Monday, March 14, 2011

Competing in a world at warp speed

Beyond being globalized, the 21st century economy is characterized by speed. And looking at the competitiveness and economic freedom global indices, we must assume that the countries at the top of the rankings would continue to gain on us because they have the means – and momentum is on their side – i.e., they have equipped themselves to build on their successes. How do we compete in a world that is at warp speed? It is important that we first understand who we are: We don’t have the means and the momentum to compete at their level. Our income per capita of $3,500 is a meager 10% of what developed-economies generate. But the above indices are not meant to be checked off like a checklist. So how do we respond? To build something we need to understand what the building blocks are. But akin to portfolio management, even the building blocks have to be managed accordingly, that is, prioritized.

For several decades we’ve designed to build our economy via programs that would cover as much of our wish list and ended up being the least developed nation amongst our neighbors – because we’re spreading scarce resources thinly. And so instead of reducing poverty, for instance, we see it rising! Yet, we’re still wedded to assumptions that have failed us – i.e., spreading resources thinly? For example, we talk about K-12 in elementary education and of social safety nets like they have in Europe. They are not wrong, and if we believe we must have them, then we must. The problem is our revenue levels. At $3,500, our per capita income can buy very little. But it does not mean presenting ourselves to the outside world cowed, coming from a position of weakness. How? We must exude integrity, maturity, hard work and creativity. In short: no-nonsense, no room for corruption – we’re confident, upright people, and we’re offering a win-win proposition.

And so it is encouraging that the top-most priority of the Aquino Administration is to drive investments in order to raise that $3,500 a bit. And if we benchmark against Thailand, we need an incremental income of $100 billion to have a chance at reducing poverty like they did. Thus, it is welcome news that the private sector is looking at the strategic industries and the requisite infrastructure that would generate said incremental income. (But to sustain it, we need to invest in technology, innovation, talent, products and markets!) And it is heartening that the Trade Department is putting together a plan to raise exports precisely to get us there. While it is a good intermediate goal, what we must aspire for is to be a developed economy – raise our income per capita 10-fold. And be a truly inclusive economy.

The writer talks a lot about his Eastern European experience because his ex-socialist friends wanted to be like their model Fortune-500 company. And so they wanted to have several mega-brands; instead, they learned the reality of portfolio management – what brands to power and which ones to eliminate, and thus to focus on margins in driving revenues. Margins generate the competitive firepower – the ability to fund investments in technology, innovation, talent, products and markets! But they are like gears that must be synchronized – and as importantly, they could only be had if the enterprise produces the requisite margins for investment.

With a per capita income of $3,500, we, Filipinos, can’t expect to fund a number of the things we wish to have. And OFWs are showing us how – their old jobs in the Philippines didn’t give them the income to provide either the needs or the wishes of their families; and so they had to seek jobs overseas to raise their income and sacrifice being away from home and family. (But as an economic driver the OFW phenomenon is bad because it gave us the ‘Dutch disease’ – it took away our desire to design and pursue strong economic fundamentals, e.g., competitiveness and economic freedom. And worse, weak economic fundamentals perpetuate the cacique model, characterized by a small, oligarchic ruling class; it is anathema to competitiveness and economic freedom – indeed a vicious cycle.)

We may not become like the countries at the top of the rankings in our lifetime. And we won’t get there either for the next generation if we don’t learn from our OFWs – i.e., raising our income is the top-most priority!

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