Saturday, September 27, 2014

How the West got it wrong

Paul Krugman: Last week I participated in a conference organized by Rethinking Economics, a student-run group hoping to promote, you guessed it, a rethinking of economics. And Mammon knows that economics needs rethinking in the wake of a disastrous crisis, a crisis that was neither predicted nor prevented.” [How to Get It Wrong, Paul Krugman, The New York Times, 14th Sept 2014]

“[I]t’s important to realize that the enormous intellectual failure of recent years took place at several levels. Clearly, economics as a discipline went badly astray in the years — actually decades — leading up to the crisis. But the failings of economics were greatly aggravated by the sins of economists, who far too often let partisanship or personal self-aggrandizement trump their professionalism. Last but not least, economic policy makers systematically chose to hear only what they wanted to hear. And it is this multilevel failure — not the inadequacy of economics alone — that accounts for the terrible performance of Western economies since 2008.”
That spiel from Paul Krugman reminded me of three global phenomena that baby-boomers witnessed: The impact of Japan Inc.; The rise of China and fall of the Soviet empire and The Great Recession of 2008.

I was too young to appreciate the Korean War. During the Vietnam War, I was around but only in the fringes. And as a US resident lived through the economic cycle of boom and bust. One lesson learned: in an economic downturn or in a housing bubble or stock-market collapse, it is time to buy and invest – “buy low, sell high,” so says Buffett. And which we in PHL also experienced during the period between the assassination of Ninoy and the fall of Marcos when many packed up and left and those that stayed bought and invested.

To us Pinoys the end of Marcos was supposed to be a watershed event, but then we would have two more presidents that mirrored the abuse and tyranny – and thus had to be incarcerated? And it appears we just can't seem to change course? And so is it Marcos or is it Juan de la Cruz? As we say it in the vernacular, “weather-weather,” meaning, if yesterday it was Marcos, today and tomorrow will be like yesterday – except that it will no longer be Marcos and his cronies but someone else and his or her cronies.

And so just like the West, we got it wrong?  Where are we really? If it isn’t obvious yet, this blog often talks about the cognitive or thinking process. Whenever the world is confronted by a major event people would stop and think. For example, Japan Inc. made the West wonder what could be wrong as they saw Japan dominating world trade and rapidly becoming an economic superpower, second only to the US.

And in an economic downturn investors would see opportunity and thus the era of mergers and acquisitions came about – especially as enterprises realized the burden and risk of carrying poor performing businesses. And beyond restructuring, companies learned the imperatives of quality not only in products but also in processes, from product development to manufacturing to customer service. And then pushed the envelope to Information Technology and even beyond . . . Into the era of rapid innovation which continues to play out like Apple selling more than 10 million of its new iPhone 6s on the first weekend it debuted – besting the launch of the iPhone 5s. Global businesses then understood that competition is about people. And the realization underscored the shortcomings of the Western education system: graduates were found wanting in critical thinking, communication and teamwork.

Meanwhile the promise of Communism was fraying . . . with China coming to the West to seek investment and technology while the Soviets stayed with the ism and the autocracy – and in many respects Putin hasn’t yet understood why China and the Soviets ended up in different places. The question today is if China has indeed learned the lesson and would remain a contributing member of the global community. If they would remember Deng Xiaoping then the prognosis is good.

The fall of the Soviet empire brought former satellite countries to seek democracy and free enterprise. And that was when I got further education about the cognitive process. When I arrived in Bulgaria, I kept hearing the word “mentality” – e.g., “we need to have the right mentality” or “we must change our mentality” and words to the effect.

That was 11 years ago and while they have internalized what they were saying, especially in organizations where people could be coming from different perspectives, they still have ways to go.

The good news is they’ve learned from their experience of the Great Recession (of 2008) even when the impact on their local economy was felt 3 years later. Because it was during this period when they saw that Western MNCs weren’t exempt from a downturn; and made available to them talents to hire. And that simple principle from Buffett came to life: in a downturn, it is time to buy and invest. And thus they gained another layer of experience: in buying as in an acquisition, and in investing as in new products, new facilities and new markets. In short, they learned to embrace dynamism. Not the ism and the autocracy that the Soviets (and today Putin too) were caught up in.

How about us in PHL? Are we caught up in our own ism and autocracy? The ism being derived from the church and thus our being “pro-poor,” and the autocracy from our cacique system and structure? But where is the dynamism? How and when do we get ahead of the curve? 

The world never sleeps. But do we no longer want to be an island unto ourselves – a “mentality” that’s a throwback to another era? And is consistent with a cacique system and structure? And we grab nationalists with lines like this from a broadsheet, which also presupposes PHL has the means to fund our investment needs to the level Singapore, for example, generates from FDIs: “The passage of years witnessed the loss of local entrepreneurial initiative in our country due to lack of government support and the growing reliance on foreign capital for a semblance of economic growth.”

As I write this blog, I’m in the Manhattan office of my Eastern Europeans friends and these people are geared to compete against the world’s largest MNCs yet never sought the support of their government [the role of government is good governance, including providing the platform for economic growth and development; not crony capitalism and/or spoon feeding of enterprises] or relied on foreign capital. Of course they do tap the credit market and that would include foreign banks. But these banks come to them because they are a good credit risk. Indeed it was through their local entrepreneurial initiative that they got to where they are in just 11 years. Simply put, true entrepreneurial initiative is self-reliant. But it is our kind of “mentality” that would explain why we lag in creativity, innovation and competitiveness? And why we continue to celebrate crony capitalism and oligopoly – clearly byproducts of political patronage?

Of course, we can argue that globalization is yet to play itself out especially for the developed world that has lost a big chunk of their industry – i.e., manufacturing – to China. But that’s what progress and development is about, i.e., empires aren’t eternal. It then shouldn’t be a surprise if the US is overtaken by China as an economy, like no one is surprised the British Empire is now history. Water seeks its own level and that’s just a fact of life!

We in PHL don’t have the challenge faced by the West re globalization, i.e., they have to do a lot better! And as Krugman wrote: “[I]t’s important to realize that the enormous intellectual failure of recent years took place at several levels.”

Ours is about the rudiments of development, i.e., we haven’t moved beyond square-one – as in we don’t have such basics as a reliable and affordable power supply, etc., etc.! The good news is they also present loads of opportunity – i.e., we have so much room to grow if we’d only put our mind to it. But it won’t happen if we continue to be ruled by “weather-weather”? [See above re Marcos and his cronies]

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