[OPINION] What does Sereno’s ouster mean for the economy?
At the outset, this would seem an odd proposition. Events in the legal world hardly (if at all) manifest in the usual economic indicators like GDP, inflation, and unemployment. On the day of Maria Lourdes Sereno’s ouster as chief justice, the stock market index even inched up by 2.4%.
But in this article, I argue that Sereno’s ouster – and, more importantly, the loss of judicial independence it signifies – has subtle yet profound economic implications.
First, a loss of judicial independence tends to erode trust in the legal system, and this could add significantly to the cost of doing business in the country.
Second, some studies show that countries with lower judicial independence tend to experience lower economic growth on average.
Third, the Supreme Court’s blatant politicization makes it more difficult now to contest Duterte’s most pernicious policies, including economic ones.
Cost of doing business
First, the Supreme Court’s loss of independence tends to reduce the overall level of trust in society, and this could add to the cost of doing business.
Not many people realize this, but trust is an essential resource in any economy. When people trust one another more, they are more willing to make contracts between themselves, and this could pave the way for trade, growth, and prosperity.
Conversely, a deficit of trust could be bad for the economy. Nobel laureate Kenneth Arrow even claimed once that, “much of the economic backwardness in the world can be explained by the lack of mutual confidence.”
The courts play an important role in promoting trust in society: if they cannot assure the public that contracts will be enforced, properties will be protected, and the rule of law will prevail, people will be that much less willing to transact with each other.
Chief Justice Sereno’s ouster via quo warranto is essentially a violation of the Constitution, as asserted by some of our finest legal minds. If the Supreme Court justices cannot be relied upon to uphold the integrity of the highest law of the land, how can we expect them to uphold lesser laws like those enforcing contracts and property rights?
A compromised judicial system is unfortunate since the costs of doing business in the Philippines are already high to begin with.
Latest data from the World Bank’s Doing Business survey show that we currently rank third to last in ASEAN when it comes to enforcing contracts, which refers to the “time and cost to resolve a commercial dispute and the quality of judicial processes” (see Figure 1).
Figure 1. Enforcing contracts in the Philippines vs. other ASEAN countries (distance to frontier). Source: Doing Business 2018.
Meanwhile, Table 1 shows that, next to Myanmar, it takes us the most number of days to file and serve cases, obtain judgment in trials, and enforce such judgments. The quality of judicial processes in the Philippines is also worse compared to our major neighbors like Singapore, Malaysia, Thailand, and Indonesia.
Table 1. Source: Doing Business 2018
In a 2001 study, Sereno herself and two professors of the UP School of Economics examined in detail the judiciary’s role in doing business in the Philippines.
They found, for example, that businesses perceive the Supreme Court as the part of the judicial system with the largest potential impact on the economy – even more than the provision of laws or the 1987 Constitution (Table 2). Moreover, perceptions of inefficiency and partiality in the judicial system caused firms to forgo investment projects and avoid doing business with government.
Table 2. Source: Sereno, De Dios & Capuno 
All in all, doing business in any country is risky enough without the uncertainty that its judicial system will not always preserve the rule of law.
Lower judicial independence could go as far as harm the economy in general, as measured by GDP or gross domestic product.
One recent study found that a country moving from complete judicial dependence to complete judicial independence would tend to experience, on average, higher GDP growth to the tune of 1.3 percentage points. Conversely, a loss of judicial independence would tend to hurt growth by that much.
But the authors were careful to note that what matters here is not de jure judicial independence (what the law says per se) but de facto judicial independence (the prevailing norms and culture in the judicial system).
In the Supreme Court, for example, justices can be independent on paper, but not so if their number is flexible, if their terms are manipulable by the executive, or if their decisions are not followed by the other branches of government.
Hence, beyond the letter of the law, what matters more for economic growth is that a culture of judicial independence is firmly in place, as manifested by judges and justices’ words and deeds.
The study by Sereno et al. cited earlier also estimated the economic impact of an inefficient judiciary on the Philippine economy. They found that, at least in 1999, the judiciary’s inefficiency induced firms to forgo 6% to 11% of total investments, which translated to slower annual GDP growth of around 0.25% to 0.46%.
In other words, we could have grown faster had the faults of the Philippine judicial system not been such a deterrent to economic activity.
Finally, the politicization of the Supreme Court now makes it more difficult to legally contest Duterte’s policies, economic or otherwise.
Since stepping into office, Duterte has enacted many policies that have far-reaching consequences on people’s lives, liberties, and properties. These include his war on drugs, the Boracay shutdown, TRAIN, his inaction in the West Philippine Sea, and his proposed federal form of government.
Under normal circumstances, checks and balances in the legislative and judicial branches should allow ordinary people to contest these policies.
But Duterte’s control over Congress now is so complete as to make them an inutile check.
That leaves us with the Supreme Court, which must all the more protect its independence, integrity, and impartiality. But now that they’ve shown their capacity to flout the Constitution itself, how can we be so sure that Duterte’s policies – once they reach the Supreme Court – will be decided with utmost fairness?
Even before Sereno’s ouster, the Supreme Court has already shown that it panders to Duterte. For example, despite all the sound legal counterarguments, the justices sanctioned Duterte’s Mindanao-wide declaration of martial law not once but twice – first for its declaration, second for its extension till the end of 2018.
In addition, many old justices are now spearheading the proposals to shift to a federal form of government, at the behest of the President. But as rightly pointed out by the dean of the Ateneo School of Government, how can Duterte’s Consultative Committee propose such amendments to the Constitution now if, at present, our justices cannot even uphold the current one? With Sereno’s illegal ouster, the entire project to amend the Constitution has all but lost its credibility.
Questions about the Supreme Court’s independence, integrity, and impartiality have always existed. But the Supreme Court’s blatant politicization, as shown by Sereno’s outrageous ouster last week, brings them to a new low.
This is worrisome not just for our democracy but also for our economy. A bastardization of our Constitution – by no less than the Supreme Court itself – could add to the cost of doing business in the country and reduce overall economic growth. Moreover, Duterte’s policies are now harder to legally contest.
To be sure, the Supreme Court has not been exactly an exemplar of good economic policymaking. Some of their landmark decisions in the past have had lasting impacts on the mining sector, public utilities, and foreign investments, even if not all have made much economic sense.
Yet Supreme Court decisions are respected not so much because the justices are known to make the best economic decisions, but because of their independence and integrity as the ultimate arbiters of all disputes in the economy.
Absent such impartiality, their ability to make permanent and binding decisions on our lives, liberties, and properties has never been more disturbing. – Rappler.com
The author is a PhD candidate and teaching fellow at the UP School of Economics. His views are independent of the views of his affiliations. Follow JC on Twitter: @jcpunongbayan.