring of employees in security agencies, janitorial services, and call centers in the Philippines follows this trend of contractualization of labor.

Corruption and Doing Business in the Philippines

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Entrepreneurs who want to earn the profit for their business could be totally faulted if they fail to provide a moral wage which is sufficient to raise a family. From the point of view of business owners and managers, one important reason why they tend to lower the wage of workers in the Philippines is the high cost of doing business in the country. To maintain, expand or to stay profitable in business, entrepreneurs are sometimes pressured to lower the labor cost.

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Corruption is another expense in business. In Transparency International surveys, the Philippines has consistently been listed as among the most corrupt countries in Asia and in the world. Business owners and managers want to recovery the bribes they gave to corrupt government regulators and law enforcers often find ways to reduce production cost. And most often they resort to minimizing the wage and benefits of their employees. The capacity of employers to provide a decent wage to their workers is sometimes conditioned by the overall environment of doing business in a particular country.

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A World Bank report on the cost of doing business in 2018 revealed that the Philippines is one of the most unattractive destinations of foreign investment in the world because of the delay and high cost of starting and doing business in the country. In general, doing business in the country is tedious, time-consuming, and expensive, making it difficult for employers to be generous to their workers in wage and social benefits.

Red Tape

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Red tape is one major reason why employers incur higher expenses in doing business resulting which can sometimes reduce their capacity to give a higher wage and social benefits to their workers. Research and theory have been inconsistent and ambiguous on the nature of “red tape”. But there is  an understanding that red tape has something to do with excessive or meaningless paperwork  (Bennett & Johnson, 1979); a high degree of formalization and constraint (Hall, 1968); unnecessary rules, procedures and regulations; inefficiency; unjustifiable delays; and as a result from all this, frustration and vexation (Bozeman 1993, p. 273).

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Rosenfeld (1984) defines red tape as the sum of government guidelines, procedures, and forms that are perceived as excessive, unwieldy, or pointless in relation to official decisions and policy (as cited in Bozeman, 1993, p. 276). Theories abound why red tape exist in government regulation. But one popular theory sees the concern of the government to create a system of checks and balances in the regulatory process in order to avoid corruption and deviation from the official law as causing red tape.

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Red tape is one of the more serious bureaucratic obstacles in addition to legal obstacles in the full legalization of business in the local economy.  With numerous unnecessary paper works, bureaucratic requirements and procedures, and  unexplained delays in securing business registration, licenses and permits as well as  compliance with the yearly requirements and inspections to maintain legality in business,  traders or entrepreneurs increase their cost of maintaining their business which, in turn, can discourage them to improve the wage of their employees. Thus, the Philippines is one most difficult countries to do business in Southeast Asia as well as in the world according to the  World Bank Report on the ease of doing business in the world.

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Legal Pluralism, Corruption, and Red Tape as Obstacles to Philippine Disaster Response

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It has been observed that the dominant response and action on disaster management in Southeast Asia had been on post-disaster activities and particularly on emergency response” (Bildan 2003; Jegillos 2003). And of the ten countries in the world most imperiled by climate change (in terms of the number of people likely to be affected), four are in Southeast Asia: Vietnam, Indonesia, Thailand, and the Philippines (Elliot, 2012, p.40). The Philippines is one of the most disaster-prone Southeast Asian countries. Around 70 percent of its disasters are due to hydro-meteorological phenomena such as typhoon and flooding.

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Typhoon Ondoy (Ketsana) that hit the Philippines in 2009 revealed differential vulnerabilities of the population. The most vulnerable regions and communities in the country are those that are highly exposed to the changes expected in the climate and have limited adaptive capacity. The Philippines has limited economic resources, low levels of technology, poor information and skills, poor infrastructure, unstable or weak institutions, and inequitable empowerment and access to resources have little capacity to adapt and are highly vulnerable (IPCC, 2001) (Penalba, Elazegui, Pulhin & Cruz, 2012, p.310). Disaster victims in the Philippines are usually the urban poor who are totally dependent on social services. These people are usually less able to respond effectively to disasters (Cutter, Boruff, and Shirley 2003; Morrow 1999; See & Porio, 2015). Thus, the socially and economically marginalized are usually mostly ignored during disaster recovery (Morrow 1999; Tobin and Ollenberger 1993).

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Aside from being vulnerable to climate change and disasters, the Philippines is also known for legal pluralism and bureaucratic burdens in real estate business. Establishing a post-disaster housing and relocation for disaster victims such the flood victims of Typhoon Ketsana requires compliance with the multiple legal and bureaucratic requirements. The rigid regulatory requirements attending housing and land development contribute significantly to higher costs and increased inaccessibility of low-cost housing. Due to the different permits, clearances, licenses and procedures that must be obtained from various agencies other than that of housing, completion of these requirements often takes two-and-a-half to three years (Valte, 2002).

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Red tape and corruption often dominate the low-cost housing system that assists homeless disaster victims in the country. To circumvent the tedious process of securing permits and registrations, real estate developers and contractors often provide bribe money to some unscrupulous government bureaucrats to speed up real estate transactions. This “hidden cost” of corruption is ultimately passed on to end-users in the form of high-priced and/or sub-standard housing products” (Valte, 2002). To government-accredited contractors and developers, post-disaster housing, just like any other low-cost housing in the government, is a huge business enterprise. The extra costs they incurred in securing the necessary permits, licenses and other bureaucratic requirements due to corruption are passed on to the government financing institutions which are obliged under a joint venture agreement to purchase their housing units. Ultimately, the homeless typhoon victims who will eventually become recipients of the developer’s weak houses in government’s disaster-prone relocation sites.

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Finally, access to the poor disaster victims to housing projects usually requires political patronage or sponsorship of politicians. The rigid formal regulation that needs multiple requirements for housing applications implies more suffering for disaster victims. It requires sponsorship from politicians and government officials from different government agencies who can facilitate the approval of their housing applications. The informal regulation based on cultural norms further increases the difficulty of the poor disaster victims own houses in relocation areas. In this case, the popular informal normative systems–based on dominate Filipino values–known in the Philippine politics such as palakasan (patronage), utang-na-loob (debt-of-gratitude), pakikisama (camaraderie), and Padrino (sponsorship) systems dominate the normative system to overcome red tape and rigidity in housing regulation resulting in some forms of corruption. This dominance of informal norms can eventually lead to negative unintended effects which sideline the government’s rule-based PDR goals as articulated in the country’s primary disaster management legislation–the Philippine Disaster Risk Reduction Management Act of 2010 (PDRRMA).

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