Tuesday, June 12, 2012

Retreating into our shell

Our challenge is to lift ourselves up as a nation and become a developed economy. It is not a new challenge, but why have our efforts over the last half a century fallen short? Unwittingly, our model of prosperity comes from our cacique system and structure? And, unfortunately, we are again moving in the same trajectory – i.e., when all one has is a hammer, everything looks like a nail? We have the capital and we can lift ourselves up! Sounds familiar – like from the ‘hacinderos' of old? Sounds like Wall Street too – capital got the world economy booming until, of course, the credit bubble. Capital has to be productively and efficiently employed to optimize its multiplier effect – which is the lesson from the Great Recession.

While development, indeed, starts with capital, the 21st century has made the world interconnected and thus highly competitive. We can't opt out of this reality and be isolated like rogue nations. It’s thus unfortunate – in fact mind-boggling – that we don’t see the imperative to compete with our neighbors' ability to attract foreign investments, and revisit the restrictive economic provisions of the Constitution, for example. We believe half a dozen dominant entities can be our ticket to prosperity, and so political patronage is alive and well? That is limiting our options from the get-go. These entities have a common platform – rent-seeking, e.g., utilities, communications, infrastructure. And as they enlarge their capital base they are able to move into other industries – the cacique model at its best where expertise is optional! They’re not about raising our competitive stock, but rather fortifying their dominance absent the imperatives of competition in an open economy – the very essence of a market economy that we seem unable to embrace? Even our energy program is dependent on when these same entities get around to building the nation’s power infrastructure.

And in the meantime we are unable to attract foreign investors because of inadequate and costly power. We don’t have an overarching vision to get such basic need as power provided because we have narrowed our perspective? And it explains why we’re uncompetitive? Similarly, we have lots of SMEs but they are about basic products that every developing country is able to produce. It is where creativity is called for, not in sidestepping our challenges! Of course, these local products are selling and so we have an established ecosystem courtesy of OFW remittances. But this ecosystem produces a meager income for Juan de la Cruz. We need “a pole" that is ten times longer if we are to overcome the hurdle of a developed economy! Our mindset of staying with the “same short pole" even if it is made of "titanium" doesn't elevate our chances! Translation: our average income is a measly 10% that of developed economies and thus we need an altogether different ecosystem! It means beyond associating incremental thinking with logical thinking we have to learn and pursue ‘out-of-the box’ thinking, e.g., ‘discontinuity’ or ‘creative destruction.’

With the world economy in a funk it is better to look inward? We need thinking discipline, not being in a funk ourselves. Our neighbors are affluent because they seek to be globally competitive. We produce semiconductors while Malaysia makes electronic equipment – with higher value-added from partnerships with foreigners. And the contribution of their industry sector to the economy approximates that of the service sector while ours is skewed to the latter. It is fundamental in economics and in business that to be able to aggressively drive revenues (or GDP in the case of a nation) one must play in the bigger market. But given our cacique orientation our success model is to lord it over in a small market. Of course, 90+ million Filipinos is not exactly a small market. All we want is to be ahead of our next door neighbor? Where is the sense of nationhood or community? Where is national pride?

There is light at the end of the tunnel given our stepped up infrastructure building? But as Spain, Portugal and Greece – which benefited from the EU infrastructure program – have realized, there is more to a nation’s economic wellbeing. And it is the imperative to generate greater economic output, e.g., the ability to develop products that will find a bigger market because they are innovative and competitive. Unfortunately, our stratified mindset says that we aren't capable of innovation and competition? And so we must be an island unto ourselves and preserve the status quo? And this mismatch against the reality of the globalized 21st century world will only get worse not better – us with our backward-looking instinct; and the rest of the world consciously opting to be forward-looking!

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