Should a primitive economy . . . based . . . on . . . endemic corruption accompany us into the future?

That’s Mikhail Gorbachev speaking in an editorial opinion in the International Herald Tribune (March 13-14, 2010). Clearly Gorbachev does not subscribe to “false gentleness” and probably mirrors the challenge of the Beatitudes. In our case, without having to speak, the international media has had a field day given our endemic corruption – and why foreign investors favor our neighbors?

Gorbachev continues: “Russia once again faces the challenge of change . . . The Soviet system . . . condemned our country to inferiority . . . Our main mistake was acting too late to reform the Communist Party. The Party . . . soon became a hindrance to moving forward . . . We made other mistakes too . . . we lost sight of the economy, and people never forgave us for the shortages of everyday items and the lines for essential goods . . . Many people were plunged into poverty; the income gap became one of the widest in the world . . . Russia [lost] its industrial base, its economy became fully dependent on export of oil and natural gas . . . Stabilizing the country cannot be the only or the final goal. Russia needs development and modernization . . . in a global, interdependent world . . . The country has not moved closer to that goal . . . Russia will only advance with confidence if it follows a democratic path . . . The independence of the courts has been thrown into question . . . If the people are to feel and act like citizens, there is only one prescription: democracy, the rule of law and an open and honest dialogue between the government and the people.”

There are lots we need to correct but the first thing probably is to toss false gentleness. The best way to impress the outside world and attract investors is to do something concrete – for example, to fully engage the global economy, recognizing its imperfections . . . yet others have gained much from it? As our finance and accounting professions taught us, the key when evaluating an undertaking is to assess its net worth; not to just focus on either its strengths (assets) or weaknesses (liabilities).

The writer spends the most time in Eastern Europe and can relate to what Gorbachev is saying. Yet, if we Filipinos pause and reflect on his words, chances are we will see the Philippines in the same light as Gorbachev sees Russia?

The writer is at the Taipei airport, on a layover. Many years ago he did business in the country and realized that the Taiwanese could use Filipino expertise – beyond respecting the balance sheet and managing working capital especially in manufacturing, they also needed to raise marketing and sales efficiency and effectiveness. And so he had a couple of Filipinos mentor their Taiwanese colleagues.

At that time Taiwan had already progressed their manufacturing expertise (e.g., light industries – their bicycles were commanding premium pricing in North American, with technology developed in partnership with the West) and were moving into high-technology like electronics. Still, they embraced every opportunity to advance every facet of industry.

Talking up one’s strengths (like CEOs Fuld and O’Neal of Lehman and Merrill Lynch, respectively, did) could engender disaster. It takes a big person, as FDR admonished the Americans, to admit one’s shortcomings and commit to change. And Gorbachev, decades later, is still heeding the advice?

Bishop explains the Beatitudes

Meekness is not laziness. It is not lack of backbone. It is not just tolerance. It is not false gentleness. Mourning is not confined to mourning one’s loss. It is as much as grieving for others – to hunger and thirst for justice and righteousness, for their sake.

A group of ladies was so moved that even before the Lenten retreat ended they started gearing up – to invite the candidates in the presidential election (and their running mates) to a recollection on the Beatitudes.

If we’re blessed, if the country is blessed, why are we where we are? Have we been receptive of our gift of blessedness? Then where is the fruit? In the lesson of the fig tree we are warned: not to repeat history, that those who were led to the ‘promised land’ could loss it because they were like the fig tree . . . that did not bear fruit!

So where is the fruit? Where is the water in our taps? Where is the light that we’re supposed to get at the flick of the switch? Where is the rice, the coffee, the sugar? Where are the jobs?

But there are the new roads – and who are winning the contracts on these new roads? Are they world-class contractors that can teach us 21st century technology?

The ladies should probably, after inviting the politicians, invite industry too – to a recollection on the Beatitudes with the Bishop. It takes two to tango. Where is the fruit of our economic output – with the few? But even our few aren’t world-class? We don’t develop world-class enterprises – because competitiveness is not what’s driving their businesses? Is it all about influence peddling – i.e., focus on the local market, win kudos for ‘love of country’ and then seal the deal via influence? There are honest-to-goodness enterprises but the reality is 10% own 80% of our wealth – thus the 10% could just be unwittingly scratching each other’s back or why we’re perpetuating a hierarchical culture?

It is heartening that San Miguel may sell more of their beer holdings to Kirin; with the latter looking at pushing growth in Southeast Asia. If San Miguel’s vision is to be a broad-based investor like Warren Buffett (as opposed to striving for competitive advantage in every business they operate like a GE), then that is a good first step – partnering with entities that have a greater potential to attain competitive advantage. Competitive advantage is what world-class enterprises focus on, in order to sustain their businesses, not influence peddling!

It is encouraging that Nestlé is developing state-of-the-art coffee-raising technology in Davao; and they will work with local farmers as partners. In an earlier blog article, the writer talked about Nestlé’s investment in R&D, that they’re investing twice the industry norm. Enterprises like them are ideal partners – because of their capability to assist us override the learning curve: from the basics of agriculture all the way up to higher valued-added branded packaged goods, thus attain competitiveness. (Note: the writer is not connected with either San Miguel or Nestlé.)

Who else should the ladies rope in to listen to the Bishop and reflect on the Beatitudes . . . so that as a country we would seek and bear the fruit of our blessedness?

A ghost of a chance

“Agriculture sector to go hi-tech”, reads a Vietnamese local news report. Vietnam is gearing up to: “Phase out small-scale agriculture through the introduction of new technologies that are expected to result in higher yields and more competitive farm produce . . . part of a well-thought out effort to industrialize the agriculture sector . . . and reach specific ambitious economic targets that call for encouraging businesses in identified strategic provinces . . .

“A service network to cater for hi-tech agriculture will be established, with brokerage, technical consultancy, equipment supply and product consumption support services . . . Incentives will be offered to businesses covering R&D, importation of technology, human resources overseas training . . . Lands will be optimally sized . . . Government will erect specific infrastructure needs in targeted provinces . . . It acknowledges past failed pilot efforts due to inefficiencies; and because the country’s bio-technology is underdeveloped, among others. The new initiative will link hi-tech agriculture and bio-technology . . .“ (The writer read this after he had traveled to Cambodia, and was told of one of Pol Pot’s failures: the commune system.)

How can we top that? By industrializing agriculture too yet being two steps ahead, i.e., going to agri-business, and all the way to branded, packaged goods! (But is grains importation taking our eye away from the ball, holding our agriculture industry hostage and thus failing – thankfully, media is at least keeping the issue alive?)

The Vietnam government is likewise eyeing bureaucracy and targeting 5,400 or 30% of administrative procedures affecting individuals and enterprises, including regulations that conflict with each other. They expect to improve efficiency and reduce costs by 30%. The Vietnamese are clear thinkers, defining their goals in precise terms, and as importantly, are learning from their mistakes? And are driven?

“I will die if I don’t work hard. This week is Chinese New Year but I can’t tell you not to visit Hanoi during our holiday. My family and friends respect me though for working on a holiday. I own a motorbike like most everyone; it will take me 7 years before I can buy a car. As students we’re young and ignorant and don’t take education seriously. But now that I need to work in order to survive, I aspire to be like a Malaysian and then like a Singaporean, sooner than later.”

Millions of Filipino OFWs can relate to this young Vietnamese. Yet, there are visitors to the Philippines who wonder: outside the OFWs and our professionals and entrepreneurs, are we as driven as others? The writer has been asked a few times how unemployed Filipinos could survive. In jest he would say that we’re like the Italians and the Irish, and lately unemployed young Americans who have gone back home. Given our extended family structure, it is not an issue at all! But what are they really asking: is one of our greatest assets, our liability as well, i.e., too much of a good thing is actually bad?

And OFW remittances are too much of a good thing, i.e., our robust foreign exchange reserves and stable currency are masking the deep hole we’re in – while giving the powers-that-be the means to exercise influence-peddling with impunity, e.g., grains importation? And why the ADB says we’re suffering from Dutch Disease – not unlike building our house upon the sand?

An op-ed columnist summarizes how we view change: “this is in fact a society that is resistant to change”! That is what the writer dreads most about the country – because resistance to change is the common denominator of failed economies, i.e., they’re broke but didn’t fix them! Like it’s the 21st century and we’re still tolerating rotating brownouts? Fool us once and you’re a fool; fool us twice and we’re the fools!

Buffett, Jacobi and Einstein

“What are your thoughts about the presidential election”? The writer has been asked a few times. He’s delighted that our media is preoccupied with quizzing the candidates and reporting extensively about who and what the candidates are. Given their efforts to assess the candidates on vital issues, the writer offers the following quotes – he’s spoken about . . . focus, “starting with the end in view”, culture and barriers, among others . . . and it seems worthwhile to hear respected individuals, from contemporary and historical times.

Warren Buffett: “It’s important to Charlie Munger, my long-time partner, and me that all of our owners understand Berkshire’s operations, goals, limitations and culture. In each annual report, consequently, we restate the economic principles that guide us . . . Berkshire has adhered to these principles for decades and will continue to do so long after I’m gone . . .

“Long ago, Charlie laid out his strongest ambition: ‘All I want to know is where I’m going to die, so I’ll never go there.’ That bit of wisdom was inspired by Jacobi who counseled “Invert, always invert” as an aid to solving difficult problems . . . Charlie and I avoid businesses whose futures we can’t evaluate, no matter how exciting their products may be . . .” (Should remind us of garment exports and semi-conductors; and now BPOs. Are we pursuing higher-value added BPOs to raise and sustain competitiveness? It’s numbing sitting on one’s laurels?)

Jacobi (the great Prussian mathematician): “Invert, always invert” – “that the solution of many hard problems can be clarified by re-expressing them in inverse form”. Albert Einstein: “The value of education is not the learning of many facts but the training of the mind to think.”

This brings the writer to one question to a candidate and his response: How to improve national competitiveness? “Do away with degree consciousness for promotions. One need not have a master’s degree for leadership skills and institutional knowledge”.

And here’s the writer’s definition of leadership, the outcome of decades of practice and more recently consulting: “The belief and ability to predict failure or success” – so that the leader doesn’t drive us over the cliff, and instead navigate the way to the ‘promised land’!

But in a democracy we get the leaders that we deserve; and we are defined by our values and our culture. For example, if we don’t value excellence and thus set a low bar, our leaders will gravitate to populist demands even if they’re counterproductive? And this reality is entrenched by a culture of inclusion – as opposed to one that values focus and priority?

The bottom line: one person can’t solve our problems. We as a people must elect the right leader – but it is incumbent upon us to give him the confidence that he can lead us on a new path, the way forward. To insist that he views the world with us – through the one prism of “Pinoy kasi” – will sink us into the abyss! We’ve had a succession of failed leaderships and failed economies – because our aversion to change made us reject progressive options?

We’ve shaped for our leaders the condition that’d make it convenient and rewarding for them to fail. For instance, we expect them to patronize us (“mababaw ang kaligayahan”) so patronage is well ingrained. We value hierarchy and elevate them above and beyond the rules of integrity – especially if we share the spoils of the system. For example, “tax amnesty” has become a way of life! We’ve created a vicious circle that’d yield a failed leadership and a failed economy every election cycle – thus our decades-old decay?

How we can get things done?

The Export Development Council’s (EDC) website pages the writer had browsed recently seem to have disappeared? Or is the website under construction or re-construction or re-design? In any case, it gave the writer the opportunity to browse the website of the NCC or National Competiveness Council.

The NCC website reads: “The NCC was formed in October 2006 as a Public-Private Task Force on Philippine Competitiveness by virtue of Presidential Executive Order (EO) No. 571 to address the improvement of the country’s competitiveness from the bottom third of competitiveness rankings to the top three by 2010.” (It is early in 2010, but do we expect to lift our competiveness ranking to the top three by year’s end?) Two of the NCC’s focus areas call for: providing seamless infrastructure network and developing energy cost competitiveness and self-sufficiency.

If it is not obvious yet, the writer offers specifics – and is committed to engaging opinion makers and leaders. For example, he has talked about Maslow’s hierarchy of human needs – and it appears that we Filipinos are still struggling to attain the most basic of needs: water, food, power, etc., etc. Net, the goal of the NCC is simply too lofty – given that while we have incurred record levels of debt over several decades and several administrations, we’re still at ground zero. It simply is not doable! If we are to keep a mature optimism we must first be dogged and get the foundation (infrastructure) of these basic human (Filipino) needs right!

Many times initiatives fail because people approach challenges in a linear fashion – not surprising because logic dictates that we move from step one then step two, etc. The writer has talked about “starting with the end in view.” This is not an alien concept because we grew up being asked: what do you want to be when you grow up? (For instance, in tourism, to develop a competitive instinct, our thought process could be: Which are our benchmark countries in developing our initiative? How many tourists do they attract? How many can we attract and should attract? How much revenue must we generate? Are we focused on the 12 top tourist attractions – focus, being the operative word? How does the infrastructure network of these attractions match up against those of other countries? How does our cost structure match up? How do our marketing efforts match up?)

The end point of competitiveness is a product or service that is preferred by the customer or the consumer. Yet it has to be in context. Competiveness in an economy must come from the elements of our economic output or GDP: domestic and foreign output. Our domestic output already outstrips our neighbors’! Where we have a gaping hole is in our foreign output! And this is where we’ve fallen flat on our face – because we don’t have the confidence and skills-set to compete, i.e., compelling products with healthy margins, in the international arena; or we simply are inward-looking and parochial, it is not even on our radar screen?

Net, our initiatives, defined by their end goal, will have two elements that: (a) spell out the objectives we must pursue to drive our foreign output, e.g., our strategic initiatives; and (b) spell out the requisite infrastructure that will directly enable these strategic initiatives, including basic infrastructure, i.e., water, food, power, etc. It will take us years to move up the competiveness ranking, but we can start with a sharper perspective of our end goal! (But we’ll never make it if integrity and excellence in our initiatives are absent – while influence peddling and small thinking and incompetence dominate? For example, the BCDA’s handling of the SCTEX contract is sheer incompetence! This is a major project yet we failed to prequalify the right bidders thus are left with two unacceptable bids? We can’t attract world-class contractors – they will not bet on us, as shown by a European bank that unloaded their Philippine bonds, being the worst performer this year; and thus raising our cost of borrowing?)

“Fully engaging the global economy”

It appears that Filipinos are visiting Vietnam and Cambodia, and find them interesting and promising. The writer had done business in Vietnam when it opened its doors and was keen to make a nostalgic trip.

These countries, probably desperate to jumpstart development, have indeed opened their doors. The writer remembers flying Vietnam’s local airline almost 20 years ago and hearing the voice of the French pilot. This time, he hears an Australia pilot and also a Korean pilot. In Siem Reap the writer checks out the label of a popular beer – and it comes from Singapore. The tour guide explains that he can buy a local SIM card and has a choice of carrier – that aside from local carriers, there are foreign ones too: Vietnamese, Malaysian, Thai, etc.

It seems Filipinos like the rest of the world expect Vietnam to develop faster than the Philippines especially given that they have more than twice our gross investment – and more than twice the value of foreign equity investment. And since Cambodia is drawing tourists in abundance, will we see Cambodia developing at a faster clip too?

We don’t need foreign pilots because we’ve been training and developing pilots for generations. But if that is our reaction, we’re missing the phenomenon going on in Indochina. For instance, where is San Miguel and PLDT when our neighbors have all planted stakes in this fast-developing part of the region? (In fairness the writer saw a San Miguel neon sign in Ho Chi Minh. And with Kirin’s equity in San Miguel, it appears the international unit is geared to be more focused. But currently, in Vietnam, their product-distribution coverage and marketing efforts aren’t competitive!) That’s the stark face of competition – and it’s real! Do we then intellectualize our response and conclude that what we need is more OFWs? Is national pride inhibiting us from heeding the World Bank and ADB, i.e., that “we must be fully engaging with the global economy”? Or does our way of life have very little propensity for change?

San Miguel and PLDT are two of our premier enterprises – and should be aggressively expanding their markets beyond the Philippines? PLDT is NYSE-listed; it is not surprising if foreign investors value their competitiveness in the Philippines; and the continued OFW remittances. But stock market investors are short-term driven, i.e., we can’t take it as an endorsement of our economic fundamentals. The test of (foreign) investor confidence is in the size of their equity investment and we pale in comparison to Vietnam – another stark reality!

Is it surprising then that we are the region’s economic laggards? Indochina is less developed than the Philippines. Their infrastructure is underdeveloped. Doing business in these countries requires lower overhead versus doing business in the developed world, for example. Indochina is still low-cost and thus affordable to hire resources: (a) to do market research and understand the consumer, (b) figure out the trade structure and thus pinpoint where to focus distribution efforts, i.e., via the 80-20 rule, (c) put up a manufacturing facility, and (d) to do marketing. Indochina is not a small market – the population is 108 million, a bit more than the Philippines. And the latest poverty reports in Vietnam and Laos are better than ours. (The object of the writer’s efforts in Vietnam years ago has gone full circle – i.e., he had a big smile watching the product’s TV commercial in his hotel room!)

Of course we must play an honest-to-goodness competitive game, i.e., as foreigners we can’t play the power or influence-peddling game that our major enterprises are adept in playing in the Philippines. In Indochina the local companies can play the game, but foreign companies can’t. It takes one to be truly competitive to succeed beyond its borders – and that means developing compelling products with healthy margins. Net, our industry needs to upgrade its skill-set in product development in order to be competitive!

Should we start learning the ropes and stake our claims in less formidable markets like Vietnam and Cambodia? And aspire to be a global, competitive player? It’s never easy to do business beyond one’s borders. But Pacquiao would not be world-class if he stayed home!

Competitiveness: Where are we?

Beyond the Terminal 3 (NA) international airport fiasco, local papers are a buzzed re two controversies: (1) defining and taxing oil imports, and (2) the case between a generic and a branded drug. We are pitted against the Germans, the British and the Dutch, and the Americans. Or are we pitted against ourselves – and we are our worst enemy? Is the suspicion of corruption at the heart of the Terminal 3 imbroglio and the taxing of oil imports? And in all 3 cases, are we invoking victimhood – that we are being victimized by the big guys?

We were fascinated by Barack Obama and dissected his candidacy – yet did we miss its true import? Barack Obama turned victimhood on its head! If there’s a lesson we want to discern from Obama, it is that victimhood equates to defeatism! If we think like winners we can turn victimhood/defeatism on its head? But can we win despite the Germans, the British and the Dutch, and the Americans? How did our neighbors do it? As the World Banks reminds us, they did it by: (a) fully engaging with the global economy, (b) maintaining macroeconomic stability, (c) mustering high rates of savings and investment, (d) letting markets allocate resources and (e) electing committed, credible and capable governments.

China is now in a contest with Japan to be the second largest economy. Yet not too long ago China was isolated from the rest of the world – its economy suffered . . . and thus had to address the discontent of its people. China then opted to be a market economy and tapped the requisite elements of competitiveness: foreign capital, foreign market, foreign technology and foreign expertise!

Do we want to connect the dots in order to attain competiveness – or fortify influence peddling instead a la Dick Cheney? Two news reports can’t be ignored: (a) NEDA sees Ps 554 B annual infra spending, and (b) Tollway proponent short of funds – wants subsidy. In one article government proudly says: “It is a solicited private-sector project without any form of government guarantee, a pure private-business venture.” Yet the other reads: “government can offer bridge funding . . . adding that the money could be sourced from the proceeds of the P50-billion infrastructure bonds that NDC would float . . . Earlier, DMCI said that PIDC would raise P10 billion in debt . . . the balance . . . would come in the form of equity. DMCI had subscribed to more than 1.4-million common shares of PIDC . . . DMCI had said that the San Miguel group would raise its stake in PIDC to 49 percent, and later on to 51 percent.”

Are we being transparent in pursuing major initiatives? Infrastructure raises efficiency and thus critical to the competitiveness of our strategic industries. In the case of tourism, for example, it appears we have 12 destinations generating the largest revenues. What piece of the infrastructure spending is allocated to raise the competitiveness of these revenue generators – that visitors coming over for a holiday will have a pleasant experience, i.e., our infrastructure from point a to point b is efficient, not gold-plated? How much income do we expect from tourism if it is a strategic industry? We can’t define our strategic initiatives in wishy-washy fashion – i.e., it equates to influence peddling, abuse and corruption, or why investors skip us!

How badly do we want to develop the competitiveness of our industry? How can San Miguel be a preferred provider – and allotted subsidy – on a business it is not industry leader and innovator, for example? Is San Miguel doing a Warren Buffett, building up its portfolio? Buffett invests to make money – not to seek government subsidy. He stepped in to bailout an investment bank before and recently made a huge bet on the railroad industry, an asset not only to himself but the nation! Buffett is not Cheney! But are we in fact disciples of Cheney’s bunker-mentality and influence peddling, i.e., inward-looking and hierarchical?

Thinking small

We need every ounce of competitive edge yet – given “que sera sera” or “bahala na”? – we don’t bat an eyelash watching a white elephant in our midst? What coach will bench an NBA superstar like LeBron? That’s what we did with Terminal 3 of NAIA? Do we find virtue in self-flagellation?

It is refreshing that a presidential candidate is talking about ambition – encouraging Juan de la Cruz to be ambitious. We better dig it from our arsenal – lest we find ourselves in a race to the bottom? Man – from Eden . . . all the way through . . . the moon, where he made the giant step for mankind – was meant to think big! But what about the vulnerable – they can’t think big?

And so the poor seek refuge in Church – and her efforts to help the poor have to be anchored on sustainability. Given a third of Filipinos are poor, we have a heavy load to carry – and to address squarely, knowing full well manna from heaven doesn’t pour on them 24/7.

Talking to a provincial superior and his team and some nuns, it appears that feeding the poor has become the vocation of the Church in the Philippines. And to ensure sustainability, they are focusing on what they call IGPs or income-generating projects. The writer is impressed: here are two church groups pursuing a merger no different from the way private business does it. The priests demonstrate savvy in strategic thinking and finance – they’re exploring taking over the undertaking of a nun who’s well past retirement. To the provincial superior it’s no brainer: our mission is to heal and work with the sick, and handicapped people are near and dear to our hearts. Yet, they’re assessing which of the projects is sustainable – and ought to be the core undertaking. Clearly, these priests understand discipline and focus!

Our industry is likewise sensitive to the less fortunate and is committed to CSR or Corporate Social Responsibility. Yet, after spending a few days in Davao, the writer can’t help wonder: are we thinking big to help ourselves and solve our problems? The writer and family have been to other major cities and towns – e.g., in Cebu, Bohol and Iloilo – the past couple of years; and were wondering as much.

The Eden nature park at the foot of Mount Apo and the “Pearl Farm” Beach Resort on Samal Island should make the locals proud. But the Davao Insular hotel is no longer conspicuous – how dense the city has grown, no longer rural and green with countless coconut trees! Density is associated with India or China yet every major metro area in the Philippines is bursting at the seams.

It is liberating that while conventional wisdom reinforces our conservative beliefs, priests and nuns can be far more engaging – willing to discuss moral ethics, for example. Have we narrowed our perspective in religion, education, and economic development thus feeding our inward-looking bias? Western Catholic theologians were critical of the last encyclical – for trying to address every contemporary issue and thus missed delivering a profound message. The Church is a community – and the faithful’s role is to engage, not to be subservient! Isn’t that what we told the Spanish Friars? Or have we forgotten?

The bottom line: efforts by the Church and industry to help the poor are encouraging – but they fall short. The billions of dollars of OFW remittances fall short likewise. Net, we can either: (a) think big, “fully engage with the global economy”, like our neighbors do as the World Bank reminds us or (b) simply accept that we’re vulnerable . . . and thus helpless, in a race to the bottom?