Natural Resources, Economic Development and the State: The Philippine Experience 9789814345859

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Natural Resources, Economic Development and the State The Philippine Experience

The Institute of Southeast Asian Studies (ISEAS) was established as an autonomous organization in 1968. It is a regional research centre for scholars and other specialists concerned with modern Southeast Asia, particularly the multi-faceted problems of stability and security, economic development, and political and social change. The Institute is governed by a twenty-two-member Board of Trustees comprising nominees from the Singapore Government, the National University of Singapore, the various Chambers of Commerce, and professional and civic organizations. A ten-man Executive Committee oversees day-to-day operations; it is chaired by the Director, the Institute's chief academic and admi~istrative officer. The Social Issues in Southeast Asia (SISEA) programme was established at the Institute in 1986. It addresses itself to the study of the nature and dynamics of ethnicity, urbanism, and population change in Southeast Asia. These issues are examined with particular attention to the implications for, and relevance to, an understanding of problems of development and of societal conflict and co-operation. SISEA is guided by a Regional Advisory Board comprising senior scholars from the various Southeast Asian countries. At the Institute, SISEA comes under the overall charge of the Director, who is guided by an advisory committee comprising senior regional scholars.

ISEAS Environment and Development Series

Natural Resources, Economic Development and the State The Philippine Experience

CiERMELINO M. BAUTISTA Ateneo de Manila University

1~11~

Social Issues in Southeast Asia

liilgg INSTITUTE OF SOUTHEAST ASIAN STUDIES

Published by Institute of Southeast Asian Studies Heng Mui Keng Terrace Pasir Panjang Singapore 0511 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the Institute of Southeast Asian Studies. ©

1994 Institute of Southeast Asian Studies, Singapore

The responsibility for facts and opinions expressed in this publication rests exclusively with the author and his interpretations do not necessarily reflect the views or the policy of the Institute or its supporters.

Cataloguing in Publication Data Bautista, Germelino M. Natural resources, economic development and the state: the Philippine expenence. (ISEAS environment and development series) 1. Natural resources-Philippines. 2. Philippines-Economic policy. 3. Environmental policy-Philippines. 4. Economic development-Environmental aspects-Philippines. I. Title. II. Series. HC79 ESE62 1994

1994

ISBN 981-3016-70-1 ISSN 0129-3486 Typeset by The Fototype Business Printed in Singapore by Scapa Private Limited

sls94-873

Contents

List of Tables and Figure Preface

Vll

lX

ONE

Defining the Environmental Problem

1

TWO

Nature and the Economy in Economic History and Theory

7

THREE

Nature, the Economy, and the State

16

FOUR

General Policy Directions, Requirements, and Specific Actions

42

Notes

52

About the Author

58

List of Tables and Figure

Estimates of Different Forest Land Types and Non-Forest Lands, Coverage of the Public Domain, and Extent of Loss or Expansion

3

2

Specific Uses of Classified Forest Lands, 1985, 1990

24

3

Implicit Forest Charge, by Specie Group, 1939-91

27

4

Ratio of Implicit Forest Charges Plus Export Taxes to Excess Profits

28

Ratio of Implicit Forest Charges Plus Export Taxes to Excess Profits in Plywood and Veneer Exports

29

Government Share of Excess Profits Under a Hypothetical Price-Based System and a Committee-Determined, Cost-Based System

32

Proportion of Productive Forest Lands Lost Due to Logging at Various Rates of Under-reporting and Stocking Rate Per Hectare

34

1

5

6

7

8

Figure 1

Percentage Distribution of Forestry Revenue Components in Selected Years A Schematic Representation of the Linkages Between Nature, the Economy, and the State

40-41

17

Preface

From the turn of the century up to the decades immediately following World War II, only the lower parts of the so-called typhoon belt provinces in the Philippines were naturally subjected to temporary floodings during the monsoon season. In recent years, however, floods within and outside these provinces have become more frequent, extensive, and destructive. If flooos are the bane of the rainy months, prolonged droughts leading to the shortage of water for farm irrigation and human consumption have plagued people in more areas. Since the 1970s, droughts and severe floods have become forms of natural disasters requiring the declaration of a state of emergency when they occur. Together, they represent one aspect of the country's environmental problems. The increasing frequency and severity of these forms of natural disasters reflect the country's normal weather patterns, its topography and the cumulative effects of past economic activities, such as upland road construction, large-scale timber felling, transporting wood with the use of heavy equipment, and the conversion of forest lands into agricultural, mineral and pasture areas. The destructive effects of these activities on the environment, however, were not immediately felt at the time they were occurring. In conjunction with natural processes, their consequences built up through time until resource and environmental degradation reached critical proportions. The negative impact of intensive large-scale logging and road-building on soil instability in watersheds, for instance, became visible only when heavy rains induced soil erosion, land slippages, flash-floods, and sedimentation in lowland areas, which were hardly exposed to these problems in the past.

x

PREFACE

Because environmental problems manifest themselves at a later time, the effect of current economic activities must be anticipated. Thus far, it has not figured in economic analysis. In the 1960s and 1970s, market signals were not able to register externalities and to predict the destruction of Philippine forests. Since the imperatives of economic growth will contine to impinge on the country's natural resources and environment, it is necessary to develop ecological signals to warn of forthcoming crises or disasters. In a few years' time, for instance, water shortage will become an environmental crisis. By that time, the same explanations for resource depletion will be given. Just as the level of deforestation has been blamed primarily on the growth of the upland population, their conversion of forest lands to agricultural uses, and the undervaluation of timber, the increasing demand of the urban population, the invariant dependence of farmers on the resource and their failure to anticipate the shortage and to shift to crops requiring less water, as well as the almost free access to water by farmers and urban residents, and the government's inefficient water management system, will be held culpable for the impending water shortage. While these factors contribute significantly to the problem, the specific resource orientation and market-oriented focus of industry and government officials have resulted in the failure to consider the complementary relationship of forest conservation and watershed management and the effect of intensive and destructive logging on both future tree supply and underground and surface water. More importantly, the structural political economic context of forest management is not taken into account. This monograph was written to provide a more holistic ecological perspective of the environmental problem in the Philippines and other Southeast Asian countries. Since scholars in underdeveloped nations cannot afford the luxury of merely presenting the determinants of the crisis but feel compelled by the extent of the problem to identify points of interventions, this monograph represents one of my first attempts to grapple with the situation. The delay in its publication can be blamed on my initial plan to incorporate the information I was gathering while doing further research on the forestry sector and participating in numerous discussions and debates on the issues regarding intervention measures. This proved to be difficult. Although the basic premises about the relationship between

PREFACE

xi

economics and ecology would have been the same, the outcome would have been totally different. Hence, the decision to publish the original text. Several institutions facilitated the production of this monograph. The Rockefeller Reflections on Development Fellowship enabled me to take precious time off from my teaching responsibilities to connect past researches on the forestry sector with concerns about political economy and the larger environment. The Ateneo de Manila University supported my sabbatical leave while the Institute of Southeast Asian Studies in Singapore was generous in providing an environment conducive to thinking and reflection. Finally, the Faculty of Economics, University of Tokyo in Japan supported an earlier research, data from which was used in the monograph. I am indebted to many people: my colleagues at the Ateneo who took over some of my academic responsibilities; the Asian advisers of the Rockefeller Foundation, the late Professor Kernial S. S';lndhu, Dr Wilfrido Arce and Dr Chai-Anan Samudavanija for their comments; my wife Cynthia for invaluable discussions which helped clarify my ideas; and my children, Daniella and Micah who inspire me to continue working on environmental problems which will affect the future of their generation.

ONE

Defining the Environmental Problem

All member nations of the world community unavoidably share the same environmental problems of pollution, ozone depletion, and global warming. While their resolution lies in determining the level, technology, and distribution of industrial production and consumption on a world scale, each society faces a relatively distinct set of environmental problems, the causes of which must be addressed at the local and national levels without precluding co-operation among countries. In more economically developed nations with higher levels of industrial activity and with living standards dependent on greater consumption of fossil fuel and nuclear energy, environmental problems have been equated with air and water pollution on the one hand, and waste accumulation, on the other. While these problems confront less developed countries, they do not result primarily from extensive domestic industrial production and high consumption levels. Pollution in Southeast Asian countries, particularly in the Philippines, Indonesia, and Thailand, tends to be localized in urban centres and enclave production sites. 1 With respect to water pollution, industrial wastes constitute only one of the pollutants. Apart from oil spills, agricultural chemicals, barging operations, the practice of discharging industrial and consumer wastes into bodies of water or the lack of garbage disposal and sewerage facilities in the Philippines and Indonesia, soil erosion as a result of logging and mining activities and the deposition of mine tailings and wastes, significantly account for the turbidity and toxicity levels of particular water sources.2

2 NATURAL RESOURCES, ECONOMIC DEVELOPMENT, AND THE STATE: THE PHILIPPINE EXPERIENCE

Resource Degradation In its 1992 World Development Report, the World Bank identified the most immediate environmental problems facing developin g countries to be unsafe water and inadequate sanitation, air pollution as a result of both indoor smoke from cooking fires and outdoor sources, deforestation, and severe land degradation. 3 Apart from the last two problems, the Asian Development Bank added the degradation of coastal and marine resources in the Philippines, Indonesia, Laos, Malaysia, Thailand, and Vietnam 4 to the list of major concerns in the region. To illustrate the problem, the Philippines has in the last decade lost a large portion of its natural forests, mangroves, and coral reefs. Table 1 shows that from 1934 to 1988 about 10 million of the country's 11 million hectares of natural old-growth forests were converted to other uses. Of the estimated 448,310 hectares of mangroves in 1968, 69 per cent or 308,585 hectares had disappeared by 1988. 5 As for marine resources, close to 70 per cent of the estimated 2.7 million hectares of coral reefs in 1953 were found to be dead or half-surviving while only 5 per cent were in good condition by 1981.6 Although the World Bank does not explicitly give weights to the above list of problems, the degradation of critical resources, pollution, and waste accumulation constitute its major environmental concerns. Based on its understanding of the causes of these environmental problems, market-based state policy actions are prescribed. The concept of resources implicit in the World Bank's definition of the problem, however, does not include the overall environment which generates and sustains these resources.

Loss or Degradation of Resource Habitats While resource degradation is indeed a critical environmental issue in less developed nations, the problem is not merely the loss of specific resources but of the ecological zone of which they are a part. By definition, a nation's forest, lands, rivers, and sea limits serve as the habitat of its natural resources. Depending on location, climate, and historical period, the natural forest houses various renewable resources: different species of trees, plants, animals, top soil nutrients, and underground water.

DEFINING THE ENVIRONMENTAl PROBlEM 3

TABLE I Estimates of Different Forest Land Types and Non-Forest Lands, Coverage of the Public Domain, and Extent of Loss or Expansion

(In million hectares)

Public and Private Land Type

Extent of Expansion or (Loss)

1934

1969

1988

1934-69

1969-88

11.1 2.5

5.22 3.27

1.17 3.48

0.22 0.14

0.25 0.139 0.292 1.46

(5.88) 0.77 (2.5) (0.28) (0.16) (2 .33) 1.09 5.44

(4.05) 0.21 (3 .27) 0.03 (0.001) 0.29

Forest Type Old-growth Residual Pine Mangrove Other forest Unproductive or reprodudive brush Total Forest Area

0.5 0.3 2.33 0.7 17.43

1.79 5.44 16.08

6.79

10.59

(-2.2)

7.29

-3.69

-2.23

(3 .83) -3.97

(1.31) 1.54

(5.77)

Non-Forest Lands Open, brush and grasslands Cultivated &uncultivated farms; urban lands Total Non-Forest Area

-5.5

3.3

-6.7 -12.2

10.39 13.69

-12.62 -23.21

Accounted Country Area

-29.63

29.77

30.00

Distribution of Total Public and Private Lands Public lands, classified and unclassified Alienable &disposable

21.03 -8.6

17.20 12.57

15.89 14.11

Note: - represents an approximation. Sources: 1934: A. Revilla, based on old maps. 1969: DEN R, Philippine Forestry Statistics. 1988: Philippine-German Forest Resources Inventory Project.

4 NATURAL RESOURCES, ECONOMIC DEVELOPMENT, AND THE STATE: THE PHILIPPINE EXPERIENCE

The seas, on the other hand, host coral reefs and together with mangroves, they nourish various fish species and other marine resources. Underneath the forests, mountains and seas are stored the non-renewable fossil fuel, coal, gas, and metallic mineral resources which are enhanced over time or extracted for present benefits. As self~sustaining storehouses of biodiversity, these habitats, if properly conserved, can provide for the growth of a given stock of renewable resources and serve as a seeding or spawning ground. They are, therefore, natural surplus-producing zones. A hectare of forest land, for instance, has the natural productive capacity of generating a net primary productivity of as much as 70 tons annually while supporting a plant biomass of 300 to 800 tons per year. An undisturbed residual forest can also regenerate a harvestable stock after two or three decades. On the other hand, a hectare of a fully developed mangrove forest can directly and indirectly provide an annual yield of fish, shrimps, crabmeat, molluscs, and sea cucumber/ while a hectare of coral reefs can sustain a fish yield of 300 kilograms yearly.8 Because of the regenerative and productive capacity of natural habitats, their over-exploitation and damage will lead to a diminishing and exhaustible stock of potentially renewable resources. The sustainable extraction of renewable resources or the conservation of these ecological zones is thus essential for the reproduction and growth of these resources and the benefits they afford, an important benefit being the natural provisioning of the economy. As long as the zones are kept intact, the basic productivity of the economy is enhanced. In the course of the last fifty years, most of the natural forests and watersheds have either become residual and logged over9 or completely transformed into open brush or grass lands, mining areas, pasture, cultivated and idle farm lands, and real estate sites. 10 The lost mangrove forests, on the other hand, have been converted into fishponds or reclaimed, land-filled areas where roads, ports, and real estate projects have been built or are being planned, while much of the coral reefs are either damaged, gasping, or dead heaps of sand. 11 Subjected to large-scale logging, mining, grazing, and farming activities, forest lands available for hunting, gathering food and other forest products and swidden cultivation have diminished. The overall yield potential has also declined because of the loss of resource habitats. Timber

DEFINING THE ENVIRONMENTAl PROBLEM

S

production, for instance, has exhibited a downward trend since the start of the 1970s. In the case of marine resources, daily fish production has declined from 15-20 kilograms to only 1 to 4 kilograms. 12 The degradation and loss of ecological zones entail not only the diminution of natural resources and the economy's primary productive capacity but also their failure to provide basic environmental services. What does it mean to provide these services in addition to the production of marketable resources? The forest as an ecological zone, for instance, performs at least three crucial environmental functions. Trees protect the soil by absorbing and deflecting radiation, sheltering it from strong winds, and cushioning the impact of heavy rainfall. With its cover, leaf litter, and root network, the forest further holds the soil together, prevents erosion, and provides stability to the mountain slopes and shores. Apart from minimizing sea erosion, mangroves on their part have the capacity to trap sediments which enable them to firmly establish and extend the area. Moreover, they provide a protective shield to coastal settlements against typhoons, strong winds, and tidal waves. Forests, particularly those located in the mountains and watershed areas, serve the second function of absorbing and storing rain water underground, preventing evaporation and excessive flow to the lowlands. They, therefore, act as a natural reservoir, ensuring a steady water supply, especially during the dry season. Finally, forests and mangroves release oxygen and serve as a pollutant sink, thereby maintaining air and water quality. While the mangrove forest traps toxic sediments and minimizes danger to marine life, the natural forest draws carbon dioxide from the atmosphere. Given these functions, excessive logging and mining in the forest areas have had profound implications for the wider environment. In the context of regular monsoon rains and typhoons, these activities have facilitated the downflow of topsoil, forest debris, and disposed and impounded mine tailings and wastes from logged-over forests and mined uplands, increasing the silt load of natural and man-made dams and reservoirs, rivers, and irrigation canals, redirecting the course of rivers, and resulting in lowland floods. The downstream flow of silt and wastes have also deposited toxic and non-toxic sediments into the mangroves and coastal waters, causing, along with destructive fishing activities, the loss of coral reefs.

6 NATURAL RESOURCES, ECONOMIC DEVELOPMENT, AND THE STATE: THE PHILIPPINE EXPERIENCE

Furthermore, in the absence of actions to avert the effects of forest destruction, droughts have naturally followed floods. The instability of the deforested and eroded mountain slopes and hills have made them more sensitive to human and geological activities and more prone to severe erosion and landslides. 13 Thus, the market benefits of natural resource extraction must be compared with the social and environmental costs, which include the depletion of specific resources, the damage of other resources, floods, droughts, landslides or the loss of particular environmental services.

Agenda of the Study Taking as its starting point a definition of the environmental problem, which highlights not only the degradation of particular resources but of their habitats, the aim of this study is to share some reflections on the underlying causes of the problem and the conditions for its resolution. These reflections are guided by a framework developed to offset some of the limitations inherent in relying completely on neoclassical economics for defining the nature, causes, and solutions of the Philippine environmental problem. The discussion is divided into three parts. The first is a cursory review of the relationship between nature and the economy from the perspective of the discipline of Economics. This is important because the definition of the environmental problem in terms of resource degradation, the dominant views on the causes, and the proposed market solutions reflect the perspective of the discipline. The second part presents a conceptual framework of analysis which sees the value of the economists' concern with the market, yet addresses some of the limitations of the neoclassical view. This part goes into an extended discussion of the factors facilitating the degradation of the ecological zones in the Philippines, focusing on state policies and actions vis-a-vis the private sector. The concluding section makes explicit some of the policy directions and courses of action for the immediate and medium-term period in the Philippines.

TWO

Nature and the Economy in Economic History and Theory

Paradigm of Economics and Developed Economies Nature was a fundamental element in the discourse of the early philosophers and classical economists. Aristotle, Plato, Quesnay and the physiocrats, Adam Smith Nassau Senior, and John Stuart Mill, for instance, viewed it as the source of use values (direct consummables) and production requisites (natural agents) like timber, coal, metallic ores, other minerals, fibres, and dyes, which maintained the material and social existence of communities and enabled them "to truck, barter, and exchange". Drawn, hunted, gathered, fished, or extricated out of the natural environment, use values satisfied human needs directly or indirectly through exchange. As specialization and markets developed and assigned exchange values to more nature-based resources, exchange became the dominant mode of need satisfaction. Some classical economists further noted that apart from use values and production requisites, nature also provided power and energy from the sun, wind, water current, gravity, as well as the operation of other physical and biological processes, such as fermentation and pollination. By using production requisites and consciously or unconsciously mobilizing natural energies and processes, producers over time were able to supply more goods and realize their exchange or market value. As the early economic writers assumed nature's bounty and focused their attention on. the allocative and remunerative mechanism of the market and the benefits of a competitive one, some further noted that the exchange value of goods afforded a surplus beyond average profit and

8 NATURAL RESOURCES, ECONOMIC DEVELOPMENT, AND THE STATE: THE PHILIPPINE EXPERIENCE

the cost of labour and materials. In accounting for this surplus, which was categorized as the net product, the French economists attributed its primary source to nature's yield. While Senior and J.S. Mill complemented this perspective by discussing the energies in nature and the robustness of natural processes, they also shared the view of other economic writers that the surplus resulted from the physical shortage of particular natural agents and land qualities and the scarcity induced by the institution of private property. 14 With this perspective, the surplus was defined and categorized as rent. The economists' view of surplus as originating from nature's fertility and robust processes, however, did not thrive, probably because of the Western philosophical distinction between matter and form, the dominance of an anthropocentric world-view, the rise of English utilitarianism, and the spread of the institution of private property. Moreover, the increasing material progress in Europe and the wide variety of goods with greater value-added at a later time, may have contributed to the eventual demise of a nascent nature theory of value within the economic paradigm. Thus, without the conceptual development and methodological valuation of nature's role and contribution to economic production, economics as a discipline failed to draw the implication that the surplus attributable to nature must accrue back to its own reproduction. Economic writers also failed to recognize the necessity of paying attention to nature's reproduction because of the prevalence of some assumptions. Like the coming of the seasons, it was taken for granted that nature will continuously provide environmental services on a regular basis. If specific goods and services fell in short supply, the market was expected to signal and address the shortage. The absence of a market for nature's services was taken as an indicator that they remained abundant and free. If scarcity, however, became apparent, economic writers postulated that those demanding natural resources would bid for the limited or fixed supply and raise its price, or they would shift to other resources with a lower exchange value. The market was, therefore, seen as the mechanism for addressing shortages by raising prices to their scarcity value, effecting greater production or making cheaper substitutes available. The divergence between the use and exchange value of the same goods (for example, water) or between goods (water and diamond) which the early economists gave much thought to, reflected the continued abundance

NATURE AND THE ECONOMY IN ECONOMIC HISTORY AND THEORY

9

of natural goods (use values), the differential labour and material requirements of various products, and the increasing variety of commodities which catered to the affluent's "fancy and desires for superfluities". As demand for goods and specific resources expanded, nature increasingly became a source of exchange value. 15 The consequence of this was that the income of landowners rose as production extended into the margin, and competition for more productive lands pushed up rental payments. Apart from affording greater rental income, nature also became indirectly a part of the state's revenue system as it taxed the landowners and the extraction of resources from state lands. The role of the highly conspicuous consuming estate owners was a controversial economic and political question. To some, their lifestyle and consumption preferences redounded to the wealth of the nation because they provided employment to a retinue of servants and artisans, maintained an army for national defence and expansion, and engendered a larger market for goods. 16 From the view of the emerging bourgeosie, on the other hand, the landowning class was not only a non-producing segment of society but also an impediment to their economic activities and the nation's prosperity. Estate owners, for instance, restricted access to natural resources, imposed high rents, tolls, bounties and other fees which raised production costs and inhibited the flow of goods, and resisted the importation of cheaper food and raw materials. 17 In opposition to the interest of landed property holders, the emerging bourgeosie advocated land reform, higher land and inheritance taxes, and free trade. In pursuit of greater national power and wealth accumulation and in response to bourgeois demands, the mercantilist and later the bourgeois democratic states of Europe undertook expedition and colonization activities in the new frontier, supported trading companies, and eventually liberalized importation. In the New World, they discovered an abundant supply of natural agents which were subjected neither to competing demand nor to a system of private ownership. Having established their nation's sovereign rights and military power over the colonies and their resources, the foreign colonizers eventually became the holders of property from which the indigenous communities procured their use value. They also tapped the resource deposits in the colonies for their exchange value. 18 In the absence of any rent-demanding

10 NATURAL RESOURCES, ECONOMIC DEVELOPMENT, AND THE STATE: THE PHILIPPINE EXPERIENCE

native landowner or taxing state, the colonizers were able to realize the full surplus or excess profits 19 from their extractive, farming, and marketing activities. The bounty of nature in the colonies, the availability of cheap labour for extraction, the absence of local and import taxes, and the provision of cheap wage goods and production requisites provided the home country with real income and cost-efficiency gains. The resulting trade expanded the market, stimulated competition and technological innovation, and further propelled industrial development. Because natural resource extraction was undertaken elsewhere, the industrializing nation imported raw materials at a price which did not bear the cost of indigenous community displacement, local resource depletion, and the wastes and environmental destruction associated with natural resource extraction. 20 Borne by the supplying community implicitly on behalf of external users and consumers, these costs represented either the negative externality or "market failure" concept of modern neoclassical economists, or a form of "unequal exchange" expounded in the radical political economic literature. Because those responsible for the externality effects sold or obtained resources at prices lower than their social costs, the relationship between the natural-resource exporting community and the importing party partly accounted for the environmental degradation of the primary product exporting nations. Thus, the continuing growth of industrial economies and their increasing demand for natural resources from less developed countries effected not only an exogenously-generated economic transformation in what now constitutes the colonized, underdeveloped economies. It also increasingly caused market failures and uncompensated resource and environmental losses. The imposition of taxes on the natural resource sector by the colonial and independent states in the developing world did not raise the price 21 or production cost of the importing industrial users, much less cover the unpaid social costs. Because states in the periphery either adhered to free trade principles or could not assert their fiscal autonomy, taxes were levied not on market transactions but on the sphere of production. However, the taxes imposed at this level were generally low. Because a production-based tax directly reduces the excess profit accruing to private extractors, 22 this group maintained a relatively strong lobbying power

NATURE AND THE ECONOMY IN ECONOMIC HISTORY AND THEORY

II

against forces detrimental to their interests. Being members of the elite, their resistance generally pushed down tax levels. Apart from the extractors' resistance, the social character and weakness of the state and its growth imperative accounted for the zero or low tax policy. With limited financial resources, lack of organizational capacity and vision of alternative development, some post-colonial states did not have the means to establish social and economic infrastructures, promote economic diversification, and move away from a natural resource-based and exogenously-generated form of development. The developed economies, on the other hand, sustained a diversified pattern of industrial growth. The continued discovery of processes which are less dependent on scarce or expensive energy (for example, coal relative to nuclear and fossil fuel) and material resources (such as the substitution of copper for fibre optics) induced factor substitution and technological innovation. It also reduced these nations' reliance on time-intensive biological and mechanical processes, thereby expanding production of an increasing array of commodities. In turn, these accomplishments reinforced the notion of the efficacy and beneficience of market forces, the superiority of new forms of technology, and the possibilities for unlimited growth. A deteriorating quality of life, however, accompanied the increasing material affluence of the industrialized countries. As per capita income grew, municipal wastes and carbon dioxide emissions per capita increased at an accelerating rate. 23 The existing covert or accepted practice of dumping waste and relocating polluting industries in compliant, less developed countries24 may have provided some industrialized nations with temporary relief. However, in a closed earth system with a shared environment, such short-sighted, parochial, self-defeating practices cannot wish the world's wastes and pollutants away. Given its preoccupation with the behaviour of economic units, growth, and methodological tools, the discipline of economics did not initially have the means to discern the impact of the economy as a whole on the environment. Fostered within the context of the prosperity in the developed world, academic specialization reinforced the independent development of the natural sciences on the one hand and the social science disciplines, particularly economics, on the other. This imparted an image of separate, closed, autonomous systems with their own respective

12

NATURAL RESOURCES, ECONOMIC DEVELOPMENT, AND THE STATE: THE PHILIPPINE EXPERIENCE

mechanisms for reproduction (equilibrium attainment), self-regulation, and change. While each discipline contributed to the separate formulation of laws which account for the observed processes in the physical or the socio-economic world, their insights remained separate. The need to articulate the intrinsic links between the environment and the economy arose out of the increasing sensitivity among a few economists, as citizens of the world, to the worsening environmental conditions. Georgescu-Roegen, for instance, set out to establish the economy's impact on the environment after reflecting on the insights of the two laws of thermodynamics. 25 The first law postulates that matter-energy can neither be created nor destroyed, but only transformed. Since some of the material inputs of a product are non-reproducible and cannot be created, they can only be secured from a limited stock. There is, therefore, a limit to the extent that reproducible (man-made) capital can be used as a substitute for land and other exhaustible resources. Given this limit and mankind's inability to create matter-energy, less physically scarce exhaustible resources have historically substituted for non-reproducible inputs in short supply, while the energy content of the substituting matter has not been less than that of the replaced input. The non-destruction of matter-energy, on the other hand, means that the material content of a product remains despite its transformation in the process of production and consumption. According to the second law of thermodynamics, matter is always transformed from a state of low entrophy, or high amount of free or usable energy, to a state of high entrophy, or low available usable energy. This implies that economic activity necessarily produces wastes which, because of their high entrophy, do not lend themselves to complete recycling. Since the process of economic growth generates an accumulating stock of waste and pollutants which are dumped on the environment, the economy cannot be conceptualized as an isolated circular flow without any interchange or dependence on the environment. To put it another way, it is impossible to envision continuous economic growth without its increasing economic, social, and environmental costs. Modern resource economists define environmental problems in terms of the degradation of critical resources, like water, air, and land, and the effect of negative externalities (pollution and waste) on the environment.

NATURE AND THE ECONOMY IN ECONOMIC HISTORY AND THEORY

13

From their perspective, resources become degraded when access is free or open, 26 or subject to unrestricted use. Resource degradation is also seen to be the outcome of undervaluation, that is, prices do not reflect the resources' true scarcity cost. This view of environmental problems suggests at least five policy prescriptions. First, effective property rights over the common or openaccess resources must be delineated and enforced, where feasible. Secondly, information on the scarcity or social costs of resources and services must be generated in order to evaluate market prices. Thirdly, subsidies and other policies which distort prices or promote divergences between market price and scarcity value must be eliminated. Fourthly, taxes, penalty fees, and performance bonds must be effectively imposed not merely to capture a greater (revenue) share of the rent but in order to correct the undervaluation of resources and compensate for the incurred negative externalities. Fifthly, the excessive market power of mono(oligo)polist and monopsonist practices which underlie market failures must be subjected to regulation and market competition. It should be noted that these measures consist of a mix of market liberalization policies and direct intervention, which the "black box in economics", that is, the state, must carry out.

Elements of an Alternative Framework The above discussion of nature and the economy in economic history and theory suggests some of the basic building blocks of an alternative conceptual framework which can clarify the underlying causes of the environmental problem and the conditions for its resolution. While the market deals uniquely with each commodity and bestows a value only to specific extracted resources, the valued resources must also be understood in terms of their links to other resources in their habitat. Conceptually, they must not be abstracted from their ecological habitat and environmental functions. As discussed previously, excessive resource extraction in ecological zones necessarily affects the sustainability of the natural habitat, its stock of resources, and the performance of environmental services. Seen in this light, the social cost of resource over-exploitation consists not only

.14 NATURAL RESOURCES, ECONOMIC DEVELOPMENT, AND THE STATE: THE PHILIPPINE EXPERIENCE

of the loss of future supply. It also includes the non-provision of important environmental services and the actual costs incurred when man-made natural disasters such as drought, floods, and landslides occur. These disasters merely reflect the absence or shortage of environmental services which the market cannot register.27 . A notion of social cost which considers the resource habitat and its environmental functions is necessarily broader and greater than the scarcity value assigned to resources within the neoclassical paradigm. The equation of social cost with scarcity value in neoclassical economics springs from the discipline's focus on the resource and the social valuation required to reproduce it. Thus, scarcity value fails to consider the negative externalities much less reflect the reparation cost of damaged resources. The 1992 World Bank Report commits this error in its evaluation of marketed non-renewable resources such as metals and minerals. Using the downward trend of metal prices since the mid-1970s as the indicator of their scarcity value, the Bank reached the conclusion that there is no resource depletion or degradation. 28 Moreover, by focusing solely on the resource abstracted from its environment and its declining market value, it fails to consider the displacement, destructive and pollutive effects of mining or the environmental and social costs incurred by one of the World Bank's credit beneficiaries. Since nature in contemporary times is subjected to higher extraction levels of a wider range of resources at unsustainable rates, it demands increasing reproduction requirements. Every extraction activity which exceeds natural yields and adversely affects the habitat's environmental function must compensate nature. If nature must be compensated, who is to claim on behalf of nature and those who will benefit from resource regeneration and environmental restoration? In principle, the state, with its taxing power and constitutional duty to protect a nation's patrimony is the institutional answer. Empirically, however, there are requirements for the state to carry out these functions. The prevalence of an ecological orientation and the capacity to generate and analyse information, on the one hand, and to enforce relevant policies, on the other, are necessary if the state is to eliminate subsidies or privileges granted to dominant natural resource extractors and users, impose taxes to cover the social costs, institute other terms of resource

NATURE AND THE ECONOMY IN ECONOMIC HISTORY AND THEORY

15

use which ensure sustainability, and effect the transfer of resource access rights from the excessive or destructive exploiters to those with a longterm interest in the resource and the environment (for example, the communities living near the resource habitat). If an analysis of the social character of the state shows its inability to undertake the above actions, there is still a need to identify third parties who can ensure nature's reproduction by organizing initiatives and pressuring both the commercial interests and the state.

THREE

Nature, the Economy, and the State

A Schematic Representation of the Linkages Figure 1 identifies the types of natural resources and their respective habitats and links them to economic sectors and markets. It also specifies the determinants of economic production, the flow of natural resources, and the generation of wastes. By illustrating the linkages between nature, the economy, and the state, it posits the relationship of natural resource extraction and economic growth to the degradation or loss of ecological zones. Nature's resources are commonly divided into two major types: the non-renewable (stock) and the renewable (flow). The stock resources consist of exhaustible fossil fuel, gas, coal, geothermal, and the metallic and elemental minerals. The flow resources, on the other hand, include 1) the potentially or only indefinitely renewable resources, such as trees, animals, soil, underground water, and marine resources; and 2) those flows which appear ever present and independent of human activity, such as solar energy, water, wind, air, tides and waves. In the current world system, nation states have claimed the resources within their national boundaries. While no one has established property rights over the ever-present renewable resources, nations through their governments, individual citizens, and organizations have established or obtained access rights to the non-renewable and potentially renewable resources. These resources, or the land in which they are found, have been covered by different systems of property rights with varying terms and tenure. The distribution of these rights has facilitated the economic use of natural resources through time.

FIGURE 1 A Schematic Representation of the Linkages Between Nature, the Economy, and the State

•

I

CURRENT, EXPECTED PROFIT

ECONOMIC and ENVIRONMENTAL POLICIES

DOMESTIC and FOREIGN MARKET DEMAND

I PRODUCTION

I

.: CONSUMPTION ~

I r--

Subsistence Commercial Agriculture+-- Agriculture Fishery Fishery

i

solar energy

~

Extractive Processing Energy Sector ~ Industries---. and other ---+ Industries

~

-

Iwater 1-

marine r- resourtes ~

fossil fuel

geothermal

4

other minerals

______..

BIOMASS WASTES

1 LA ND -

timber ores

coal

4

i

i

RIVER -

WASTES POLLUTANTS

SEA-MANGROVES-FORESTS

CO~AL / REEFS

ATMOSPHERE

I

MOUNTAINS

1+---

18 NATURAL RESOURCES, ECONOMIC DEVELOPMENT, AND THE STATE: THE PHILIPPINE EXPERIENCE

Natural resources are extracted for various reasons. They provid direct consummables or marketable goods to subsistent families. The~ also satisfy the demand of domestic and foreign consumers and industrie~ Furthermore, they enable the extractor-supplier to realize nature's surplu in the form of excess profit or rent. It should be noted that with marke expansion and increasing prices, the capture of greater excess profit through commercial extraction displaces subsistence motivations fo extraction. Because nature through geological and biological processes produce resources such as trees and mineral deposits without financial costs, i subsidizes the supply of extracted, marketed resources (timber, metalli, ore). In other words, it makes the value of natural resource commoditie greater than the normal cost of extraction, transportation, and processing This natural subsidy generates above-normal or excess profits whicl extractors, processors, and the state can appropriate. Private profit oppot tunities become more attractive as prices increase with growing marke demand, as future prices are expected to improve, and as the state applie more subsidies and less taxes to the extractive and processing industrie~ The magnitude of natural resource flows thus depends on a numbe of factors: the export price level and trend, current and expected profit in extraction or processing, the scale and structure of the economy, th technology or efficiency of resource extraction and use, and the state' fiscal and environmental policies. When the export price of a natural resource is higher than its do mestic price, or when price is on an upward trend, profit opportunitie improve, and more resources are extracted. Resource extraction, howevet can be reduced when wastages in extraction and processing are effective!: penalized or when the state effectively imposes high taxes and stringen regulatory policies for environmental protection or conservation. As th economy diversifies and becomes less dependent on primary or natura resource-based exports, there is less pressure on the resource stock. As noted earlier, wastes and pollution are intrinsic in the cycle o production and consumption. More wastes and pollutants are necessaril: generated as economic growth intensifies. Only at the high income level attained by some industrialized countries can certain forms of pollutio1 begin to taper off and decline, as in the case of pollution from particulat, matter and sulfur dioxide.

NATURE, THE ECONOMY, AND THE STATE 19

The amount of wastes, however, is not just dependent on the level of final goods production and consumption. It is generated also by the very process of natural resource extraction. Since marketable natural resources are stored or embedded together with other resources in certain ecological zones, their extraction can result in damages to other resources and the degradation, if not destruction, of their habitat. Greater wastes are thus associated with undiversified, natural resource-based economies, as well as with inefficient industries. A state which maintains this structure and fails to promote efficiency and undertake environmental investments moreover contributes to the problem. The role of the state in Figure 1 is represented in the policy box. As a determinant of production, state economic and environmental policies facilitate or constrain the effects of more basic determinants. Reflecting an implicit set of preferences or world-view, state policies are formulated, albeit with some level of autonomy, within a particular political economic structure reflecting variable levels of social participation. For instance, government deficits and external debt payments may materially account for state inaction vis·a·vis the environment while its relationship with private extractive interests and its limited enforcement capacity may set limits to its intervention.

State-related Factors Facilitating the Degradation of Ecological Zones The loss of ecological zones has been attributed in the literature to demographic variables. Without undermining the significance of population pressure and of the state's failure thus far to formulate an effective population policy, the degradation and loss of ecological zones is directly related to the historical pattern of natural resource extraction for economic use, the associated technology wastes and environmental damages, and the natural resource management policies and actions of the state. While the wood and mineral industries, in particular, have figured prominently in the Philippines' economic structure and growth experience, they have played a negative role in this historical process and policy framework. As the concluding part of this study will make some policy directions more explicit, this section focuses on the role of the Philippine state in

20 NATURAL RESOURCES, ECONOMIC DEVELOPMENT, AND THE STATE: THE PHILIPPINE EXPERIENCE

facilitating the degradation of ecological zones. The significance of other variables such as the preferences of policy-makers and the actions of the private sector are woven into the discussion. As the "owner-manager", the Philippine state has formulated policies and accompanying fiscal measures along four general areas specifying: 1) the basis and terms of access to natural resources and their habitat; 2) the level and technology for extraction; 3) the valuation of extracted resources, including waste and destroyed resources, and their disposal; and 4) the environmental restoration requirements. Before discussing the actual policies, their determinants and consequences, it is important to articulate the orientation or preferences underlying the formulation of Philippine laws and policies with respect to natural resources. These preferences constitute a world-view which operate not only in the Philippines but also in more developed nations. This study takes the position that a set of preferences underlie the historical degradation of natural resource habitats.

Preferences anti Values Underlying the Problem The dominant set of preferences underlying policy formulation, which inadvertently reinforces the loss of natural resource habitats, springs from the following conceptual premises. First, a resource habitat is valued mainly as an extraction site of particular renewable and non-renewable resources, a potential transformable specialized production location, or as a dumping ground of wastes. This' value, which is reflected in the disposition and use of public lands, and the extent forests are protected and leased, overrides the view of the resource habitat as an integrated ecosystem which must be maintained in order to ensure the sustainable provision of resources and environmental services. Secondly, habitat resources are valued differently. Particular resources within each specie, genre, or across various resource types are deemed to have higher values compared to other resources. For instance, dipterocarp trees have had a higher value compared to other tree species, while

NATURE, THE ECONOMY, AND THE STATE 21

non-renewable metallic ores have been valued more than any renewable tree specie. Given these two premises, the value of a resource is largely based on present market prices rather than other value norms, such as future economic values or present social and ecological costs. Moreover, its value is restricted solely to the marketable component of the complete resource endowment. To illustrate, only the timber of a tree may be given value while the seeds, leaves, branches, tree top, bark, and roots are considered useless or simply left unvalued. Mined ores, on the other hand, are considered to have greater value than trees, top soil materials, the forest, the mountains, or the underground water table. Associated with this manner of valuation is the view that the given value of a particular resource component is realizable only by extraction from its source, no matter that other elements are destroyed, and subsequent sale to the market. Implicitly taken as free inputs or valueless elements of nature which are unavoidably linked to a marketable resource, there is no compensatory regulation affecting the extracted and destroyed non-commercialized resources. Thirdly, an articulated component of the dominant world-view is the ordinalist utilitarian and income maximization principle which postulates that more consumer and producer surplus is better than less. Since more income in the form of higher taxes or private net profits is better, both the resource-granting state and the private extracting or processing units want greater revenues or a larger share of the excess profit from the sale and processing of natural resources. At an agreed-upon tax rate, the interests of the state for more revenues and the extractors for profits can be met by a growth in production. Higher extraction levels and the use of yield-maximizing technology are hence preferred regardless of whether resource extraction exceeds the sustainable yield of renewable resources or diminishes their potential yield, whether investments are being made in resource regeneration and environmental restoration, and whether the desired technology is resourcewasteful and environmentally destructive. Fourthly, because resources are valued differently and present market values are considered more important than other norms, it is natural and justifiable for the benefits accruing from the preferred uses of the

22

NATURAL RESOURCES, ECONOMIC DEVELOPMENT, AND THE STATE: THE PHILIPPINE EXPERIENCE

land and the environment to flow to the policy-determined or marketselected users, extractors, and processors. Their interest and welfare take precedence over those of other users, as well as implicitly those of the general public and future generations. Fifthly, the desire for greater income is furthermore accompanied by the liberal, individualist view that income receipts are earned monetary gains which rightly belong to the government and private recipients and hence can be used at their discretion. Ploughing back these gains to its source in the form of expenditures for resource regeneration and environmental restoration is not an a priori responsibility nor a priority requirement relative to other financial or organizational imperatives. As noted previously, these preferences are significant because they underlie the formulation of policies on natural resources. The content of policies reflects the dominance of these perspectives because both the state and private industry hold similar views. While there may be a potential conflict of interest especially in terms of their respective share of the excess profit from resource extraction, both conceptually agree on the desirability of higher production levels. Given this view, the state either negotiates a compromise or simply gives in to the industry's demands for low taxes. Although objectively, state interests need not be aligned with that of commercial extractors, its tacit or unconscious adherence to the same world-view prevents it from opposing practices emanating from some of this view's conceptual premises. The state may not, for instance, effectively impose a policy ban on the extraction of diminishing resources in specific locations or on the use of destructive extraction techniques. Nor may it impose penalties on pollutive waste disposal. The underlying premises of the dominant world-view vis-a-vis natural resources have remained unchallenged. It has incipiently defined the specific content of natural resource and environmental policies, formalizing the shared interests of political administrations and private industry. This can be gleaned from the discussion of the policy areas in the next sectiOns. Given the strong presence of extractive pecuniary forces vis-a-vis the environment, the state as the "owner and manager" of natural resources has been in a position either to benefit financially from extraction in the short term or to intervene for the sake of sustainable development,

NATURE, THE ECONOMY, AND THE STATE

23

environmental stability, and the interest of the general public and future generations. Put differently, considering the extent of environmental destruction and the depletion of forest, marine, soil, and water resources, the state over time has had at least the option of simply continuing the practice of destructive natural resource extraction and rapid conversion of ecological zones or of taking action to mobilize human and capital resources to restore the ravaged environment and pursue an alternative economic development path. A review of past state policies and actions in the Philippines indicates that, with some exceptions in the recent past, the first was the option taken.

State Policies on the Basis and Terms of Access Before the establishment of the state and the extension of effective control over public lands, access to resources was open or guided informally by indigenous community norms. Free access and community-determined usufruct rights, however, were restricted, if not completely denied when state authorities exercised their access-granting function on behalf of outsiders with their own security force. The state's preferred use of the lands as commercial extraction areas is reflected in its act of granting access rights to favoured business users without delineating indigenous community rights to specific land areas. To concretely illustrate its preference, most public forest lands which are not officially designated as civil or military reserves, national parks, or forest reserves are under one form of commercial licence or another. Table 2 shows that about 56 per cent of classified forest lands in 1985 were under lease - about 43 per cent had timber licence agreements, 3.4 per cent had pasture grazing rights, and 2.6 per cent had mining licences. Apart from leasing lands to private individuals or corporations, the state also assigned some of these lands for commercial use to the National Development Corporation and other government enterprises, or rendered them alienable and disposable . While the area under timber licences has declined since the late 1980s, the areas covered by mining, stewardship and community forest contracts have increased significantly over time. It should be noted that the lease and disposition of public lands

TABLE 2 Specific Uses of Classified Forest Lands, 1985, 1990 (In million hectares)

1985 Forest Land Use

Area (M ha)

Forest Lands under Reserve Forest reserve National park Military reserves Civil reserves Subtotal

1990 Area

Area (M ha)

Area

3.47 1.26 0.13 0.31 5.17

24 .8 9.0 0.9 2.2 36.9

3.27 1.34 0.13 0.17 4.91

21.8 8.9 0.9 1.1 32.7

2.97 0.95 0.41 0.30

%of

Forest Lands under Licence Timber licence (TLA) Other timber Pasture and grazing Industrial tree plantation Mining lease Stewardship contract Community forest Ag ro-forestry preject Fishpond lease Tree farm project Quarry mining licence Industrial mining project Subtotal

6.09 0.50 0.47 0.29 0.20 0.14

43.5 3.6 3.4 2.1 1.4 1.0

0.09 0.05 0.02 0.002 0.001 7.85

0.6 0.4 0.1 0.01 0.01 56.1

Unaccounted for

0.97

7.0

Total

14.00

100

%of

a

19.8 6.3 2.8 2.0

0.36 0.04 0.11 0.75 0.01 0.002b 0.001b 5.90

2.4 0.3 0.7 0.5 0.1 0.01 0.01 39.3

4.19

28.0

15.00

c

100

Apart from the 2.97 million hectares, there were 3.78 million hectares of TLA lands which had licences that were expired, cancelled or suspended. Most, if not all, of these remained in the formal category of "non-use". b Not updated. ' Includes the 3.78 million hectares of former TLA lands. Source: Based on Philippine forestry statistics and the unpublished data of the Forest Management Bureau. a

NATURE, THE ECONOMY, AND THE STATE

25

occurred under circumstances and terms which further reflect the coincidence of state and private commercial interests. Apart from historically disregarding the presence of indigenous communities and their land-use practices, the state did not fully consider the technical and environmental qualities of the land, that is, its slope, stability, soil and rock composition, resource composition and stock qualities, its watershed function, and extent of degradation. Without an overall land-use plan which incorporates these considerations, the state disposed or leased out public forest lands solely on the basis of their commercial resource content. Public land-use policy has been based mainly on whether its resources would allow for the extraction of timber and other forest products like rattan and resin, non-metallic or metallic ore mining, livestock raising, commercial farming, fish culture, and real estate establishment. The institution of this basic forest land-use policy has fostered both generalized resource access and non-forest land uses. 29 Government provision of lease or ownership rights to prospective loggers, miners, ranchers, farmers, and real estate owners consists not only of the exclusive right to extract a particular resource but also of unrestricted access to the other resources on the land. A logging concessionaire, for instance, has not only extraction rights over the trees but also control over the non-timber forest products. Apart from its mining lease claim over a particular area, a mining company can also secure a gratuitous or special timber permit and use a section of public lands as a tailings pond or waste dump. A recipient of alienable and disposable lands or a fishpond permit holder of mangrove lands, on the other hand, has the right to cut the trees in the area, without any forest charge . The direct or indirect granting of these rights by the government has also led to the conversion of parts of public lands to roads, bridges, dump sites, log ponds, ports, and other "farm to market" facilities. The state's preference for commercial products and non-forest land uses and the provision of generalized resource access rights has not only formalized the conversion of forest lands, watersheds, and natural drainage systems into non-forest areas. It has also weakened the status of the forest reserves and made them vulnerable to extractive interests. With state power behind them, some political administrations encroached on a significant portion of the designated forest reserves and national parks

26 NATURAl RESOURCES, ECONOMIC DEVELOPMENT, AND THE STATE: THE PHILIPPINE EXPERIENCE

and issued logging and mmmg permits. The Chamber of Mines, for example, succeeded in its lobbying efforts to have the mining ban on particular reserve areas lifted in 1981. While the lease of forest lands has yet to be defined by an overall land-use policy, the extraction of forest-based resources and the use of forest lands for non-forest purposes have been encouraged by easy access or lease terms and low taxes or land acquisition costs. All told, public lands have been freely granted, sold at a low price, or made accessible on easy terms and at a minimal charge. In leasing out a sizeable area of timber and mineral lands, the state has simply evaluated the ability of applicants to undertake extraction activities. Applications have merely been approved on the basis of credit standing, real estate collateral, capitalization, or possession of machines, equipment, and processing facilities by the applicant. What this amounts to is that logging and mining leases have not been based on the applicant's willingness to pay the economic value of the extracted resources and a commitment to resource renewal and environmental restoration. Access to the desired resource, for instance, has not been subjected to a bidding procedure, nor has the government-resource owner negotiated for a rental fee which approximates excess profit. 30 While Table 3 presents the absolute implicit charges from the late 1930s to 1991, Tables 4 and 5 provide an estimate of the proportion of excess profits in logs, lumber, plywood and veneer production which the state has potentially obtained. Mining companies have likewise been subjected to low taxes. Unlike the logging concessionaires who pay a minimal deposit requirement for resource depletion and environmental restoration, the industry is not required to put up a deposit. Given the present application requirements which any serious prospective extractor possesses and the absence of mechanisms (for example, bidding) and requirements (for example, responsibility for restoring the environment), a sufficient condition for qualified parties to obtain concessions has been the applicant's political office or relationship to the national political leadership. Lease contracts for public resources were thus allocated through a politically-determined access mechanism rather than on the basis of economic competition and resource/environmental norms. In effect, the system of allocation has not been able to induce

NATU RE, THE ECONOMY, AN DTHE STATE

27

TABLE 3 Implicit Forest Charge, by Specie Group, 1939-91 (Pesos per sq. metre)

Period

(1)

Specie Group (2) (3)

1939-46 1947-62 1963-68 1969-71 1972-79

3.50 4.00 4.10 4.35

2.00 2.50 2.60 2.85

1.25 1.65 1.75 2.00

0.60 1.00 1.10 1.35

9.35 13.85

7.85 12.35

7.00 11 .50

6.35 10.85

Domestic Export

1980 1981-89 1990 1991

(4)

25 .00 35.00 535.00 550.00

15.00 20.00 20.00 60.00

(common and construction hardwood)

(pulpwood and matchwood)

the participation of more efficient extractors with commitment to resource regeneration and environmental restoration. Instead, inefficient and destructive resource extractors have not been prevented from obtain. . mg permits.

State Policies on the Level and Technology ol Extraction The following factors have promoted excessive extraction levels and the use of destructive technology: 1. the absence of quantity restriction policies, 2. the limited information, resource management, and enforcement capacities of the state,

28 NATURAL RESOURCES, ECONOMIC DEVELOPMENT, AND THE STATE: THE PHILIPPINE EXPERIENCE

TABLE 4 Ratio of Implicit Forest Charges Plus Export Taxes to Excess Profits

(In per cent)

Period

(W

(2)b

(1)1

Lumbere (2)9

1970 1971-75 1976-80 1981-85 1986-89 1990

3.9 26.4 27.5 40.5

16.8 229.5 188.6(

3.2-7.0 10.5-21.2 10.3-20.8 13.1-27.3 2.1-4.5 1.4-3.1 19.1-41.9

7.2-8.9 28.3-28.9 25.6-27.4 33.0-36.0 4.7-5.7 3.2- 3.9 43.1-53.2

Log

(3Jh 5.7-7.0 20.7-21 .2 19.5-20.8 25.0-27.3 3.7-4.5 2.5-3.1 34.0-41.9

° Cost of production = .331 (market price).

Cost of production = .845 (market price). c Only for 1976-78 d Zero excess profit and a normal profit rote of 23-28 per cent. e Assuming a log requirement of 1.85-2.28 cubic metre of lumber. 1 Producer with TLA and a cost of production = .325 (market price). 9 Producer with TLA and a cost of production = .573 (market price). h Producer without TLA and a cost of production = .5204 (market price). At a cost of production equal to .84 (market price), there is no excess profit to shore, and the normal profit margin decreases from 30 per cent to 6.7-18.6 per cent. b

3. the low taxes and other incentives granted to extractive and processing industries, and 4. the growth of market demand and prices. While the state has increasingly exercised its access-granting functions on behalf of preferred forest land-users, it has not undertaken essential management functions, such as determining a complete inventory of the existing stock of resources, their composition, volume, economic and ecological value, rate of depletion per specie and resource category, and the conditions of their physical habitat. There has also been no effort to generate information on the available extractive techniques, their

NATURE, THE ECONOMY AN DTHE STATE 29

TABLE 5 Ratio of Implicit Forest Charges Plus Export Taxes to Ex(ess Profits in Plywood and Veneer Exports

(In per cent)

Period

(W

Plywood (2)b

1970 1971-75 1976-80 1981-85 1986-89 1990

5.3 34.7 20.1 29.3 4.8 49.1 53.1

8.6 65.9 36.0 53.2 7.8 79.2 85.7

{3) c

(lr

Veneer (2)f

140.1

2.6 20.2 9.9 12.2 2.4 18.6 26.9

10.7 114.2 51.7 63 .1 9.9 77.1 111.4

126.9 1292 1397

(3) 4.9 41.6 20.2 24.7 4.6 35.5 51.3

Based on the study, producer with TlA and a cost of production = .5525 (market price or PM) . Based on the Master Plan, producer with TlA and a cost of production = .635 (PM). c Based on the GOPA study, producer without TlA and a cost of production = .761 (PM) . (GOPA Consultants, Rationalization of the Wood-based Industries, Final Report, vol. 1-2, March 1990). d There is no excess profit, and the profit margin has gone down to 21.7-26.4 per cent. e Producer with TlA and a cost of production = .271 (PM) . 1 Producer with TlA and a cost of production = .649 (PM) . 9 Producer without (but more efficient than f) TlA and a cost of production = .508 (PM) . 0

b

relative efficiency and effect on the potential yield and the overall environment. Without these information and with the implicit short-sighted view that natural resources are unlimited or potentially inexhaustible within their term of office, political administrations have not been able to objectively determine sustainable extraction levels for renewable resources. Nor have they intertemporally allocated non-renewable resource extraction and aligned it with industrial development and environmental policy considerations. By default, past and present administrations have merely adopted policies that promote increasing current commercial production levels. Quantity policy restrictions have not been imposed, for instance, on mineral and marine resources. This means that excessive extraction

30 NATURAL RESOURCES, ECONOMIC DEVELOPMENT, AND THE STATE: THE PHILIPPINE EXPERIENCE

has not been defined and subjected to a penalty system. Since the state has not allocated a mineral reserve stock per mining claim for future exploitation, and since it has more than sufficiently granted incentives, subsidies, and low taxes, mining companies have been allowed in effect to exhaust the ore deposits in their leased areas. Even as they intensified their mineral exploration and production, the state has not restricted tunnel construction and the practice of open-pit mining. An open access policy has also been implicitly maintained with regard to marine resources. Although overfishing has been recognized to be a domestic and global problem, the volume of commercial fish catch has not been limited. Specifically, there have been no restrictions on the export of exotic aquarium fish species, fish fries, and fingerlings. Given the increasing demand for marine resources, efforts to maintain potential marine yields through the conservation of mangroves and the establishment and protection of marine reserves have been miniscule. The logging of trees, on the other hand, is formally restricted to the so-called annual allowable cut (AAC). In the absence of a reliable forest resource inventory, however, political administrations have arbitrarily determined this production ceiling. In fact, the official figures have overestimated sustainable yield. While the AAC should have been reduced from the late 1950s to the 1970s when the country had already lost substantial forest lands, the state continued to raise the volume of AAC then and to lease out more old-growth and residual forests 31 through Timber Licence Agreements (TLAs). Consequently, logging activity in the residual forest during this period resulted in the harvesting of the fruits of natural regeneration, preventing the regeneration process. While the state opened the natural resource sector to greater commercial extraction activities, it did not develop the necessary information base, policies, and enforcement capacities which could have evaluated and constrained the growing extractive orientation. As such, it failed to undertake the following specific actions which could have prevented present resource and environmental problems: determine the sustainable yield of forest and marine resources and use this as the allowable level of extraction; assess the costs of pre-extractive and extractive activities, such as the bulldozing of mountains to construct access roads, the use of destructive yarders in logging, and the practice of open-pit mining;

NATURE, THE ECONOMY AND THE STATE

31

evaluate the net economic and social benefits of the mining industry, in particular; effect the maintenance of an optimum area of forest lands and the conservation of mangroves and coral reefs, and stop the sale of corals, illegal logging, trawling, muroami fishing, and the use of mercury for amalgamation and eliminate the source of cyanide and explosive compounds used in destructive fishing. Moreover, political administrations have failed to significantly raise revenues or the government's share of the excess profits from the natural resource sector by increasing taxes and establishing an effective assessment and collection system. Historically, the natural resource sector has been subjected to low and even decreasing taxes. Marine resource extraction, for instance, has remained largely untaxed, while low and decreasing taxes have been imposed on the wood and mining industries. In the wood sector, a low fixed forest charge, in the form of a quantity tax, was levied on logged timber from 1939 to 1981. In the context of increasing log prices, this tax measure, together with other ad hoc payments, resulted in a decreasing implicit tax rate averaging 1 to 2 per cent for domestic logs. It should be noted that some political administrations in subsequent years attempted to raise taxes. The Marcos and Aquino administrations, for instance, succeeded in increasing the implicit forest tax rate through the imposition of export levy from 1971 to 1985, and the 1990 environmental fee, respectively. However, these attempts were short-lived and met with strong resistance from the private sector. This was understandable since the members of the industry had been accustomed historically to obtaining the bulk, if not all of the excess profits from natural resource extraction. Since less efficient loggers and processors stood to lose more than the efficient ones, they were more likely to have raised the most vehement objections. 32 Apart from lobbying, some resisted the new taxes by under-reporting production levels, colluding with government and military officials, engaging in smuggling and other tax-evading activities, and transacting with illegal loggers. Unable to successfully levy higher revenues by increasing its share of the excess profits in the wood industry, the government maintained its reliance on the traditional way of obtaining more revenues - raising extraction levels and allowing increased timber production. The present

32 NATURAL RESOURCES, ECONOMIC DEVELOPMENT, AND THE STATE: THE PHILIPPINE EXPERIENCE

tax policy, as embodied in the July 1991 Republic Act 7161, for instance, continues to promote commercial timber extraction and private industry interest. Its provisions and the accompanying implementing order suspended the controversial1990 environmental fee, effectively raising private industry's share of the excess profit, and maintaining the inefficient extractors and processors. Table 6 shows how much share of the excess profit the present law would have provided to private industry if it had been applied since the 1970s. In contrast to the quantity tax levy on the wood industry, taxes imposed on the mining industry have always been based on value. The imposed rate, however, approximates the low implicit rate for logged timber. Similarly, because of the lobbying efforts of the industry, particularly the Chamber of Mines, the tax rate has historically declined.33 While the 1989 Internal Revenue Code promulgated a 1.5 to 10 per cent royalty tax and an ad valorem charge on gold, depending on the value of annual gross output, the 1977 Code reduced both rates to 1.5 per cent for all production value levels. By 1988, the value-added tax

TABLE 6

Government Share of Excess Profits Under a Hypothetical Price-Based System and a CommiHee-Determined, Cost-Based System

(In per cent)

Logs

Lumber

Plywood

Veneer

Period

Price· based

Pricebased

Pricebased

Pricebased

1970 1971-75 1976-80 1981-85 1986-90

37.4 39.2 40.2 40.9 37.4

43.3 45.2 44.6 44.7 43.3

88.7 102.5 98.8 99.9 88.7

38.5 39.8 39.5 39.5 38.5

NATURE, THE ECONOMY AND THE STATE

33

on gold sales to the Central Bank and copper concentrate exports was abolished. A lower rate has also been levied over time on other mineral products. The 1981 tax legislation, for instance, effected a reduction of the tax rate from 5 per cent to 2.5 to 4 per cent, depending on the firm's return on investment. Upon the approval of the proposed Mining Code, the excise tax on metallic minerals will be reduced from 5 to 2 per cent of the gross output, plus 10 per cent of net profit. Apart from low taxes, the mining industry also received incentives and subsidies. Incentives were granted through the Investment Incentives Act and other Board of Investment programmes. In addition to the state's infrastructural projects which have benefited it, the industry has also been the recipient of direct subsidies in the form of price supports or funds for stabilization and tax condonation for distressed industries. The next section illust~tes that the industry's requirements of timber, water, and waste disposal were subsidized. Apart from low taxes, other incentives, and the absence of formal or effective quantity restrictions, higher levels of natural resource extraction have been promoted by an inadequate penalty and enforcement system. Although there have been prohibitions on logging outside the concession area or beyond the allowable cut, and regulations against destructive activities, such as trawling, dynamite fishing, the use of cyanide, and the disposal of mine wastes and tailings into natural drainage systems, the penalties have not been at par with the destruction. Penalties for excessive timber extraction, for instance, are extremely inadequate. They do not cover destructive prelogging activities, the damage of unmarked trees, the on-site loss of soil and other resources, or other off-site externalities. Moreover, when the concessionaire's licence is cancelled because of violations, the incurred loss, consisting of a limited amount of forfeited (surety and cash) bond deposits and the foregone future income from a depleted forest concession, is generally less than the returns earned from excessive, illegal, and destructive activities. Given the state's inadequate and liberal policies and the limits in its enforcement capacity, valuable resources have not been insulated from increasing market demand and prices. The post-war increase in demand and the prices of timber, wood products, other forest products, minerals, and marine resources thus subjected the already degraded ecological zones

34 NATURAL RESOURCES, ECONOMIC DEVELOPMENT, AND THE STATE: THE PHILIPPINE EXPERIENCE

to excessive extractive activities. As a consequence of unrestricted extraction and the use of destructive technologies, the habitats of these resources have also been lost or their potential future yield adversely affected. Logging and limited reforestation activity, for instance, solely accounted for about 50 to 80 per cent of the lost forest lands from 1934 to 1988. This estimate was based on different rates of under-reporting and an assumed harvestable stock volume (see Table 7). The subsequent loss of other forest lands, on the other hand, resulted from their outright conversion into mines, waste disposal areas, farms, or alienable and disposable lands, as well as from destructive prelogging, road construction, and kaingin or swidden activities.

State Policies Related to Resource Valuation and the Maintenance of Habitat The unrestricted extraction of particular natural resources and the consequent loss of their habitats reflect the resource valuation framework

TABLE 7 Proportion of Produdive Forest Lands Lost Due to Logging, at Various Rates of Under-reporting and Stocking Rate Per Hedare

!In per cent)

Rates of Under-reporting

Period Stocking Rate per Hectare

0%

30%

50%

70%

1934-69 90 cum 80 cum

24.4 27.4

34.9 39.2

48.8 54.9

81.3 91.5

1969-88 90 cum 80 cum

39.3 44.2

56.2 63.2

78.6 88.5

131.0 147.4

NATURE, THE ECONOMY AND THE STATE

35

of the state and private industries, the way they have historically treated resources and their habitats, and the relative absence of state requirements for users to compensate the resource and environmental destruction. As mentioned earlier, private extractors throughout the country's history have only valued the commercializable components of a resource. Since these exist with other resources in a particular habitat, the extraction of marketable components to capture their current market price has generally occurred at the expense of unmarketable components which are usually damaged. The damaged resources have implicitly been considered as inputs in a production process, as mere wastes, and as the inevitable consequences (externalities) of extraction. These resources have thus been simply discarded and destroyed. Judging from the absence of any demand on the part of the state for adequate compensation to cover the restoration of the destroyed resources and habitats, the state has hardly given value to these inputs, wasted resources and externalities. 34 What this amounts to is that both the state and the private extractors have not treated the commercially valuable resources and their sources equally. Logs of commercial sizes, for instance, have been the object of interest rather than the tree, the other damaged or destroyed trees, and the forest itself. Similarly, the mangrove bark, firewood, and the land itself have been more highly valued than the mangroves, while the aquarium and commercial fish have been valued more than their larvae, other marine resources, and coral reefs. Mineral ores have likewise been more valued than the mineral-bearing forest or mountain site, despite the presence of other resources such as the top soil, the physical structure, and underground water. It is this system of valuation which has reinforced the destruction of coral reefs, forests, moqntains, and watersheds. Coral reefs have also given way because of trawling, muroami, dynamite and cyanide fishing, while forests, mountains, and watersheds have been destroyed in the course of timber logging, ore mining, and other non-forest land uses. Much of the resource wastes and environmental destruction occur in the process of natural resource extraction and the conversion of the lands where the resources' habitats are found. Although this is true regardless of extraction activity, mining illustrates this point best. Because of the nature of ore resources, the available technology for extraction, and the absence of any state restriction on production, the wasteful and

36 NATURAL RESOURCES, ECONOMIC DEVELOPMENT, AND THE STATE: THE PHILIPPINE EXPERIENCE

destructive impact of the industry extends beyond the mining site to other resource habitats. In the construction of mine tunnels and the practice of open-pit mining, sections of mountains and forests are first cleared of vegetative cover and then blasted to enable the miners to reach the ore. 35 Since timber is required to support the structure of tunnels, it is secured from the immediate environment. Apart from timber, water is also drawn to supply an ore processing requirement. As tunnels are extended, subsurface aquifers are eventually disturbed. Because of the land clearing activities, timber requirements, and the displacement of the water table, the building of mine tunnels has contributed to deforestation and the loss of local water reservOirs. In recent years, deforestation and the resulting instability of mountain slopes have increased the risks and costs of tunnel mining. However, open-pit mining has offered a technically feasible, cheaper but destructive extraction method. Apart from the lower cost, this system has become more attractive to mining firms as an efficient technique which can preempt legislation, granting small miners formal control of some existing tunnels. Open-pit mining entails not only the removal of the vegetative cover and soil layer and blasting the mountain surfaces and boulders, but also scraping the land surface and scoping the mountain sides and forest floor to gain access to the ore veins. It thus transforms the forest and mountain into a barren heap of displaced rocks, earth, and sand. Apart from the rubble, mining and ore processing generates a lot of waste and mine tailings. In order to produce about 3 grams of gold, a metric ton of ore must be obtained together with about 6 metric tons of waste and mine tailings.36 In the context of the country's topography and mining location, wastes and tailings are directly dumped on nearby lands, creeks, rivers, and seas, or are discharged into a waste dump or mine tailings pond or valley impoundment. Because of waste erosion and impoundment overflows after heavy rains, the stored waste and tailings are eventually discharged into the environment. These discharges are inevitable not only because the slopes of valley impoundments are only marginally stable 36 but also because the impoundments themselves have not been built as permanent structures. When mining companies have exhausted the reserves in an area, they simply relocate and stop maintaining the impoundment.

NATURE, THE ECONOMY AND THE STATE

37

The manner of surreptitiously disposing wastes and tailings has transformed the ecosystem in the immediate environs into an unproductive, more vulnerable and acidic habitat. The build-up of sediment in the deltas and the siltation of rivers and streams have increased water turbidity, altered river courses, and resulted in more frequent and severe floods. Lowland farms 37 and the habitat of fishes and invertebrates have been affected. The disposal of mine tailings into the sea, in particular, has buried coral reefs. Whether directly discharged or stored, mine wastes and tailings have also introduced toxic materials and dissolved substances which contain high concentrations of heavy metal. As tailings deposits and wastes weather, minerals oxidize and sulfide moietes are converted to sulfates. Together with other toxic materials, such as mercury (sulfide), lead, cadmium, copper, zinc, arsenic, and cyanide, they have contaminated ground water and irrigation canals, polluting nearby rivers and seas. Although the effects of the direct discharge of stored wastes and tailings on the larger environment will be experienced only in the long run, the dangers are felt in some communities like ltogon, where the tailings dam of Benguet Corporation is constructed in a landslide-prone location directly above the local communities. 38 In effect, the state and mining companies have wittingly or unwittingly exchanged the regenerative and productive capacity of the natural environment, as well as its environmental services, for a bag of commercially demanded ores. In this transaction, the cost of lost resources, such as trees, other biodiverse forest resources, top soil, wasted and polluted water, lands for mine waste and tailings deposits, silted farm lands, rivers, coral reefs, and animal and human lives, and their current and future yields have not been valuated and compensated. In economic terms, these lost and unvaluated resources which provide environmental services have been implicitly used as unpaid inputs in extraction and processing or as free service infrastructures for waste disposal. All these, while their future yields have been consumed at a zero interest charge. It should be noted that compensation mechanisms exist in the Philippine mining sector, but they are too limited to have any effect on averting destruction. The mine waste and tailings fee of 5 centavos per metric ton of waste and 10 centavos per metric ton of tailings has been the only concrete form of compensation for damages. These fees, moreover, are

38 NATURAL RESOURCES, ECONOMIC DEVELOPMENT, AND THE STATE: THE PHILIPPINE EXPERIENCE

paid to applicant land-owners and farm lessees 39 affected by the mining enterprise. On the whole, most of the damages and losses cannot be compensated because they do not occur in private landholdings but in the public domain. They are not compensated because they are not private properties but public resources. In 1977, a presidential decree (PD 1198) was promulgated requiring mining companies to rehabilitate affected lands, rivers, and the environment and to restore them to their original condition. However, unenlightened by information about the relative irreversible effect of extensive tunnelling and open-pit mining, the decree did not specify an adequate deposit payment and mechanism for enforcement. Without specifying an adequate deposit payment and enforceable activities, the decree has merely been an exhortation to the industry whose object has been to appropriate a greater share of the excess profit and minimize cost. The relative absence of a system of valuation and compensation is true for other resource sectors. The state, for instance, has not formulated and enforced policies to sufficiently compensate damages and adequately restore logged-over forests. In the forestry sector, extracted resources have mainly been compensated through silvicultural fee payments and a reforestation charge or deposit, levied on top of forest charges. The silvicultural fee on damaged marked trees as a result of logging activity, 40 however, does not cover the unmarked trees which are destroyed in the course of logging, those damaged by prelogging operations, and other resources lost as a result of logging activities. Furthermore, these fees have not been collected. Levied from 1947 to 1980, the reforestation charge, on the other hand, constituted a small amount which was actually resisted by logging concessionaires. Their capacity to lobby against demands for reforestation partly reflects the fact that their forest leases were granted without any stipulation that they were to pay an adequate amount of reforestation charges and deposits. Not only has the state been unable to raise the charges, but it has also failed to effectively force concessionaires to fulfil the requirements of replanting. As such, the reforestation requirement, which was reimposed in 1988, is considered in effect only because of the existence of a pooled deposit, albeit inadequate, held by the Wood Industry Association. The reforestation requirement is, thus, presently effected through

NATURE, THE ECONOMY AND THE STATE

39

an association-held deposit. This policy, however, must be evaluated not only in terms of the adequacy of the deposit and the quality of replanting effort but also the loss in government leverage to monitor and ensure compliance within the industry. It is important to note that the deposit requirement in the logging industry is a far cry from the absence of deposits in the mining sector on which to charge penalties for damages and draw funds for environmental restoration. However, the deposit required of logging firms has not been adequate for this purpose. In the event that the deposits are forfeited as a result of violations, they consist merely of worthless surety bonds or of cash bonds which accrue to the national government and not to the department in charge of reforestation. Even if these deposits were allocated to the forestry sector, they are ihsufficient for compensating the damages. They have also failed to deter violations because the amount of deposits which can be retained by the government is exceedingly low. Within the government revenue system, sales and export taxes on wood and mineral products have historically been a potential source of funds for resource compensation and environmental restoration. Table 8 shows the percentage distribution of different forestry-based taxes over time. Together with the silvicultural and mine tailings fees, they comprise a substantial portion of potential state revenue generated within the natural resource industry. Like the forfeited bond deposits, however, sales and export tax revenues have accrued to the national government for general appropriation rather than for environmental restoration.

40 NATURAL RESOURCES, ECONOMIC DEVELOPMENT, AND THE STATE: THE PHILIPPINE EXPERIENCE

TABLE 8 Percentage Distribution of Forestry Revenue Components in Selected Years Revenue Components

I. Income of the Bureau, DENR Forest Charges Minor Forest Products Environmental Fee Operating and Service Income Reforestration Charge Subtotal

1939

1947

1950

1963

1970

1971

1972

1975

68.1

39.7

39.4

38.7

16.0 0.1

6.1 0.1

5.5 0.1

3.9 0.0

31.9

17.8 6.8 64.4

17.8 6.7 63.9

17.6

22.9

12.9

11.8

4.7

56.4

39.1

19.1

17.4

8.6

6.5 1.5

2.6 0.5 1.4

1.2 0.3 0.8

1.1 0.3 0.7

0.5 0.1 0.3

100.0

II. A. Trust Fund Payments Reforestation Fund Public Education Fund FORPRI DE Fund Special Deposit for Forest Research and Development Silvicultural Fee

35.6

36.1

35.5

29.5

11.2

8.5 10.1

4.7 7.1

II.B. Reimbursable Fund Payments Special Deposit for Forest Protection and Management Subtotal

35.6

36.1

43.5

34.0

13.6

11.1 31.8

4.4 17.1

6.6 20.3

3.9 10.3

3.6 8.7

3.5 32.6

27.0

37.1 10.0 6.1 67.4

28.3 6.1 4.1 50.8

28.1 8.2 1.9 74.3

Ill. Other Revenue Collections Interest on Bond Deposits Property Tax Sales Tax Export Tax: Logs Lumber Plywood, Veneer Subtotal

NATURE, THE ECONOMY AND THE STATE 41

TABlE 8 (cont'd) Revenue Components

I. Income of the Bureau, DENR Forest Cho rges Minor Forest Products Environmental Fee Operating and Service Income Reforestrotion Cho rge Subtotal

1976

1981

1982

1984

1985

1987

1989

1990

5.4 0.0

19.6 0.0

17.4 0.2

8.84 0.2

10.0 0.1

8.4 0.2

5.8 0.1

2.4 0.1 10.2

2.2

2.5

1.8

1.1

0.9

6.5 11.9

19.6

17.6

11.2

12.6

10.3

7.1

13.6

II. A. Trust Fund Payments Reforestation Fund Public Education Fund FORPRIDE Fund Special Deposit for Forest Research and Development Silviculturol Fee

1.9 9.9

28.0

24.4

12.8

14.5

13.1

9.0

5.1

II.B. Reimbursable Fund Payments Special Deposit for ·Forest Protection and Management Subtotal

6.2 19.2

2.7 30.6

2.4 26.8

12.8

14.5

13.1

9.0

5.1

5.7

4.4 25.4

5.1 28.7

1.9 37.5

2.0 42.8

6.9 69.7

5.0

40.3

78.9

2.1 79.2

16.2 3.5 3.1 68.9

11.1 4.2 4.8 49.8

13.9 4.7 3.3 55.6

24.9 7.0 4.7 76.0

18.4 5.7 4.0 72.9

76.6

83.9

81.3

Ill. Other Revenue Collections Interest on Bond Deposits Property Tax Soles Tax Export Tax: Logs Lumber Plywood, Veneer Subtotal

0.8 0.2 0.4

FOUR

General Policy Diredions, Requirements, and Specific Actions

The problems of natural resource depletion, environmental deterioration, and economic stagnation in the Philippines reflect the natural resource management policies of the state, the political economic structure of the country and its development direction. These problems and their historical causes suggest at least two general courses of action: 1. The economy will have to be restructured and an alternative growth process established. 2. An environmentally-enlightened natural resource policy framework needs to be formulated and implementated.

On Restructuring the Economy While efficiency and equity as underlying principles of restructuring are necessary to mitigate the pressure on the limited resource base and to promote economic development, the principle of ecological sustainability must be incorporated into the alternative growth strategy. In contrast to the historical and prevailing development orientation which has relegated environmental concerns to the background, the alternative growth strategy must recognize at the onset the sorry state of the country's environment and natural resource endowments, that is, the constricting resource base, pollution and the ongoing degradation and destruction of the remaining resource habitats. In the light of an environment which is more and more difficult to sustain, the alternative strategy must incorporate a two-pronged thrust.

GENERAL POLICY DIRECTIONS, REQUIREMENTS, AND SPECIFIC AGIONS

43

First, a defensive effort is required to arrest the degradation and destruction of the remaining ecological zones, namely, the forests, watersheds, rivers, mangroves, and coral reefs. Secondly, since private and public investments have scarcely been made for resource stock generation in the past, the depleted renewable resources and their natural habitats must be restored and enhanced. Specifically, marine reserves and fish sanctuaries will have to be established, lost and degraded mangroves reforested or re-established, and residual and denuded forests, watersheds, old growth forests, and other environmentally-critical areas rehabilitated and protected. In undertaking these defensive and regenerational activities, incentives for private investments must be provided, other funding sources tapped, and communities living near the resource mobilized to protect and restore them. These thrusts have micro- and macro-level implications for the country's economic development plan. At the micro-level, decisions on the location, scale, and design of infrastructural projects must fully consider the cost of natural resource wastes and environmental damages while their intended use, beneficiaries, and externalities should be critically assessed against the cost to the environment. At the macro-level, on the other hand, the role of the natural resource sector in the economy must be evaluated. Given the state of natural resource depletion and environmental degradation, the promotion of economic growth through resource extraction or fostering an industrialization programme based on the given natural resource endowments is self-defeating. This means that the political economy must be restructured away from dependence on natural resource-based exports and traditional resource extraction and processing activities. This can be done without totally doing away with the natural resource sector in at least two ways. First, extraction of renewable resources can be restricted to sustainable yield levels with enforced penalties for wasteful, destructive, and uncompensated extraction. Secondly, Board of Investments (BOI) and other incentives, as well as implicit subsidies for the extractive industries will have to be discontinued. Moreover, taxes on resource access and the sale of extracted and processed products must be raised to reflect the true economic and social cost of the extracted resources. The state should then allocate the generated revenues specifically for resource compensation and habitat regeneration.

44 NATURAL RESOURCES, ECONOMIC DEVELOPMENT, AND THE STATE: THE PHILIPPINE EXPERIENCE

The removal of incentives and subsidies and the increase in taxes can do more than improve efficiency in resource use. Hopefully, the capture of rent by the state and the elimination of distortions in available profit opportunities will provide some of the funds and foster new investment activities in other economic sectors. On the other hand, the provision of incentives for investments in restoring degraded resource habitats and generating additional resource stocks, like fish culture, tree plantation, domestication of other forest resources, and the development of new materials may lead to labour and capital flows into these activities.

An Environmentally-enlightened Resource Policy Framework As a crucial component in the alternative growth strategy, the state's natural resource management framework must be enlightened by environmental concerns. It is important for this framework to address the issues emanating from the historical processes which have caused the loss of natural resource endowments and the diminution of their environmental services. In contrast to the orientation tacitly guiding the current resource management framework, resource habitats must no longer be viewed merely as specialized resource production areas where much of the commercially valuable resources are extracted to meet market demands, or as dumping sites of the wastes incurred in resource extraction. In an alternative management framework, current market values cannot be the sole basis for evaluating natural and environmental resources. Interdependent and equally important resources must be properly valued and maintained as part of integrated ecological zones. Thus far, the prevailing inequitable access to natural resources has favoured private commercial extractive interests. Historically, these commercial extractors operated only at the market level and had difficulty transcending their limited time preferences and pecuniary drives. As such, they tended to undervalue the resources and failed to ensure sustainable resource exploitation. Moreover, the provision of environmental services by the resources they extract is external to their overall concerns. While these tendencies provide another justification for reducing their

GENERAL POLICY DIREaiONS, REQUIREMENTS, AND SPECIFIC AGIONS

45

predominance in the country's political economy, it is too simplistic to argue from this point that the extraction by private groups must be totally banned. What is important is the intervention of an environmentally enlightened and autonomous state in the proper valuation of interdependent resources within a functioning ecological zone and the maintenance of sustainable resource habitats. It should be noted that state action in terms of giving proper values to natural resources and their habitat is not an anti-social form of intervention, as market-oriented advocates and private industry interests would assert. These actions essentially arise from a consciousness which should be ingrained by state agents that natural resources belong to the nation's patrimony or to a public which consist of both the present and future generations. As the custodian of these resources, the state has the responsibility on behalf of this public to prevent the loss of resources through undervaluation and indiscriminate extraction and to ensure that the benefits from resource exploitation accrue to present and future generauons. There are three functions associated with the state's custodial role vis-a-vis the environment. First, it must determine the areas of conservation. Because of the depletion of resource stocks and the severe degradation of the environment, particular areas or ecological zones requir~ special protection to prevent further resource loss and to regenerate the lost stock. Other areas must also be conserved in order to reconstitute and maintain biodiversity and the displaced indigenous communities. Given this imperative, it is necessary for the state to identify the specific flora, fauna, and marine resource reserves and sanctuaries, the ancestral lands for indigenous communities, and the environmentally critical but degraded watersheds, old-growth forests, and the steep-sloped and unstable areas. Secondly, outside these protected and conserved areas, the state must specify the desirable conditions for exploitation in resource habitats. In other words, the terms and conditions for access and extraction of renewable and non-renewable resources must be as detailed as possible. The payments for extracted resources, the level of production and technology, the use of excess profits within the industry and the responsibilities of qualified resource extractors must be spelled out. Thirdly, as the state specifies the obligations of resource extractors,

46

NATURAL RESOURCES, ECONOMIC DEVELOPMENT, AND THE STATE: THE PHILIPPINE EXPERIENCE

it must expand the definition of extracted and leased public resources and services to include those that have been unaccounted for or unassessed. All the extracted, damaged, and destroyed resources, the generated wastes, and the production and environmental service losses must be taken into account in assessing what private extractors will have to compensate for. For the state to effectively undertake its natural resource and environmental functions, it must have not only an articulated set of principles to guide policy formulation and enforcement but also a more developed and independent information, research, and monitoring capacity. The importance of interdependence cannot be over-emphasized. With its limited information generating system, the state at present depends on information provided not only by field personnel but also by private extractive firms. The capacity to generate independent data will allow the state to review and assess existing policies and the performance of extractive firms and processors, as well as develop new policies and implementation guidelines in support of its enforcement functions. An information system is, moreover, imperative because the market is not only imperfect but is also unable to signal the value of localized resource depletion, the cost of destroyed diverse, non-marketable resources, generated wastes, and the loss of ecological zones, environmental services and stability. With regard to determining the areas to be conserved and protected, geo-technical, natural resource, and economic data are required. In particular, information on the rock-soil conditions, slope stability, proneness to landslides and erosion of the country's mountains must be juxtaposed with present land use data, natural resource inventories, and the relative availability or depletion of different resources in various types of land, such as old growth, residual forest, watershed areas, and upland alienable and disposable or privately-owned lands. Thus, the information will include the location, ownership status, physical and resource characteristics of the land, the type and extent of economic activity, and settlement patterns. These data will provide the empirical basis for the state to decide whether to reduce, if not completely disallow logging, mining, and other extractive activities in unstable, severely eroded, or resource-depleted areas, in unbalanced or threatened environmentally-critical zones, such as watersheds, and in lands for indigenous communities. Moreover, since

GENERAL POLICY DIRECTIONS, REQUIREMENTS, AND SPECIFIC ACTIONS

47

the data will also show ownership and use of particular land zones, such as watersheds, the state may deem it in the public interest to withdraw public land leases, or redefine private ownership or control over resources in these critical areas. Effected at a time when there was neither an overall land-use policy nor a shortage of resources and environmental services, the lease, sale or classification of former public lands as alienable and disposable are, on hindsight, arbitrary and expedient acts of past political administrations. As such, these past actions may be revoked in the present in the public's Interest. With regard to the state's function of deciding the penalties and conditions for granting permits for exploitation in resource habitats, data on the stock and composition of resource endowments and their rate of growth are necessary. The objective of maintaining the given stock and its habitat suggests in the case of renewable resources that extraction must either be limited to the stringent natural yield level if no investments in additional resource stock are made, or set at a higher level which investments can compensate. However, if there is a loss of resources, extraction must be discontinued until the desirable level of stock is realized. It should be noted that the policy to limit extraction to the sustainable yield has its limits. It fails to consider that the process of extracting the marketable resource can lead to the destruction of other resources and consequently, to wastes, and the loss of other outputs and environmental services. As illustrated in the discussion of the mining sector, certain extractive activities and technologies involve much greater resource destruction and environmental losses. The more comprehensive definition of sustainability, therefore, requires that total extracted resources, wastes, and losses must be accounted for, and their value quantified. Together then, they are the inputs for deciding the level of resource compensation which will cover the full cost of habitat restoration. Underlying this requirement is the principle that natural resources and environmental services are public resources which are owned by past, present, and future generations. Hence, the granting of access and extraction rights to individuals is a privilege which can only be justifiably extended if the natural resource habitats are used without depleting or degrading them. The extension of private extraction rights, in other

48

NATURAL RESOURCES, ECONOMIC DEVELOPMENT, AND THE STATE: THE PHILIPPINE EXPERIENCE

words, does not provide the right to destroy. It, therefore, entails, on the part of the extractor, as well as the resource user and beneficiary, the responsibility to fully compensate the public for all the extracted resources or to shoulder the regeneration and restoration cost. The implementation of this principle by state agents committed to it can integrate resource use and conservation. The adoption of this principle, and the notion of efficiency implicit in it, bears the following implications for the state as public resource manager. First, it must closely monitor and properly evaluate the operation of commercial resource extractors on the basis of the efficiency norm, modified to incorporate the principle of ecological sustainability. It must exercise its custodian role and minimize resource loss by preventing the entry or continued stay of inefficient extractors and processing firms which cannot alter their wasteful and destructive activities. Secondly, at the onset, the state must provide extraction rights and the opportunity to undertake processing activities only to the more efficient extractors with long-term interest in the resource and its habitat. Having valued the total resource and environmental damages, wastes, and losses at a given level and the technology of extraction of a particular resource, it must grant extraction rights selectively to those willing to pay taxes and deposit requirements equal to a significant portion of the regeneration and restoration costs. These deposits can be used to effectively penalize wasteful, excessive, and destructive activities and prevent inefficient resource use. The willingness of extractors to meet requirements which encroach on the traditional excess profits in the industry, will indicate their ,efficiency and long-term commitment to the resource. Thirdly, resource extractors, processors, and consumers are primarily responsible for the costs of resource extraction and restoration. Whether suppliers extract on public or private lands or operate in the secondary or tertiary lines of the natural resource-based industries, they, together with local and foreign buyers, must proportionately share in the restoration cost. While proportionate taxation is a means of capturing the excess profit within the industry and a portion of the consumer surplus, these revenues must be given back to nature. As the custodian of the public interest, the government does not have the right to use the revenue for current expenditures outside the natural resource sector. Nor do external creditors have the right to appropriate these for debt payments. Instead,

GENERAL POLICY DIRECTIONS, REQUIREMENTS, AND SPECIFIC ACTIONS

49

these sector-generated revenues must be allocated towards resource regeneration and restoration of resource habitats. Fourthly, if the available excess profits are less than the required natural resource payments and deposits, then the state must decide whether to allow or disallow extraction. If extraction is allowed, the state must impose higher taxes on producers, as well as sales and export taxes, and allocate these revenues to augment the inadequate deposit fund sourced from the private sector. It may also temporarily disallow extraction until prices are more favourable, efficiency within the industry improved, or inelastic natural resource-based products developed. A combination of both alternatives may also be undertaken as long as the required deposit is established. There are, however, two limitations to this intra-resource, fiscal measure. First, taxation and the establishment of a deposit for resource regeneration and environmental restoration has limited scope. Restricted to existing extractive sites, they cannot address the lost, uncompensated resources in cancelled areas and private forest lands in watersheds. Nor can they finance the rehabilitation and renewal of long degraded, overexploited ecological zones. One way to resolve this financing problem is to extend the application of the principle that resource compensation, which is necessary for environmental sustainability, is the responsibility of all beneficiaries. Specifically, the state should pursue past concessionaires and processors and present a bill of damages to past administrations and importing nations, while the public and other prospective beneficiaries at home and abroad must be taxed and mobilized for environmental renewal. The second limitation of intra-resource, fiscal measures, is most apparent in the extraction of non-renewable resources, such as minerals. Not only does mining result in the depletion of a given resource stock but, given the nature and location of the marketable ores and the available technology, it also involves much greater wastes, irreversible loss of other resources, including renewables, and the transformation of the environment. No industry-specific tax and deposit requirement may ever be sufficiently mobilized to compensate for these costs. In the light of these conditions, the second-best alternative to a total ban on mining is to restrict it on the basis of the following considerations. First, given a particular resource site where the options are to

SO NATURAL RESOURCES, ECONOMIC DEVELOPMENT, AND THE STATE: THE PHILIPPINE EXPERIENCE

rehabilitate it for critical environmental services on one hand, or to mine it for its non-renewable resources, on the other, the preference should be for the former. In other words, mining should be allowed to proceed in non-rehabilitable areas. Secondly, because of the fixed stock of resources to mine, an intertemporal allocation plan must be drawn to determine the extent of mining production in a particular period. It must, moreover, give priority allotments to small, less wasteful traditional mining communities. Thirdly, economy-wide considerations must determine the commencement and level of commercial ore production within the given allocation plan. Commercial mining can only proceed when there is real growth outside the natural resource sector and there are alternative asset replacements in the economy. The income stream of these newly available productive capacities in turn would determine the rate of extraction. For the state to seriously perform its custodial role vis-a-vis the environment, given prevailing institutions and perspectives, it must address its inadequacies and be an arena for change. It is thus useful to explain the inadequacies of past policies and the relative failure of implementation. Are the inadequacies due mainly to ignorance or lack of information, to the state agents' limited perspectives in which ecological concerns do not feature at all, or to the general subservience of the state to private interests? If they are due to the first two, then it is possible to reform existing policies and the people in the bureaucracy by the introduction of an environmentally enlightened leadership and the conversion of a responsive core in the bureaucracy. Such a core can begin to dissociate itself from the world-view discussed in this study, which is detrimental to ecological sustainability and which it currently shares with private extractors. However, the problem is more complicated because attaining state autonomy from strong vested interests, no matter that the leadership is committed to environmental protection and regeneration, is easier said than done. It requires not only a change in perspective but also radical changes in the state . Assuming the present political arrangements, it entails an environmentally enlightened Cabinet in which private financial and extractive industry interests do not dominate, and a legislative body which is equally not dominated by the interests of the landed and

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extractive industries. At the lowest levels, it also demands the autonomy of military and government enforcers from these interests. The change in perspectives among agents within the state bureaucracy and the resolve on a day-to-day level to intervene strongly in favour of the interests of an abstract public and future generations cannot occur in a milieu where forces for resource and environmental sustainability are weak or where the state constituency is indifferent. The growing awareness among increasingly organized local communities, non-government agencies and the public as a whole can induce and reinforce the state's commitment to preserve the environment for the next generation. It is the same set of popular forces which can seize the initiative to address the degradation of resource habitats in the event the state fails to do so.

Notes

1. Asian Development Bank, Asian Development Outlook 1991 (April 1991). 2. About 54 per cent of Philippine lands slope 18 degrees or more. 3. World Bank, World Development Report 1992; Development and the Environment (Oxford University Press, May 1992). 4. Asian Development Bank, op. cit. 5. The 1987 study of Ferrer provides an estimate of the area of mangroves, while R. Bina gives the 1985 estimate. See "The Status of Marine Resources", Lunduyan Magazine (Tambuyog Development Center, 1992); and R. Bina, "Updating mangrove forest statistics in the Philippines" (Paper presented at the NATMANCOM Symposium on Mangrove Research, Environment, Policy and Information, Sulo Hotel, Quezon City, 28-30 November 1988. 6. A. Herre, "Checklist of Philippine Fishes': Fish and Wild Service, Research Report 20 (Washington, D.C.: United States Department of the Interior, 1953), pp. 1-997. The later estimate is given in the 1981 study of the Marine Science Institute, University of the Philippines. 7. An Asian Development Bank study estimated that a hectare of developed mangrove can directly produce an annual yield of 100 kg of finfish, 25 kg of shrimp, 15 kg of crabmeat, 200 kg of molluscs, and 40 kg of sea cucumber. It can also indirectly supply about 400 kg of finfish and 75 kg of shrimp which mature elsewhere. 8. Flor Lacanilao, "Philippine marine ecosystems: Issues of concern" (Paper presented at the First Regional Media Seminar Workshop on Marine Ecosystems, Iloilo City, Philippines, 21-22 July 1990). Lunduyan Magazine, Tambuyog Development Center, 1992. 9. With the use of available maps, Dr A. Revilla estimated the area of different forest land types in 1934. The Philippine-German Forest Resource Inventory

NOTES

10.

11. 12.

13.

14.

53

Project, on the other hand, provided the 1988 estimates. See R. Lennertz and K. Uebelhor, eds., Philippine-German Forest Resources Inventory Project Seminar Proceedings ( 1988). Based on forest land estimates in 1934, 1969, and 1988, a discernible pattern of land conversion can be inferred from the loss and expansion of particular land types. In the 1934-69 period, the decline in the area of old-growth, pine and other forest lands together with open, brush and grass lands paralleled the increase in the area of unproductive forest, reproduction brush, farm and urban lands. In particular, the expansion of farm and urban lands during the period corresponded with the increase of alienable and disposable lands. Apart from the shift of forest lands into unproductive forest and non-forest lands, the process of land conversion also entailed the transfer of some lands from the public domain into alienable and disposable status. Specifically, about 2.2 million hectares of open brush and grass lands together with some residual and unproductive forest lands were stricken off the public domain and privatized. The process of forest land conversion continued and worsened in the 1969-88 period. About 3.8 million hectares of old-growth forests and 5.8 million hectares of unproductive forests were lost while open, brush and grass lands and farm and urban lands, respectively, expanded by 7.3 million hectares and about 2.2 million hectares. However, unlike the previous period, the transfer of 1.5 million hectares from the public domain to alienable and disposable lands from 1969 to 1988 did not keep pace with the expansion of farm and urban lands. See Germelino Bautista, "The Forest, Economic Development, and the Philippine State: The Primacy of Market Considerations", in Debt, Development, and the Environment, edited by Philippine Resource Center (forthcoming). Lunduyan Magazine (1992). Ibid. The environmental benefits of the forest extends beyond the national boundary. On the regional level, for instance, the deforestation in Indonesia and the resulting turbidity of the South China Sea is said to be a cause of the El Nino phenomenon which is responsible for the droughts and loss of marine resources in other parts of the region. This observation is based on a German team study cited in Philip Hurst, Rainforest Politics: Ecological Destruction in Southeast Asia (Zed Books Ltd, 1990). The physiocrats considered the natural yield of the land, rivers, and sea to be the original source of surplus. Although Senior and John Stuart Mill discussed the energy in nature as a source, they did not explicitly identify it

54 NATURAL RESOURCES, ECONOMIC DEVELOPMENT, AND THE STATE: THE PHILIPPINE EXPERIENCE

15.

16.

17.

18.

19.

20.

as a surplus. According to the former, rent is the reward for not withholding the use of the land, while for the latter who advocated economic and social reforms, it is associated with the expedient institution of property. According to some writers in the eighteenth and nineteenth centuries, the appropriation of land and its resources or the establishment of private property was effected through force, violence, deceit, and the desire for accumulation. While Pastor Malthus attributed it to Divine Providence, J.S. Mill saw it as a product of historical expediency, hence subject to social intervention. According to David Ricardo, rising prices resulted from the increasing labour (cost) requirements of cultivation as it extended to the margins. While he ascribed to the labour theory of value, he situated production in the margins in the context of a growing population. He, therefore, implicitly referred to the role of rising market demand. In some instances, Malthus considered the landowners to be a productive segment of society while Adam Smith Ricardo and other classical political economists held the opposing view. The political economic issues in nineteenth century England reflected the concern over the impediments landed property posed to economic prosperity. The controversy with regard to the Corn Law, which prevented importation of agricultural products, was an example of this concern. So was the investigation into the extent the separation of land ownership from the ownership of the working capital of the mines impeded the progress of the coal industry and the overall economy. In the economic history of the Philippines and Malaysia, for instance, early colonialization effected limited community displacement and environmental destruction compared to later colonial and post-colonial periods. The full surplus or excess profit is defined by either the value of the appropriated natural yield or the residual after compensating the cost of labour and materials (capital) at their average value. In the absence of competition or in the context of monopsony and monopoly power, there is a larger residual. The loss of use values for displaced indigenous communities and the depletion of the stock of natural resources are not reflected in the national income accounts. In effect, national income and its growth are overstated because the loss of use values is not deducted from the consumption of marketed goods while the stock of natural resources and its depletion are not included in gross (net) capital formation (see Repetto and Gillis, eds., Public Policies and the Misuse of Forest Resources [Cambridge University Press, 1988]). In its World Development Report 1992, the World Bank seems insensitive

NOTES

21.

22.

23.

24. 25. 26.

27. 28.

29.

55

to the historical cause and loss of environmental quality in raw-materialproducing underdeveloped economies. Specifically, it fails to relate the environmental damage per unit of input to natural resource extraction and exportation. A production-based tax does not have an effect on price at all. This is in contrast to a sales (domestic and export) tax which increases the price if supply is elastic and demand inelastic. For a giver per unit of excess profit (ep), an increase in the quantity (t) or value (%t) tax directly reduces the extractor or supplier's excess profit (pep). The effect of tax is given in equation form, as follows: Quantity Tax Value Tax ep = (P - AC - np) + t ep = (P - AC - np) + (%t)P = pep + t = pep + (%t)P where P is the price received by the supplier AC is the average cost of production which includes np np is the per unit normal profit, and pep is the per unit excess profit retained by the supplier. Shafik and Bandyopadhayay, "Development and the Environment", background paper for the World Bank, World Development Report 1992 (Oxford University Press, 1992). Waste dumping and the relocation of polluting industries became more apparent in the Southeast Asian region from the 1970s. Nicolas Georgescu-Roegen, The Entrophy Law and the Economic Process (Harvard University Press, 1971). Common resources refer to those which are used by many rivals who, motivated by their individual interests, would degrade or exhaust the resource. Some neo-institutional economists, therefore, argue that the delineation of property rights would prevent degradation and maintain the resource . Critics, however, would posit the limits to property rights. Because environmental service is not a product of human labour, it does not enter the market. The use of market prices for metal as a measure of scarcity value must critically consider the subsidies and incentives given by the governments of the external investor and the mineral-rich country. The succeeding statements are based on various forestry administrative orders of the Department of (Agriculture) Environment and Natural Resources. See C. Cruz and M.S. de los Angeles, Policy Issue on Commercial Forest Management, PIDS Working Paper Series 84-03 (Philippine Institute for Development Studies, 1984); and M.S. de los Angeles and N. Lasmarias, A Review of Philippine Natural Resource and Environmental Management

56 NATURAl RESOURCES, ECONOMIC DEVELOPMENT, AND THE STATE: THE PHILIPPINE EXPERIENCE

30.

31.

32. 33.

34.

1986-1988, PIDS Working Paper Series 90-08 (Philippine Institute for Development Studies, January 1990). In the 1960s, a number of legislative measures were proposed to increase the basic forest charge through a system of stumpage valuation and bidding, expanding the taxable base by updating the specie group classification, and imposing additional charges. All these efforts, however, met with strong opposition. Thus, the basic forest charge remained fixed from 1939 to 1980. The estimation of excess profit is one approach to operationalize stumpage value. In turn, the excess profit is measured on the more efficient firm level by the difference between total revenue and total average cost, which includes the average or normal profit margin and cost of reforestation. Excess profit, therefore, represents the above-normal returns which can be realized by the more efficient suppliers of raw and processed goods in the industry. See Germelino Bautista, The Forestry Revenue System in the Philippines: Its Concept and History (Natural Resources Management Program [NRMP] Policy Studies, June 1992). Marianne S. de los Angeles, "Research on forest policies for Philippine development planning: A survey", in Survey of Philippine Development Research: II (Philippine Institute for Development Studies, 1982); and E. Boado, "Incentive policies and forest use in the Philippines", in Public Policy and the Misuse ofForest Resources, edited by E. Repetto and M. Gillis (Washington, D.C.: World Resource Institute, 1988). Bautista, The Forestry Revenue System in the Philippines. Chamber of Mines, Annual Reports; and Newsletter, various issues. The valuation of forest resources has recently been undertaken in a USAID project under the direction of Dr Marianne S. de los Angeles. ]. Trudinger and E. Caballero et aL, Formulation of Policy and Standards

for the Disposal of Mine Tailings from Mining Operations in the Philippines, Technical Resources Project Number 492-0432 (Dames and Moore Consultants, 14 June 1991). 35. According to the estimates of Benguet Corporation in its Grand Antomok Project (BC-GAP), it hopes to obtain 2.99 gm of gold per metric ton out of the expected 14.1 million tons of its mineable ore output, and the generated waste is expected to be 80.97 million metric tons. (This is also cited in the files of the Legal Resource Center, Campaign data: BC open pit mining

operations.) Based on the above ratio, one can infer the total annual generated wastes of the 12 major mines in the country whose annual ore production amounts to 48.315 million tons. 36. Trudinger et aL, op. cit.

NOTES

57

37. The United Nations Environmental Program (UNEP) study of 1985 reports that the tailings discharges of the gold and copper mines in the Northern Luzon region are primarily responsible for the siltation of its prime agricultural lands. 38. Center for Environmental Concerns, Cordillera Resource Center for Indigenous Peoples' Rights, Mining Communities Development Center, Inc., and the United Concerned Citizens of Ucab, "A report on the environmental investigation mission on the issue of open pit mining", August-September 1991. Mimeographed. 39. Bharat D har, Assessment of the mineral environment policies of the government of the Philippines (Mission report prepared for the UNDPCD, 1991). 40. Bautista, The Forestry Revenue System in the Philippines.

THE AUTHOR Germelino M. Bautista is an Associate Professor of Economics at the Ateneo de Manila University and is currently a policy analyst in the Natural Resource Management Program's Policy Studies of the Department of Environment and Natural Resources. He has been studying the environmental problems of the Philippines since 1987. In 1988 and 1989, he undertook research on the crisis in the Philippine forestry sector as a Visiting Associate Professor of the Faculty of Economics, University of Tokyo. This monograph was prepared at the Institute of Southeast Asian Studies in 1992 while Dr Bautista was a Research Fellow of the Rockefeller Foundation's Reflections on Development Programme.