The Folly of Federalism

By Perry Diaz

FederalismWith a strong movement going on in the Philippines to change the form of government from a unitary presidential system to a parliamentary system.  The proponents of charter change, while agreeing on a parliamentary system, are divided between the supporters of Federalism and those that decry Federalism as an unworkable political system. Instead, the anti-federalist group is pushing for the adoption of a unitary parliamentary system for a good reason.

With the two groups locking horns on this issue, let’s look at these two forms of government. On the one hand, according to Wikipedia online encyclopedia, “Federalism is a system of government in which power is constitutionally divided between a central authority and constituent political units (like regions or provinces).” On the other hand, in a unitary government, the central government has all the power. Federalism appears to be more democratic, isn’t it? Don’t nod your head in agreement yet because there is something I want to tell you about.

To get a pretty good “feel” of how Federalism works, let’s look at Australia. In 1901, Australia adopted the Federal Parliament and government with the six States giving up some of their powers, but remaining independent. The Australian Constitution states, “The legislative power of the commonwealth shall be vested in a Federal Parliament.” In addition, the constitution gives a range of powers and responsibilities of the Federal Parliament. Powers not identified in the constitution reside with the States. Each of the six States has its own constitution, parliament and government. A perfect arrangement for the six States. How could they go wrong?

However, in real life, there is a lot of overlapping between the Australian Federal and the State governments. A history of competition between the Federal government and the State governments exists. Since the Federal government controls tax collection, it has established its dominance in the political system. The States became dependent on Federal financial assistance.

In terms of tax collections, the Federal government gets 70-80% of all tax revenues. The Federal government then divides the expenditure of the tax revenues between the Federal and State governments. This created ongoing financial negotiations — and haggling — between the Commonwealth and the States.

The website has identified the advantages and disadvantages of the Australian Federalism. However, the disadvantages far outweigh the advantages, some of which are: duplication of government; overlapping or conflicting policies in different parts of the country; State education systems with differing curricula and grading methods; financial inequality which leads to unhealthy competition and rivalry between the States; neglect in important areas of, to cite a few, public policy and public transportation; and over-government. The website claims, “it is often argued that a nation of 19 million people cannot afford to have 15 houses of parliament, plus hundreds of local governments.” It looks like an inverted pyramid, isn’t it?

According to a study conducted by the University of Sydney, the question was asked: “Has Federalism outlived its usefulness in Australia?” The study concluded: “It is obvious that the advantages no longer exist and the advantages are overweighed by the numerous disadvantages. It is truly time for Australia to make major reforms for it to remain an effective government process.”

The Australian experiment with Federalism that started at the same time when the Philippines was taken over by the Americans in 1901, is in need of an overhaul — just about the same time that the Philippine presidential government is being considered for replacement by a parliamentary system. The question is: Should the Philippines go with a Federal or Unitary Parliamentary form of government?

In my opinion, Federalism for the Philippines is a folly. Let’s look at some numbers. Today, the Philippines has a population of 87 million. There are 79 provinces and 115 cities. In 2004, it’s work force was 35.8 million of which 20% are in agriculture, 33% industry, and 47% in commerce and government; Gross Domestic Product (GDP) was $84.2 billion; GDP per capita was $976; exports were $39.6 billion; and imports were $40.3 billion.

With a GDP per capita of $976 per annum — one of the lowest in the world — the Philippines could not afford the cost of Federalism. First of all, most of the big industries and manpower resources are concentrated in Metro Manila and its surrounding provinces, Cebu City, Davao City and a few other places. Provinces that are agricultural-based would be hard-pressed to collect taxes to maintain their government structure, which would consist of a legislative body, judicial system, education system, health professionals, law enforcement, social services and several other agencies. After the Federal government has taken its bigger share of the tax revenues, the amount left for the provincial governments would not be enough to sustain their existence.

On April 12 2005, Rep. Herminio G. Teves of Negros Oriental delivered a privileged speech in Congress. He said that inefficient tax collection and massive tax evasion have led to deficit spending. Revenue collection vis-à-vis GDP has been on a continuous decline from 17% in 1997 to 13% in 2003. The national debt as of 2004 was P3.4 trillion. Interest payment comprises 32% of the 2005 budget.
If you add the cost of sustaining 79 autonomous provincial governments in a Federal system with no substantial increase in GDP, deficit spending would rise to unprecedented level. To cope with deficit spending, the government would have to print more money, which in turn would cause the value of the peso to drop. Pretty soon, we’ll end up with yap-yap money similar to the ones issued during the Japanese occupation.

Some people argue that a Federal government is the only way to give freedom and independence to the Filipinos. In today’s globalized economy, what is freedom and independence? In my opinion, freedom is “financial freedom” and independence is “financial independence.” Real freedom and independence can only be achieved with wealth and the ability to compete in the global market. If we free the Filipinos into creating their own country without financial freedom, then they will become slaves of their own country. And the only freedom left for them would be the freedom to die.


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