Sunday, September 29, 2013

The elite class never had it so good . . .

And at whose expense? “The World Bank said the number of unemployed and underemployed Filipinos may jump to 12.4 million by 2016 even if the economy would be able to sustain its current growth pace. Last year, the country’s unemployed and underemployed stood at 10 million, with the latter accounting for 7 million . . . 14.6 million jobs in the formal and informal sectors . . . need to be created, sustained or improved in the next four years.” [Philippine Daily Inquirer, 13th Sept 2013]
But of course, “More Filipinos are able to buy brand-new cars these days . . . indicative of the country’s improving economic condition . . . The number of cars sold by dealers across the country totaled 180,000, up by 40,000 units from the yearly average of 140,000 from 2006 to 2011. The growth of the auto industry was due to the improving economy, wherein more people are now able to buy cars” . . . BPI Savings Bank was optimistic that more cars would be bought this year as the economy continues to be rosy.” [Inquirer Mindanao, 13th Sept 2013]
That is why it’s called the “Dutch disease” – it gives us “a high” that shuts out and undermines community sense? It means being blind to the reality and fundamentals of the economy? Is it reflective of our “gated-community mentality” and why we can’t connect the pockets of development to the broader economy? They won't connect because there is no infrastructure – both hard and soft – to begin with . . . And we haven’t established a vibrant industrial base . . . I am writing this in Ukraine, in a Cossack-inspired smallish hotel, perhaps once a mansion. And the bust of Lenin is all around, including in my room – where the pencil holder has the picture and signature of Lenin stenciled too. And the irony is the Ukrainians have been learning – and not without the pains – the ropes of free enterprise. We just completed a business review and our local folks signed up to the marching order to multiply the size of their business; and to present it in the budget review in a couple of weeks. Translation: they have seen blood from their competition – two Western MNCs – and must move in for the kill; and that calls for stepped-up investment.
Ukraine’s population is half PHL’s and the GDP per person is $7,500, versus our $4,500. And just like PHL, it is a high-consumption economy at 70% of GDP – great for my friends’ consumer-products business. But it is still a poor country (a second-rate nation like Poland is more progressive) and so people think that their economy stinks and aren't reveling – like we (the elite class) are in the Philippines? The wealthiest Ukrainian is in the energy business [sounds familiar?] and is into retail as well, with malls and supermarkets in several Eastern European countries.
In this city they have heavy pollution because of the metal industry – which they are proud about being a full-circle business: from mining to metal products, and all the way up to space technology. It is a government-owned enterprise that sells services to countries that need, say, weather satellites up in space. Unfortunately, the industry plus the big wheat and sunflower-export businesses won’t suffice to cover their prohibitive (signed by the ex-Prime Minister who is now in jail) imports of gas from Russia; the latter has been playing games with them, selling gas cheaper to the Germans. Russia wants to keep them under their thumb, a great way to win friends and influence people.
Over cocktails they asked what I thought about their economy: “If your oligarchy will move from controlling the local economy to learning to be competitive, you would be wealthier – i.e., extract blood from global competition, not from their own people. For example, your industry model could be Honda. Honda is beyond a car business and is in the engine and motor enterprise. Given that you can power planes and rockets, you can power the smallest grass-cutter to the largest Boeing or Airbus jets – and over time move beyond the engine business.”
We were outdoors in a restaurant by the Dnieper River, but it was a touch cold. Fall is coming, but not to worry, precisely why vodka is their staple. The waiter, noting that I was sipping my drink (not the way it’s done by the locals!), offered to wrap me with a blanket. I was just reviewing my notes: their poverty rate has gone down to 24% from the previous 35%. And the elite class never had it so good . . . from the anecdotes the regional manager shared about oligarchy, including in neighboring countries. Just like PHL, it must be fun visiting those countries – which I promised.

Saturday, September 28, 2013

Padre Damaso personified

Francis finds the time to personally read the letters he receives, and one reads: “I am Padre Damaso; I fathered a daughter out-of-wedlock and her name is Maria Clara. I wish her to be baptized.” And then Francis calls Padre Damaso: "Maria Clara is God's gift; you should be able to find a pastor to celebrate the Sacrament of Baptism and if not, you know, there is always me." Obviously I made that up. The real story went something like, and I am paraphrasing from memory: “I am a divorcee; I am bearing a child out-of-wedlock from my fiancĂ© who I then learned was married and with children. And I wish her to be baptized.” How did Francis respond? He called the woman on her cellphone: "Your child is God's gift; you should be able to find a pastor to celebrate the Sacrament of Baptism and if not, you know, there is always me." [Francis wasn’t there when we Pinoys defined morality – i.e., divorcees are out, oligopoly is in?]
Padre Damaso did not receive such love and compassion from Rizal: "The Filipino culture was backward, anti-progress, anti-intellectual, and not conducive to the ideals of the Age of Enlightenment." And to drive home his points, Rizal created the character of Padre Damaso (in Noli Me Tangere.) After 126 years or so, has Juan de la Cruz proven Rizal wrong? Or was Rizal prescient to foresee our collective failure as a nation – i.e., from the family to the community to the school to the church to the public and private sectors . . . and beyond? “If corruption exists in homes up to the higher level of government, it must be cultural. So how can we provide a cultural response?” said Cardinal Tagle, who earlier denounced the massive corruption of the pork barrel system by lawmakers.” [Philippine Daily Inquirer, 9th Sept 2013] Such a response won’t happen so long as we in the elite class are having a ball – we even hold the keys to heaven?
For example, we have embraced oligopoly reflective of our inward-looking, parochial, insular and hierarchical culture? Translation: "backward, anti-progress, anti-intellectual, and not conducive to the ideals of the Age of Enlightenment”? Do they represent our value that is grounded on a cacique system and structure, which we justify because they generate investments that fuel our economy? And yet we remain economic laggards precisely because this source of national pride is feeble when arrayed against the rest of the world – and says the World Bank, we can’t even create jobs? Who is in bed with oligarchy? Our families (like mine for 8 years; my father, all his working life), the community, the school, the church, and the public and private sectors? Not surprisingly, we're in the "kangkungan" – the pits? But Lee Kwan Yew is autocratic; Thailand and Malaysia and Indonesia are corrupt. Yet we are worse off than all of them? Are we Padre Damaso personified – holier-than-thou – and that is a big part of our collective failure as a nation?
Who is in bed with oligarchy? Our community – because of crab mentality we created the perfect ecosystem for tyranny and subservience, e.g., from a bloated government bureaucracy to the pork scam . . . and beyond? Have we heard about Greece where a bloated government bureaucracy took its toll on the economy? Even friends from ex-socialist Bulgaria couldn’t figure out why a country with such a long history of democracy could be the poster boy of political patronage – and what about us in PHL? And so in their case they have already gone 3 months in their daily protest!
We may tap technocrats for public service yet for the longest time our bloated government bureaucracy has undermined transparency in public service – and nurtured corruption? Because of crab mentality we expect politicians to intercede in the hiring of our own friends and relatives? Who cares if we can’t prioritize and erect the foundation of an economy – as in adequate power and competitive electricity rates, basic infrastructure and a strategic and vibrant industrial base? Have we heard of India? “[India’s] economic decline has laid bare chronic problems, little remarked upon during the recent boom. An antiquated infrastructure, a sclerotic job market, exorbitant real estate costs and bloated state-owned enterprises never allowed manufacturing, especially manufacturing for export, to grow strong . . . The root of the problem is India’s failure to create a vibrant industrial base with the strength to export.”
Who is in bed with oligarchy? It is our school – and the church and the public and private sectors . . . and beyond? The bottom line: Because of our backwardness, our economy is in the pits and thus our school is as well . . . and everything else besides? It should not only be the church that must be offended when it is made the personification of Padre Damaso – we all must – but what are we doing about it? There are the courts where we could seek redress – in PHL where there is no rule of law . . . as in justice delayed is justice denied?

Thursday, September 26, 2013

Preparing for 2015 – APEC integration

First of all, like a lazy student (that I once was) we are – if it isn’t obvious yet – cramming for the exams? We must not then expect manna from heaven? We ought to appreciate, understand and accept that Singapore, Malaysia and Thailand dominate inter-ASEAN trade to the extent of 70 percent. That is what we’re up against. In other words, they have the requisite ecosystem that makes them dominant, and 2015 will mean gravy given what they’ve established over the years. They will reap what they’ve sown and lower/no tariffs will ensure that.
But tariffs (or even currency) are not the first imperative in trade especially in the 21st century. It is the products and services that we are peddling. And why this blog (while about the economy) talks – beyond the imperatives of a transparent culture and prioritizing infrastructure – about marketing or its fundamentals: product, pricing, placement (e.g., distribution and presentation) and promotion; and also the imperatives of global competition: investment, technology and innovation as well as talent development, and product and market development. For example, our biggest exports are electronics but we are into chips, not finished consumer products. [And Warren Buffett comes to mind; beyond being a value investor, he recognizes the value of strong brands and would invest in the latter as opposed to technology which he admits he doesn’t understand. But in PHL, we’re in electronic chips but don’t truly understand technology – or why Ayala is limited to chips?] We are at the mercy of countless variables, and thus our fatalism would continue to be preeminent in our psyche?
If we want to leverage “bukayo”, for instance, the question [and we must do a similar exercise for other products that would differentiate us and, as importantly, have value-added] to ask is: how do we introduce value-addition to what, first and foremost, we must consider a basic product – “bukayo.” For example, what flavors are universal that would find a market beyond our shores? What different packaging variants would make it appealing and stand out when put on the shelf side-by-side with competing sweet products? [Imagine Ferrero Rocher chocolates which chances are we would have seen traveling in the region. Note chocolates and potato chips are the largest selling snack foods.] Then we have to test whether our hypothesis will hold true in the global marketplace. That is what we ought to be talking about? And to get to our desired outcomes (i.e., increasing revenues with healthy margins to ensure a sustainable economic activity) we then must test the product ideas against the imperatives of pricing, placement and promotion. Which means we have to do an honest-to-goodness assessment of where we are from (a) an investment standpoint and, as importantly, innovation as well as (b) in talent development, and product and market development?
Every industry wants a road map where government would offer incentives tax-wise? Clearly, government must prioritize infrastructure if we are to even have a prayer in global competitiveness. Yet industry (as in oligopoly?) has undermined the very foundation of our economy, i.e., lopsided and skewed for the benefit of the 50 wealthiest Filipinos – while leaving us uncompetitive regionally or globally? In short, we are worse than a lazy student. Are we a disaster waiting to happen?
Our neighbors are doing better than us – they must be doing something right? But because of our “bida” culture we see their faults instead? For example, there is a new incentives bill the administration is pushing. How much benchmarking did we do to arrive at the administration’s proposal? Are we focusing on and prioritizing the 7 industry winners from the JFC? Or do we believe we have a universal template that will benefit over 50 industries? We’ve been playing the holistic, inclusive and comprehensive mantra for decades, yet we are the economic laggards? Prioritize. Prioritize. Prioritize.
A recent news about the Harvard Business School [Harvard Business School Case Study: Gender Equity, The New York Times, 7th Sept 2013] highlighted the seeming imbalance in its faculty make-up favoring male professors; while women professors are finding reasons to leave Harvard. And one explanation is students would give stellar marks to male finance professors, for instance, that come from the real world – and could discuss the realities of the marketplace like the back of their hand. While the women professors would talk about their research; and when students that also have real world experience ask questions, the women professors would seem intimidated.
That is not meant to devalue the academe, the key in crafting programs and plans like an incentives bill is to benchmark against countries that are doing well – they have the real world experience.

Tuesday, September 24, 2013

Why people (not just Pinoys) find it hard to change

But then again, there are 10 million Pinoys overseas that are able to adapt to the world?Unfortunately, Ryan Jacobs wrote in The Atlantic, 9th Aug 2013, that "the Philippines provides more seafarers than any other country . . . but their awareness of ready replacements has made [them] insecure and hesitant . . . a signal that they are good disciplined "followers" . . . but not natural leaders . . . [and] had stunted their upward mobility . . . In 2005, 73 percent were serving in lower-level roles . . . Filipino captains are still uncommon.
Wikipedia: “The comfort zone is a behavioral state within which a person operates in an anxiety-neutral condition . . . A comfort zone is a type of mental conditioning that causes a person to create and operate mental boundaries . . . Like inertia, a person who has established a comfort zone in a particular axis of his or her life, will tend to stay within that zone without stepping outside of it . . . To step out of the comfort zone raises the anxiety level engendering a stress response, the result of which is an enhanced level of concentration and focus. White (2009) refers to this as the Optimal Performance Zone – a zone in which the performance of a person can be enhanced and in which their skills can be optimized. However, White (2009) also observes . . . the work of Robert Yerkes (1907) . . . in which he reported ‘Anxiety improves performance until a certain optimum level of arousal has been reached. Beyond that point, performance deteriorates as higher levels of anxiety are attained', if a person steps beyond the optimum performance zone they enter a "danger zone" in which performance will decline rapidly as higher levels of anxiety or discomfort occur.”
Indeed change is hard, and here is how a Christian blogger puts it: “Change is hard—so hard, in fact, that most of us avoid it at all costs. But by avoiding change, we create even bigger problems, such as lost opportunities . . . or sometimes a wasted life . . . One of the reasons so many celebrities keep going in and out of rehab is that they leave out the critical element to lasting change: God. Change is too hard when you try to do it without him. God supplies everything you need for successful change, and when you make changes with his help, you stay changed.” [Jack Zavada, a career writer and contributor for, is host to a Christian website.]
Which reminds me of the lecture of the Yale professor while flashing two photos and saying: Look at Einstein and look at Beethoven, didn’t Einstein want to look like Beethoven? But he was making a much bigger point: While scores of great men demonstrated personal strength in changing the course of history, there were those who were God-inspired – like Gregory and Thomas Aquinas – or were divine-inspired – like Leonard and Michelangelo.
Meanwhile in America, being "plastic" is taken for granted and so while the economy is doing better than that of Europe, for example, the financial services sector has yet to fully fix the flaws of the system, which at its core stem from greed. And not surprisingly, the supposed hero during the bail-out of Wall Street is proving that he is the poster boy of what is objectionable about Wall Street. And there are two other elements of the US economy that would continue to undermine its competitiveness: (a) the healthcare system, and (b) good-old customer service. Everyone wants to gloat about the advances and innovations in healthcare yet everyone in the marketplace has their hands in the cookie jar. Mandating limits of covered benefits, for example, is very easy to circumvent by overstating charged fees for services rendered; and so limits keep rising “in keeping with the market.” It is a blatant out-and-out fraud.
And I am reminded of the American general manager in Thailand (of my old MNC company) who joined me for breakfast in my hotel, wondering if there was a way for a US [or Western?] company to approximate the "Thai [or Asian?] customer service" – and that was 24 years ago. More recently, I finally gave up on Heathrow on my way to Eastern Europe; and tried Warsaw. And it was like night and day; you step out of the plane and walk right into the departure area – some smart thinking to cancel out security checks and other border formalities. It’s a tiny but a world-class airport. (And their national airline flies Boeing’s Dreamliner to boot. It is a gorgeous aircraft with the bells and whistles to delight passengers despite the early bad news re battery/electrical system – a case of taking the eye off the ball, i.e., the core of the broader system as in an enterprise . . . or even an economy . . . that got the project manager fired. It's called the rule of law, as opposed to tyranny?)
Poland’s population is just a little over a third of PHL’s and their GDP per person is about 5 times ours thus our poverty sticks out like a sore thumb. They are a second-rate European nation though [which makes us worse than second fiddle as in Third-World], but clearly moving up. They still have infrastructure challenges like roads and rails and, of course, politics. And they still need to move up manufacturing- and technology-wise – i.e., they need to go beyond BPOs (although my old MNC company has its European shared-services center in Poland). But at least in customer service, they are already beating the West – from the perspective of business travelers like me.

Saturday, September 21, 2013

India hugs front pages for wrong reasons

Does it matter to us in the Philippines? Disclosure: We look at the profile of over 40 countries on an ongoing basis for the benefit of my Eastern European friends (with my old MNC company we looked at over a hundred) as well as the transcripts of “earnings call” of leading global companies in the same industry to benchmark our performance – while constantly focusing on the “vital few” consistent with Pareto’s 80-20 rule – the key being to test one set of data points against the other. Which is not inherent to us Pinoys because we like to look at the glass as half-full – mistaking fatalism for faith?
“THE PHILIPPINES has risen further in an annual competitiveness list, benefiting from continued reforms that have allowed it to record four consecutive years of ranking gains. The WEF, however, noted that the improvements were “coming from such a low base that the country cannot afford to be complacent . . . While transport infrastructure has improved, it “remains in a dire state (84th), especially with respect to airport (113th) and seaport facilities (116th)”
“Similarly, the labor market has become more flexible and efficient over the years, but the Philippines still ranks a low 100th . . . Guillermo M. Luz, National Competitiveness Council (NCC) co-chairman, welcomed the ranking improvement but agreed that more needed to be done. “As our economy becomes more knowledge-based, all parts of the economy such as agriculture will soon become knowledge-based. If we don’t invest now, we will be left behind,” he said. “Inadequate supply of infrastructure, corruption, and inefficient government bureaucracy were listed as the top three most problematic factors for doing business.”  [Competitiveness up for a fourth year, Business World, 4th Sept 2013]
Reports The New York Times, 4th Sept 2013, Falling Economic Tide in India Is Exposing Its Chronic Troubles, by Keith Bradsher: “India had seemed tantalizingly close to embarking on the same dash for economic growth that has lifted hundreds of millions of people out of poverty in China and across East Asia. Its economy now stands in disarray, with the prospect of worse to come in the next few months . . . The economic decline has laid bare chronic problems, little remarked upon during the recent boom. An antiquated infrastructure, a sclerotic job market, exorbitant real estate costs and bloated state-owned enterprises never allowed manufacturing, especially manufacturing for export, to grow strong . . . The root of the problem is India’s failure to create a vibrant industrial base with the strength to export. As Western buyers scour Asia for alternatives to increasingly expensive Chinese factories, India and its enfeebled manufacturing sector are mostly ignored.”
Unfortunately in PHL, there is no clarity on the imperatives of free enterprise, and what competition is. And that translates to our continued inability to create a vibrant industrial base – from our inability to recognize what's implicit in oligopoly and influence peddling to how it undermines transparency and nurtures corruption to why we rank among the most corrupt to how the dots connect to social injustice and immorality as in the wealthiest 50 Filipinos owning over 25% of GDP? In short, a cacique system and structure similar to what the then cardinal, now pope, Francis saw in Latin America and why he entertained Liberation Theology, minus the Marxist bent? Or what Rizal saw, and that is, the “Filipino culture was backward, anti-progressive, anti-intellectual, and not conducive to the “Age of Enlightenment” – which he then refined in Padre Damaso [Wikipedia]? And today they are reinforced by the restrictive economic provisions of the Constitution?
And it explains why a local enterprise with the benefit of oligopoly could get into the infrastructure business or any business for that matter, absent the core competency. Translation: they can't become a competitive player in the region, much less globally, because they bring no competitive advantage – and not surprisingly, Myanmar rejected PLDT at the get-go. And it is the absence of competitive enterprises [e.g., don't we complain about poor Internet service and dropped calls?] that characterizes underdeveloped nations, and where endemic poverty comes from. [And which was why the European Business Awards honored my Eastern European friends, neophytes in free enterprise yet beating their Western competition – and were models at home, because they weren't weaklings.]
Why haven't we addressed something as basic as power? First we need the technology and the financial muscle to carry that out. Yet we've embraced the "quilt-making" business, meaning the Big Boys, and their foreign partners limited by law in their participation, are behind our energy program which by definition could only be Third-World? We're still blind to the Asian tigers that opened their economies to become simply that, tigers – because in the 21st century we still proudly wear our parochial blinders? There is the India model that sooner than later we would be replicating, if we haven’t yet?

Friday, September 20, 2013

Innovation, innovation, innovation

"Microsoft continues to market excellent office productivity software . . . Yet these are successes engineered by a company that is, essentially, a very profitable utility, not a company that is a groundbreaking innovator . . . Steve Ballmer certainly was not the only reason for [Microsoft's] failures, but it ultimately was his responsibility, as Chief Executive to fix them. His departure is long overdue, and his successor has a lot of work to do." [Six opportunities Steve Ballmer missed at Microsoft, Bloomberg, 23rd Aug 2013]
There are two things to note in the above: (a) it is a straightforward and dispassionate assessment; and (b) the imperative of innovation in the 21st century.
It was many years ago and the Sales VP of the US operations of my old MNC company (his retirement was due in a matter of weeks) was reminiscing the times he travelled to the Philippines to introduce sales training to the sales force. And he was talking animatedly about the then more recent "fact-based selling" as opposed to "relationship-selling." But he was making a bigger point: he thought that the moving of a growing number of non-Americans to New York was bringing a battlefield/global perspective into updating our training curriculum, among other things. Yet in contemporary times even a corporate jargon could be evolving faster; and in this particular case, from "fact-based selling" to "sales management is information management."
And years later, my Eastern European friends would more than surprise me because they've gone well beyond the jargon: twice a day managers, with no human intervention, would see in their mailboxes an updated "information dashboard" to focus them on the state of the critical business drivers. And, as importantly, it sets them up to: (a) make a dispassionate assessment; and (b) take the necessary managerial action. And the better trained they were and the more markets they've been exposed to, the more innovation they were able to bring to bear. It must be human nature at work: they would want to demonstrate mastery subsequent to the couple of years when I ran the sales force – and proudly show how far they've brought the spirit of the jargon.
But then for the ones we assigned to Asia, the first cultural lesson they had to learn was about relationship – i.e., that relationship comes first. They've heard about the 8 months I spent traveling to China before the joint venture (with my old MNC company) came to fruition. And very recently while still on my summer break, I would smile upon reading an email that said we were delivering a-celebratory champagne to a company friend in Hong Kong (who belonged to the network of supporters that we had cultivated) to mark the day when our first TV ad aired in Hong Kong. (And it's not just a fancy slogan; it's driven by a high value-added product with healthy margins thus a high-cost environment like Hong Kong is desirable, not a barrier.)
Of course, we Pinoys are masters in cultivating relationships. But do we then struggle to figure out when relationship ends and the objective and fair begins? And so our “pakiramdam” would rule our problem-definition and problem-solving – as in land reform, as in party-list, or as in EPIRA? And what about innovation? If a Microsoft could be labeled a utility as opposed to a groundbreaking innovator, aren't our major enterprises in fact franchises and concessionaires, or utilities? But they are high up in our hierarchy and so we defer to them? Conversely, we see global competition through the prism of exchange rates and tariffs instead of innovative products; and because we're small, we are likely to be bullied?
And how come Singapore, Malaysia and Thailand could dominate inter-ASEAN trade to the extent of 70 percent? First we complained against the West; will our neighbors be next? And because we can't win in our region we think we can win in Europe? Are there still door-to-door salesmen? Selling and marketing has become targeted, no longer shotgun; meaning, we must understand the consumer and the product that will meet her needs. [Those who've seen Jobs, the movie, would feel for Steve Wozniak who felt Jobs was an egomaniac for being so obsessed about every product they were developing?] It must be said again, because it is crucial to our economy, that industry must be driven by a sustainable economic activity (i.e., margins) and a sustainable market (i.e., innovation.) Sadly, we've chosen oligopoly as religion, and influence peddling as its rewards – reflective of our hierarchical culture? And we wonder why we are economic laggards – while putting on our best face as in fatalism?

Thursday, September 19, 2013

Curiosity . . . creativity . . . innovation

Why did Beethoven move from Bonn to Vienna? That question from a Yale professor is my take-away from the "one-day university" (ODU) where my wife had recently enrolled us. She enjoyed her first experience in Manhattan that she ensured I joined her this time, at Tanglewood; and the program included the Boston Symphony Orchestra performing Beethoven’s Symphony No. 9. They are rock stars consistently voted tops in their respective universities, my wife assured me. Her take-away: “It takes time to grow,” from the Lincoln lecture, separating fact from fiction. Lincoln was perceived by his own cabinet not to favor abolishing slavery, but in time his thinking evolved – from it being a function of state laws, not federal, to being a doctrine of military necessity; and he had at other times as well demonstrated that capacity to analyze matters and change his mind. [Does President Aquino have to truly analyze the midnight deals of Arroyo to evolve his thinking about those around him; and, as importantly, the agenda of his administration, i.e., what must Juan de la Cruz expect at the end of his term? For example, they must stop promising economic nirvana, it will not happen – not in this generation? Not even in the next if we keep to our mindset and our worldview? The Indios can read the Bible; it does not have to be kept away from them? And so Rizal had to define independence: that the slaves can’t then be the tyrants.]

"Exploring the nature of genius" is the Yale professor's 7-year old course, and having recently watched Jobs, the movie (and earlier read the book), and having preached innovation in Eastern Europe the last 10 years, I would readily relate Beethoven to Jobs. Beethoven wanted to keep company with the best the world had to offer and so he had to be in Vienna. He had a big ego and could have chosen to stay in Bonn, and be the best in his hometown. Steve Wozniak (the techie partner of Steve Jobs when Apple started in the latter's family garage) simply wanted to make cool things while Jobs wanted to impact the world. His ego was big but was outward-directed.
I could relate to my wife's take-away ("It takes time to grow") being a once lazy student and thus had a fuzzy sense of the future. And my wife was right; the ODU caters to folks like me: "We don't do the stuff you may have hated about college like homework and exams." That was from the opening remarks of the first speaker.
But back to Steve Jobs: Some would say that he was simply building on the ideas of others. For example, the hard drive of the original iPod which is the size of a dollar coin was developed by Toshiba; and the Gorilla Glass that he wanted for the iPhone was developed by Corning. And as the Yale professor explained, the innovation Beethoven brought to music is attributed to his adding additional instruments like the trombone and incorporating big and disruptive sounds – and making the piece longer. And then he spelled out the six characteristics of individuals like Beethoven and Jobs from his work in "exploring the nature of genius": genetic gift, memory and concentration, curiosity, motivation, self-confidence and luck. Even Tiger Woods early on talked about luck; and in the case of Beethoven it was being born in the era of the industrial revolution and with Jobs the advent of computing and communications.

Recalling my initial impressions of my Eastern European friends from ten years ago, my sense was they were very creative from what I saw in their products. Yet they were missing the imperative of a "sustainable economic undertaking" – and had to learn about driving "margins." Also, their creativity was centered on following the features of global brands but pricing their products lower – the classic “me too" approach. They had to learn what a “sustainable market” is about via the fundamentals of product architecture modeling. And at its heart is Maslow’s hierarchy of human needs; and the development of the computer is an example of how human needs had moved up: from the mainframe to personal computers to mobile devices. And clearly Steve Jobs demonstrated how to be forward-thinking in product innovation – or in understanding value-addition. And it goes beyond the next product offering – and would also necessitate investing in R&D. How did Beethoven or Steve Jobs introduce innovation?
We Pinoys believe we are creative yet we haven't developed innovation and competitiveness as a culture? Why did Beethoven move from Bonn to Vienna? But parochialism dictates that we be higher up in the local hierarchy than to keep company with the world's best – i.e., in this particular case, it is the simple definition of curiosity and global versus local? And so we celebrate and reward oligarchy and influence peddling – perpetuating persistent underdevelopment and endemic poverty? And social programs are not the simple answer as the India (i.e., corruption and inefficiency) experience has revealed. And also that of East Germany where “social programs devoured billions of euros [and thus a failed] job creation program [had to be] dropped.”

Wednesday, September 18, 2013

The tail wagging the dog

Now NGOs are the flavor of the month; and true to form, we Pinoys are into dissecting their merits and/or demerits. The US generates over $300 billion in charity contributions and the Catholic Church is the biggest benefactor to America's poor. Yet as the world knows, poverty is as present in America as it is in underdeveloped countries; and the proverb goes "infant mortality in the Bronx is worse than in the poor countries of Africa." And which is why Clinton chose to set up his office in the Bronx, and attract investment in and stimulate the gentrification of the community. And it is common knowledge that Clinton organized a very high profile NGO that is reportedly winning the campaign against HIV/AIDS.
I covered Africa with my old MNC company and recognized the gravity of the HIV/AIDS problem – i.e., receiving emails about the funerals of family members if not the employees themselves was not uncommon. But are we in PHL becoming a one-issue faith, that of RH, especially given “the sacredness of the body”? Do we then throw the dying people in Africa to hell? What about the increasing number of Pinoys suffering from HIV/AIDS – and recall that the disease was brought in by OFWs that we once put on a pedestal for being modern-day heroes, because we ourselves had contracted the “Dutch disease”? And who was it who kept company with prostitutes and usurers – i.e., the worst sinners during the time – and spoke to the Great Commandment, while the scribes and Pharisees kept to their “300 tenets”?
Is it any wonder why Francis opted to live in a hotel with visitors to the Vatican (the “less saintly”?) than with those from the Curia while upending hierarchy? Yet we Pinoys measure the world with our yardstick that is inward-looking, parochial, insular and hierarchical? But theologians can argue RH either way, i.e., the conservative wing would argue like we do; yet the liberals, for example, made mincemeat of a Papal encyclical before the time of Francis? Our faith has stood the test of time, but it is its insularity that has undermined its ability to keep believers? And so says Francis, if it is to remain catholic and universal, then it better be? And to paraphrase Cardinal Tagle, we better walk with the poor so we understand what being poor means. Put another way, we better walk with those with HIV/AIDS (like a doctor-friend does) so we understand what being sick means?
But back to NGOs: The development work in Eastern Europe our group signed up for was with an NGO funded jointly by the private sector and USAID. Yet we knew that we didn’t represent the "vital few" but the "trivial many" – although we were committed to set the example and be the best practice model for industry in developing countries, bringing to bear our Fortune 500 experience. The bottom line: NGOs like charity-giving represent the tail that can't be wagging the dog. And as Clinton famously said, and indeed it helped defeat the older Bush, "It's the economy, stupid!"
But then again, when or if we learn to benchmark our economy, the US is not a comparable. We have to measure ourselves against our neighbors: how did they move up from being mere developing nations while we've been stuck for the longest time? The US is a well-developed economy and thus their cost structures are extremely high while their major products and services have strong global penetration – i.e., they can't be a growth economy. And so we must look at our neighbors that have proven themselves better able to raise the wellbeing of their people than we've done?
The bottom line: We can’t seem to escape our inward-looking, parochial, insular and hierarchical worldview such that we see merit in the tail wagging the dog? So pork (or crab mentality?) will stay with a new but still our favorite label of inclusive, holistic and comprehensive? What about learning to be transparent and to prioritize – so that our economy could put on some legs (like power, basic infrastructure and a strategic and competitive industry base), and not be at the mercy of charity-givers and beholden to oligopoly?
But RH is immoral beyond the sacredness of the body because it will undermine PHL demographics? And oligopoly hasn’t done it yet . . . with the wealthiest 50 Filipinos owning over a quarter of GDP while 50 million are going hungry – and whose spirits have long been dead? But more to the point, because of the dismal purchasing power of PHL (or GDP per person), foreign investment has looked elsewhere? And wasn’t it for a similar reason in Latin America that Francis had time for Liberation Theology minus its Marxist bent, i.e., the greater the social injustice the greater the immorality? But our moral fiber has gone kaput, to paraphrase an archbishop?

Sunday, September 15, 2013

Beyond smarts . . .

Reading the New York Times (30th Aug 2013) article, "Why India's economy is stumbling," should remind us of the challenge we face and how much work it demands. (For example: How prepared are we for 2015 or the Asean integration given that "Singapore, Malaysia and Thailand dominate inter-Asean trade at about 70 percent," as reported by Business Mirror, 2nd Sept 2013, when like India we are "deficient in both transparent rules and reliable infrastructure," imperative to a manufacturing industry? And like India, we remain poverty stricken!) And it would remind me of the decade when I covered the region, and how the countries then compared and contrasted. And the article, sadly, brings no surprise. Yet, there is no question that the Indians are very smart people. But the common good demands more than smarts, i.e., a community sense. (Which reminds me of a Jesuit friend [May he rest in peace!] who bent my ear about "reality" and still I was clueless; and so he would define it simply as not being "plastic." Apparently, I wasn't alone in my cluelessness because he would chuckle and ask me to look around, "Do you see "plastic"? And not surprisingly Cardinal Tagle would ask us to walk with the poor in calling attention to the pork scam?)
Reads the New York Times article by Arvind Subramanian: But India’s problems have deep and stubborn origins of the country’s own making. The current government, which took office in 2004, has made two fundamental errors. First, it assumed that growth was on autopilot and failed to address serious structural problems. Second, flush with revenues, it began major redistribution programs, neglecting their consequences: higher fiscal and trade deficits.”
“Structural problems were inherent in India’s unusual model of economic development, which relied on a limited pool of skilled labor rather than an abundant supply of cheap, unskilled, semiliterate labor. This meant that India specialized in call centers, writing software for European companies and providing back-office services for American health insurers and law firms and the like, rather than in a manufacturing model. Other economies that have developed successfully — Taiwan, Singapore, South Korea and China — relied in their early years on manufacturing, which provided more jobs for the poor.”
“Two decades of double-digit growth in pay for skilled labor have caused wages to rise and have chipped away at India’s competitive advantage. Countries like the Philippines have emerged as attractive alternatives for outsourcing. India’s higher-education system is not generating enough talent to meet the demand for higher skills. Worst of all, India is failing to make full use of the estimated one million low-skilled workers who enter the job market every month.”
“Manufacturing requires transparent rules and reliable infrastructure. India is deficient in both. High-profile scandals over the allocation of mobile broadband spectrum, coal and land have undermined confidence in the government. If land cannot be easily acquired and coal supplies easily guaranteed, the private sector will shy away from investing in the power grid. Irregular electricity holds back investments in factories . . . India’s panoply of regulations, including inflexible labor laws, discourages companies from expanding. As they grow, large Indian businesses prefer to substitute machines for unskilled labor. During China’s three-decade boom (1978-2010), manufacturing accounted for about 34 percent of China’s economy. In India, this number peaked at 17 percent in 1995 and is now around 14 percent.”
“In fairness, poverty has sharply declined over the last three decades, to about 20 percent from around 50 percent. But since the greatest beneficiaries were the highly skilled and talented, the Indian public has demanded that growth be more inclusive. Democratic and competitive politics have compelled politicians to address this challenge, and revenues from buoyant growth provided the means to do so . . . Thus, India provided guarantees of rural employment and kept up subsidies to the poor for food, power, fuel and fertilizer. The subsidies consume as much as 2.7 percent of gross domestic product, but corruption and inefficient administration have meant that the most needy often don’t reap the benefits.”
Do we read much of PHL in the India experience? Do we wish to learn from them? For example, "inclusive" which has a nice ring to it must be given substance and meaning – and not be held hostage by platitudes and "pa pogi,” i.e., tooting our horn with our GDP numbers because benchmarking is foreign to us? We need a generation to right the PHL ship but not at the rate we’re shooting ourselves in the foot?

Saturday, September 14, 2013

Policy does not a leadership make

One characteristic of hierarchal cultures is followers blindly following "policy" even when it’s undermining the enterprise’s wellbeing, shooting itself in the foot. It comes from a mistaken notion of leadership. It is one very important principle my Eastern European friends had to learn very early on. "It is not ‘a policy’ that is your reason for being but your vision; tell me again what it is you wish to be?" “We want to be the best and the biggest in the business from Eastern Europe.” Explain to me how that policy will bring you closer to what you wish to be – and you won’t get there without transparency because you’ll have no credibility, was my response.  The story goes that the big boss made a policy and it wasn’t meant to be broken. And that was the topic of one of the classroom sessions we've had going over a decade.
And the model is very simple (and it would guide them as they kept accelerating growth, progress and development): Where are you; Where do you want to be; How will you get there. And to this day they would make me break into a grin whenever I sit in meetings and a young manager would discuss a challenge and how they’d address – and fix – it! Compare that to the Philippine energy plan, 2012-2030: Where Are We Now; Energy Reform Agenda; Policy Thrusts; Where Are We Headed. [Source: PDF file, Department of Energy c/o Google.] And do we see what’s missing? Clue: It doesn’t speak to a definitive closure and thus our continued suffering as an economy characterized by persistent underdevelopment and pervasive poverty; while a handful are laughing their way to the bank, and in tow are the awards we give them for love of country – and being model managers? Sounds like a celebration within the Corleone family?
With due respect to President Aquino, talk is cheap. "Noy: PHL to become globally competitive!" [The Philippine Star, 29th Aug 2013] “As a student of economics, I know that monopolies are incredibly inefficient. It kills innovation. There is zero impetus in a monopoly to continually improve your product or your service, simply because you have your market cornered, Aquino said.” Amen! Yet it brings to mind George W. Bush's "No child left behind." And the PHL version is: The 50 wealthiest Filipinos own over a quarter of GDP? Why? Oligopoly – which we have accepted as “ganoon ‘yon talaga?” 
In fairness to the President, he is doing his darnedest! But what are we missing? Plain and simple, we are not being true to ourselves because we have yet to learn to look in the mirror, and learn to benchmark. It takes maturity! Toyota didn’t say we're the greatest or the smartest or well-schooled or holier-than-thou; but instead did their homework to understand the competition – because their vision was to beat the competition while being credible. And so they broke apart European premium cars and piece by piece figured out what’s behind a Mercedes Benz and a BMW. [That was the same thing Japan did to develop their submarine knowledge, breaking apart a British submarine.] And one of the things they immediately noted was that these cars had fewer components which would explain why they were built tight and thus responsive and required less maintenance, among other attributes.
But it is about making things and selling things – with credibility. And so they had a team live in California (the biggest car market in the US) to understand the American consumer; and set up a design center (in a foreign environment, not their home market or Japan) that would translate their findings from the consumer insights they gained through their interaction with Californians. And when they finally had it figured out, which took some time, they introduced the thinking to a large team from within and outside the company that they recognized ought to become part of their extended team or network – which then facilitated the execution of their vision. 
In the meantime, while we clamor for an inclusive economy (and indeed we're growing at the same clip as China) ours remains lopsided and benefits the 50 wealthiest Filipinos while 50 million go hungry. Yet we believe that we can figure out, address and fix the most complex of challenges? That’s what I thought too when I was still in my shorts listening to the Congressman in our Manila district. “It guarantees against a level playing field where competition can bring out the best in companies and people,” Aquino added, citing as an example the globalized nature now where “the lack of a healthy competitive landscape is simply untenable and could spell any democratic country’s doom.” Unfortunately, that sounds exactly like the Congressman from my childhood days. But why can't we attract foreign investment and technology – thus leaving us behind in innovation, education and training and product development and market development? We ought to benchmark and stop listening to our own voice lest we continue to drown out the cry of poor Juan de la Cruz – because we're smarter than that, i.e., we aren't (a) tyrannical; (b) simply clueless; (c) hopeless; (d) all the above?

Thursday, September 12, 2013


That is why New Yorkers have a problem with our Cardinal who shielded church funds that do come from believers from sex-abuse law suits in his previous assignment. And would remark that Francis was simply "high" (as in smoking dope?) because of the huge crowd that showed up in Brazil when he spoke about gays? There is a specific church rule about gays; and there’s also a specific church rule about sex abuse? I remember my family's first guided tour in Rome and the Italian guide matter-of-factly talking about families that many years ago ruled Rome for good or ill. And so when rumors about the latest Vatican scandals hit the press, just like the Italian guide, I didn’t bat an eyelash. Faith and hierarchy aren’t one and the same?
So former Chief Justice Corona went to join the pork protesters in Luneta? He and his cohort believed he was not guilty – because his dollar account was accessed in violation of due process? In other words, contrary to the rule of law? In the Philippines where there is no rule of law, we are invoking the rule of law? Rule of law is a principle in mature democracies goes our rationalization to explain why we’re not as progressive as the developed nations in the West? We can't compare apples and oranges – "ganoon 'yon talaga"?
I remember a visitor to the US from one of the subsidiaries of my old MNC company perplexed why a receipt from restaurants in those days was the perforated bottom portion of the check which was blank: "Is this blank slate the official receipt?" And so I said, "It’s called the honor system" – and showed him my two sets of phone and credit cards: one is personal, the other company; and there is no such thing as obtaining cash advances before a trip. The honor system cuts unnecessary steps to raise the level of efficiency and productivity. And so many years later when I was explaining this to my Eastern European friends they were at first stunned, but then recovered and not just to appreciate the principle but to in fact embrace it. Simply put, in order to be globally competitive, they’ve realized that they had to benchmark against the best in the world. And thus their performance against Western behemoths wasn’t an accident of fate but the outcome, beyond their vision, of hard work, including turning their back on potential partners that didn't reflect their value of transparency – supposedly would undermine sales efforts yet they've continued their explosive growth!
And so in the set of metrics to measure a country’s competitiveness, rule of law and ease of doing business are critical elements. And it is not about rocket science; it is about transparency – because layers upon layers of control don’t enhance efficiency and productivity. It also is anathema to innovation because innovation is about simplicity and being user-friendly and thus enhancing people’s way of life. Thus, complex isn't it, simple is it!
There is no question that the New York Cardinal has a sophisticated reasoning why he shielded church funds from sex-abuse law suits. It’s no different from Justice Corona rationalizing his innocence. But then again, the church and PHL are similar in more ways than one – inward-looking, parochial, insular and hierarchical? And which is why Francis has taken the church to task?
There are lawmakers that may find themselves in hot water following the pork scam revelation. Are some of them well-schooled lawyers with the sophistication to dance around the issue? But if we are holier-than-thou, should they not simply resign? A New York congressman resigned and more recently the mayor of San Diego too, and in both cases it was about a sex scandal. While the church has demonstrated its intransigence and thus found itself at the opposite side of the law. Who will our lawmakers mirror? Of course, the church is our model and so we expect that these lawmakers would do likewise? It should not diminish our faith – because faith and hierarchy aren’t one and the same?
Lawmakers are still rationalizing pork because it is a necessary evil; and democracy is messy and lawmaking and budget-making are inefficient? Why don't we start with transparency? And in our case, it means learning to prioritize as opposed to inclusive or holistic or comprehensive? For example, there is no coherence in our energy program because we are beholden to vested interests? Or is it about compassion to the poor that may have to suffer higher electricity rates; then is it classic crab mentality or the inability to prioritize and which explains why PHL suffers from persistent underdevelopment and pervasive poverty in the first place? Then why can't we have a modern airport or basic infrastructure; or support the JFC's 7 industry winners? Ergo: we simply can't prioritize . . . but there simply isn’t enough money to please Juan de la Cruz and his “kuro-kuro”? Kuro-kuro or crab mentality (like party-list, land reform or EPIRA) promoted anarchy, not democracy?

Wednesday, September 11, 2013

Crab mentality . . . Hierarchy . . . Pork

The first 20 years of my career were spent in the Philippines (although the last 25 years I've been based overseas.) And I realized on the 18th year that we Pinoys weren't keen to prioritize – as in our failure to provide electricity that is so fundamental to life, the absence of a modern airport in the 21st century, or basic infrastructure like roads and bridges and ferry services and facilities being an archipelago, etc., etc. (And like the Washington culture, what we are keen on is the next election, and the next.) But then when we are compared to a neighbor we are defensive and pinpoint at their deficiencies – we think we are the paragon of democracy? And it explains our failure and inability to benchmark? Yet we have experts in total quality management; and fundamental in TQM is benchmarking! That was how Toyota was able to dislodge Detroit's Big 3; and it is also how Hyundai was able to become a major player in this global industry.
And so I’ve been asked, why do you talk about Bulgaria? Because the place was exactly like what we thought Soviet satellite states were like, in one word, dreadful! And so my wife's first reaction when we arrived in Sofia ten years ago as their first snowfall that year came was: "What are we doing in this godforsaken place?" It is not a Singapore that we like to visit but are defensive when it’s compared to PHL. Bulgaria suffered under communist rule for decades and was left holding the bag, that of a backward economy, but over the last ten years has shown what we Pinoys could only dream of: a modern airport, a subway system, world-class highways to their seaside, a major tourist destination for locals and foreigners alike, etc., etc. They're not perfect and so for a couple of months now, without fail at 6:30 pm, they've been holding a daily protest rally, beyond pork, against corruption and cronyism, and against a corrupted media. And my wife and I had joined them, but being foreigners our Bulgarian friends didn't think it was wise for us to become permanent fixtures in the protest. Still, these people care about their country and long before had learned self-immolation, as when they wanted to tell their former communist rulers that they couldn’t be subservient. (And we have socialist-wannabes?)
And so on that 18th year I started pondering how people could learn to prioritize. And I’d already been with my old MNC company for 5 years, done business and budget reviews countless of times; and that helped opened my eyes to the reality of ideas and plans that would inspire academic work – or why there was Plato and there was Aristotle? And so this once lazy student kept in touch with academe while picking and choosing what would work in the real world. As I've said in this blog before, I became the father of goal alignment in the MNC company, a very simple model that could hold the attention of our president and the CEO. [Disclosure: I did not adopt the Balanced Scorecard popular in business schools after test-piloting it in a subsidiary.] And whether my approach would work only with a Fortune 500 company was put to a test when I accepted a development-work assignment in Eastern Europe from an arm of USAID – to assist small enterprises compete in the EU market. The one that I thought was sincere, beyond being made up of smart young people, would prove their mettle – and would earn their place among the best in the EU.
In the meantime, we're protesting against pork? But pork doesn't happen in isolation – i.e., is it an outcome of crab mentality, for example? What about parochialism and hierarchy and oligarchy that beautifully come together, gift-wrapped and all? What about subservience? What about seeing no evil, hearing no evil, and speaking no evil? That's why there is pork?  We need a new airport, but where is the grease money? In the vernacular it's called "bulaan" – i.e., we can't simply be black or white, it is always gray? Thus transparency is foreign to us? And a classic example is our "Dutch disease." We don't talk about it yet we celebrate what we proudly call our consumption economy – principally from OFW remittances and call centers – delivered to the waiting arms of oligopoly? We don't have to be forensics to know how the dots connect – because the same pattern would explain why we've had the Mindanao power crisis and even worse why foreign investments by-pass PHL? And add to that our primitive infrastructure?
In the meantime we've taken a holier-than-thou posture because of our faith – while compartmentalizing our culture of endemic corruption, a classic case of faith without works? When we're subservient to hierarchy while indulging in crab-mentality and celebrating oligarchy aren't we helping and abetting influence peddling – and that is how the dots connect to our perfect storm of persistent underdevelopment and pervasive poverty? And so pork is only the attention-grabber but the cancer is much more extensive having metastasized and attacked every critical organ of PHL?

Sunday, September 8, 2013

The ability to predict

Finding meaning in work remains the challenge for organizations and their managers – and which my Eastern Europeans friends have learned in spades, and yet they’ve recognized that they’re far from perfect. And in my presentation to the European culture-management community explaining the struggles in their journey, I wrote: “All throughout the planning and budget process, the company now drills down to the critical demands of execution. This is in sharp contrast to that of the past when the company would be satisfied with simply setting target numbers [sounds like PHL export targets?] and with no rigid timelines – a practice that through experience suffered from great uncertainty and unpredictability. Clearly, unlike now, the enterprise in those days did not meet global competitive standards in, say, efficiency or cost-effectiveness, thus often delivering inconsistent financial outcomes.”
“Having learned from experience, they now make a concerted effort to minimize uncertainty or mistakes by making business plans truly cognizant of the imperatives of a successful selling and marketing effort – which is to come up with the right product, pricing, placement, and promotion. And to heighten the probability of execution, they now duly factor-in all the major resource requirements – people, machinery and equipment, materials, operating budget, and systems and methods – as well as the mechanics of execution itself – the who will do the what, when, where, and how. Thus, the company now delineates authority and responsibility not as an extraneous, slap-on effort but builds them into the planning and budgeting process itself" [which throughout must satisfy Pareto's 80-20 rule; but which we Pinoys seem unable to internalize owing to crab mentality, but which euphemistically we label holistic or inclusive or comprehensive, as in our failed comprehensive agrarian reform program? Or take East Germany where "social programs devoured billions [of euros], including a [job] creation program, which was later dropped".]
“Simply put, the company now gets everyone in the organization engaged in how the business is conducted – from how a product idea is developed all the way to how a product is produced, marketed and sold, and its sales proceeds accounted for. Likewise, information technology and management is no longer confined to producing periodic financial statements; now it also monitors on a daily basis the company’s sales in its various markets or countries, matching them with several performance yardsticks like forecasts by brands and by business units. As this gives everyone a sense and feeling of ownership, each of them develops a strong commitment to the business plans. What’s more, the process is very transparent, so the “What’s in it for me” question is now quickly and judiciously answered through the bonus system.”
And given that this blog is about economics, specifically the Philippine economy, an article from The New York Times on 24th Aug 2013 would attract my attention: “What Is Economics Good For?” [By Alex Rosenberg and Tyler Curtain] “When we put a satellite in orbit around Mars, we have the scientific knowledge that guarantees accuracy and precision in the prediction of its orbit. Achieving a comparable level of certainty about the outcomes of an economy is far dicier . . . The fact that the discipline of economics hasn’t helped us improve our predictive abilities suggests it is still far from being a science, and may never be. Still, the misperceptions persist. A student who graduates with a degree in economics leaves college with a bachelor of science, but possesses nothing so firm as the student of the real world processes of chemistry or even agriculture.”
“It’s easy to understand why economics might be mistaken for science. It uses quantitative expression in mathematics and the succinct statement of its theories in axioms and derived “theorems,” so economics looks a lot like the models of science we are familiar with from physics. Its approach to economic outcomes . . . recalls the way atomic theory explains chemical reactions. Economics employs partial differential equations . . . that look remarkably like ones familiar from physics. The trouble with economics is that it lacks the most important of science’s characteristics — a record of improvement in predictive range and accuracy . . . Moreover, many economists don’t seem troubled when they make predictions that go wrong. Readers of Paul Krugman and other like-minded commentators are familiar with their repeated complaints about the refusal of economists to revise their theories in the face of recalcitrant facts. Philosophers of science are puzzled by the same question. What is economics up to if it isn’t interested enough in predictive success to adjust its theories the way a science does when its predictions go wrong? SO if predictive power is not in the cards for economics, what is it good for?” And especially in PHL where we’ve suffered from “Dutch disease” (i.e., championing OFWs/call centers instead of fixing our real economic fundamentals?) when the disease has long before been discovered? The fallout: persistent underdevelopment and endemic poverty?

Saturday, September 7, 2013

“. . . Morality Lesson”

That’s from The New York Times’ Roger Cohen, The Euro’s Morality Lesson, 5th Aug 2013: “Economics in Germany, it has been noted, is a branch of moral philosophy. Growth is the reward for good behavior. Such virtue includes frugality and avoidance of debt. It goes without saying that, in this view, promoting growth by increasing fiscal deficits is the height of immorality. Economics in Greece is rather different. It is a branch of personal ingenuity. Morally loaded words from the Anglo-Saxon canon like “corruption” and “cronyism” have attached themselves to the Greek approach, but for Greeks following rules was a form of stupidity. If politicians were corrupt, what could be the purpose of personal integrity? Far better, Greeks thought, to trust in “fakelaki” (the little envelope) and “rousfeti” (a political favor for votes) than confuse morality with material advancement.”
“It was a German, Martin Luther, who ignited the Reformation with his objections to the papacy’s corruption, the sale of indulgences and the papal authority to absolve sin. A big case of northern probity against southern laxity, frosty rigor against sun-soaked elasticity: the clash of an attempt to hold humanity to a high moral standard with a system taking human fallibility as a starting point. A few centuries later along comes a shared currency that tries to unite the Protestant north with the Catholic or Orthodox south, a Europe that went through the Reformation with one that did not. Trouble was inevitable . . . Europe must bridge its moral chasm. Greeks can learn something of economics as moral philosophy. Germans can learn that austerity as economic tool has its limits and that the use of a fiscal deficit to finance growth is not a sin. The euro is also a morality lesson.”
"THE Philippines 'must do its homework' to bring down power costs and increase the income of the Filipinos so it could attract more foreign direct investments (FDI), ING Bank Chief Economist Joey Cuyegkeng said. [Business Mirror, 4th Aug 2013] He said investors, who would want to invest in other Asian countries, especially China and Indonesia, look at the local domestic consumers as their target markets . . . So increasing the purchasing power [i.e., GDP per person] of the citizens in the country will make foreign manufacturers go to the Philippines.”
In other words, we can’t be patting ourselves on the back that because of our large population (roughly 100 million) we have an inherent economic driver, i.e., it has a very critical qualification, purchasing power. Of course, those making the argument may also be invoking morality, especially the pitfalls of reproductive health? Theologians could argue either side, as with Papal encyclicals; meanwhile the continuing challenge of economic development remains. And it comes down to: PHL must very quickly become a developed economy – which, unfortunately, will take us at least a generation. But even more unfortunate is our inability to examine, challenge and expand our comfort zone or worldview? And that is our overarching morality challenge, because underdevelopment and widespread poverty have confounded us?
Noah Smith has an interesting note on the “death of theory” in economics. Obviously that’s an exaggeration, but there has been a measurable decline in the number of papers that offer theoretical innovations as opposed to empirical analysis, and also a harder to measure but unmistakable shift in the profession’s value structure, with empiricists reaping greater rewards and theorists valued less . . . So in my experience, anyway, theory lost its luster in trade because it could prove anything; it lost its luster in macro because it proved things that weren’t so.” [Paul Krugman, What killed theory, The New York Times, 5th Aug 2013]
“The hard truth seems to be this: We live in a vast and awesome universe in which, daily, suns are made and worlds destroyed, where humanity clings to an obscure clod of rock. The significance of our lives and our fragile realm derives from our own wisdom and courage. We are the custodians of life’s meaning. We would prefer it to be otherwise, of course, but there is no compelling evidence for a cosmic Parent who will care for us and save us from ourselves [e.g., threats of nuclear war, environmental catastrophe, economic collapse and mass starvation.] It is up to us.” [Carl Sagan on the meaning of life, Maria Popova, Brain Pickings, 14th Jul 2013; Wikipedia: Sagan spent most of his career as a professor of astronomy at Cornell University where he directed the Laboratory for Planetary Studies. He advocated scientific skeptical inquiry and the scientific method, pioneered exobiology and promoted the Search for Extra-Terrestrial Intelligence (SETI).]

East Germany: a primer in nation-building

“An estimated 1.3 trillion euros ($1.7 trillion) have flowed from the former West Germany to the former East Germany over the last 20 years. And the tab is still running. To this day, the East is gobbling up subsidies estimated between 70 and 80 billion euros a year. That lifeline will continue for at least another nine years . . . Even then, structurally poor states . . . can expect to receive further cash infusions . . .” [Eastern Germany is western Germany's trillion euro bet,, 24th Sep 2010] 
Wikipedia: “Its population declined from more than 18 million in 1950 to 16 million in 1990 . . . Although the GDR (informally known in English as East Germany) had to pay substantial war reparations to the USSR, it became the richest economy in the Eastern Bloc. Nonetheless it did not match the economic growth of West Germany . . . In 1989, a peaceful revolution in the GDR led to the destruction of the Berlin Wall and emergence of a government committed to liberalization. The following year, free elections were held, and international negotiations led to the signing of . . . the status and borders of Germany. The GDR was dissolved and Germany was reunited on 3 October 1990.[N.B. Germany today has a population of 81,147,265.]
In the meantime, “The Philippine energy sector will need at least P3 trillion [roughly equivalent to $68 billion] in fresh investments between now and 2030, to ensure adequate power to support the growth of the local economy.” [Philippine Daily Inquirer, 20th Dec 2012] What can we learn from East Germany about development and nation-building? Clearly we need tons of money; and international institutions have said that it would take at least a generation for PHL to approximate a developed economy. In the meantime, instead of doggedly pursuing development, we have been siphoning off whatever little treasure we have to benefit a few? We may have a budget of over a trillion pesos but that doesn’t make us financially equipped to carry out the demands of nation-building. It looks relatively big especially against a few beneficiaries –  i.e., the 50 richest Filipinos own over a quarter of GDP, and add them to the network of legislators and NGOs and their friends, that is where our treasure has been finding its way, our version of the 1% or Occupy Wall Street? What else can Germany teach us?
[D]id reunification come too fast and cost too much? There were so many uncompetitive industries. But the costs of shutting them down, of unemployment and the many recovery programs all added up quickly. Reunification hasn't come cheap . . . There were, however, plenty of mistakes made along the reunification path. For example, numerous eastern German cities, often in isolated regions, used funds to build huge water recreational venues that now struggle to find paying guests. One of them uses as its main structure the once massive hanger built by a . . . subsidized venture that had hoped to build huge industrial cargo airplanes but went bankrupt.”
“Then there are the billions that went to renovating dwellings in inner-cities, with the backfiring effect that people fled their apartments in pre-fabricated high-rise buildings on the outskirts for nicer places in the city centers. Now many of these buildings are being torn down . . . Yes, some money went to the wrong projects . . . But you can't wait 20 years to know what is right; then nothing happens . . . If infrastructure projects consumed billions of euros, social programs devoured billions more. Taxpayers' money is best invested where it can achieve the most productivity and this certainly hasn't been the case . . . Maybe too much money went into social programs, like the work creation program . . . which was later dropped . . . Despite all the hiccups that the reunification process has suffered along the way, a general mood of optimism about the future prevails . . . Like every investment, it's a burden in the beginning when you have to finance it . . . But hopefully it pays off later on . . . We're already seeing that.”
Bottom line: East Germany benefited from the experience and wealth of West Germany – and they still made lots of mistakes. We Pinoys don’t have that benefit of wealth and experience in economic development and nation-building. The timing of at least one generation for us to approximate developed economy status is looking too optimistic everyday as we read about how we keep messing things up? Experience- and wealth-wise we're way off, what about our head and our heart and our gut? One columnist hates that we're a lapdog of the US; what about standing on our own two feet? And it’s not about donating $250K to Hurricane Sandy?