Thursday, October 30, 2014

Let’s get real

That’s probably what Pope Francis was saying to the cardinals: “God is not afraid of new things.” Of course, we Pinoys would lean to the conservatives? But we know the adage, “necessity is the mother of invention.” And it holds true in the 21st century – i.e., what people generally label as innovation is the outcome of problem-solving. For example, Steve Jobs was figuring out how to develop a gadget that would hold more songs than a Walkman: why a hundred songs, why not a thousand songs? And came the iPod.

Recall the Bible story when Christ said it was okay to work on the Sabbath? Wasn’t he into problem-solving? Not surprisingly, Pope Francis told the cardinals, “God is not afraid of new things.” Disclosure: over the last 11 years I've been training my Eastern European friends in product-development modeling and product innovation beyond developing new markets and aggressively growing the company. I could have used the word innovation a few times but my focus has been on problem-solving. And that’s not different from the focus of this blog: to consistently talk about problem-solving. And the Harvard Business Review has this to say: Successful innovators care about solving interesting and important problems — innovation is merely a byproduct.” [Successful Innovators Don’t Care About Innovating, Doug Sundheim, Harvard Business Review, 22nd Oct 2014]

A synod is beyond our league but what PHL has faced for decades is something we ought to figure out? But we would instinctively indulge in ‘Pinoy abilidad’ while taking problem-solving for granted? It was something that I also noticed when I first arrived in Eastern Europe. And as I explained to them then, if there was something to learn from the developed world, it is that problem-solving is inherent in their way of life.

We can grant that even in the West, there’s more than enough incoherence to go around: The Obama administration if not the US in general has been fumbling. And so is the EU, with the “French and Italian economies considered being too big to fail and too big to bail out.” But having lived and worked in different continents, I would guess that while none is perfect, somehow they would want to chip away at these challenges. For example, even Greece, despite its near-death experience or economic collapse, appears to be climbing out of the abyss.

But let’s get back to PHL. “[There is the] frequent incidence of conflict between national policies and the authority asserted by local governments, and the lack of a definitive arbiter to settle such inconsistencies when they arise. Name the issue—port congestion, streets that get flooded at the slightest downpour, lousy international airport terminal facilities and services, breakdown-prone mass transit systems, and so on—lack of coordination among government entities invariably lies behind them.” [CSW, coordination and coherence, Cielito F. HabitoNo Free LunchPhilippine Daily Inquirer, 21st Oct 2014]

“The central bank earlier this month reported that the FDI—or investments placed by global investors in the Philippines with long-term prospects—breached the $4-billion mark to hit $4.008 billion in the first seven months of the year . . . While the deputy governor admitted that the amount of FDI remains comparatively small compared to counterparts in the region, [he] remained confident of bigger FDI inflows in the years ahead.” [BSP exec sees stronger FDI flow if investors look at fundamentals, Bianca Cuaresma, Business Mirror, 17th Oct 2014]

Of course, that is what we call “the glass is half full” – inherent in our faith and culture? But what does the science say about the “hardy mindset” that is common to successful endeavors? “To believe that if something is not working or is ineffective in our personal and professional lives we must ask, ‘What is it that I can do differently to change the situation?’ rather than wait for others to change first.” [Robert Brooks, faculty of Harvard Medical School.] Will we ever buy into the idea that it is us that must do the change rather than wait for others?

“By year-end, Philippine companies would take as long as a record four years to repay debt using operating earnings . . . By comparison, the figure is one year or less for Indonesian businesses, and about two years for Malaysian ones. Philippine corporate exposure to foreign debt climbed to 26 percent of total debt last year, from 15 percent in 2011 . . . citing a study of 100 Southeast Asian firms.” [PHL business ‘vulnerable,’ Bloomberg News, Business Mirror, 17th Oct 2014]

Juan de la Cruz can’t do anything about that given our hierarchical system and structure. In other words, if change has to occur, it has to come from our cacique masters? But that is anathema where ‘rank has its privileges’? “Debt held by the 17 Philippine companies included in the study nearly trebled to $40.7 billion in the first quarter of this year from end-2008, S&P estimated . . . San Miguel, the biggest Philippine company, saw its debt surge more than fivefold to P631.9 billion ($14 billion) in the second quarter from end-2008 . . . according to data compiled by Bloomberg.” [ibid.]

Not surprisingly, “Back in November of 2010, President BS Aquino 3rd made a comment in connection with one of the first of his many fool-headed administrative decisions to which, in hindsight, we all should have paid closer attention. In explaining his arbitrary cancellation of the planned Laguna Lake flood control project Aquino declared that, ‘Even a Grade 5 student will easily see that this project is illogical.’ ” [A fifth-grader’s approach to management,ben.kritz@manilatimes.net, The Manila Times, 17th Oct 2014]

“While most of the public at the time simply thought he was trying (and failing) to demonstrate that he had a sense of humor, what we didn’t realize is that the statement was actually a formal articulation of the Aquino Administration’s policy approach: Management issues would be addressed at the level of complexity and in the same terms as a fifth-grader. Anyone who has had a fifth-grader in the house knows exactly what I’m talking about. Kids that age have only three answers for everything: ‘This is stupid,’ ‘This is too hard,’ and ‘It wasn’t me.’”

And as night follows day: “Despite some progress, the report noted that corruption remains endemic and recent concerns about presidential overreach in by-passing Congress, disputes over fiscal powers, judicial independence, and selective justice have all had an impact.” [PH global competitiveness ‘most improved’ – UKTI, Edu Lopez, Manila Bulletin, 21st Oct 2014]

“Infrastructure is rightly flagged as a weak point in the WEF rankings – at 91st, it is the pillar on which the Philippines ranks lowest in the index. Huge under-capacity in transport infrastructure has made Manila’s traffic jams notorious and the current government, like most of those before, has not taken the necessary action.”

And the incoherence marches on: An American electronics manufacturing company has shut down its Philippine operation while a Cebu-based furniture maker has moved out to Indonesia following hemorrhaging losses due to the prolonged port congestion. Philexport president Sergio Ortiz-Luis Jr. revealed . . .” [Port congestion forces 2 export companies to shut down operations, Bernie Magkilat, Manila Bulletin, 21st Oct 2014]

“The port congestion has cost up to $1 million a day for an electronics firm that had to shut down,” said Ortiz-Luis, who refused to identify the company. Another Philexport official also revealed that a Cebu-based furniture manufacturer for the export market has relocated its operations to Indonesia.”

Is there someone minding the store? “THE PHILIPPINE ECONOMY is without doubt losing steam . . . Growth targets unchanged: Are government economic managers in denial (?),” Benjamin E. Diokno, Core, Business World, 21st Oct 2014.

Will Juan de la Cruz ever get real? It's not about ‘Pinoy abilidad,’ it's about problem-solving. A very close family friend, a student of theology, shared the lecture of a Filipino theologian, Daniel Franklin E. Pilario, C.M. of St. Vincent School of Theology, Adamson University. “These three questions are crucial: (1) What is our situation; (2) What does God tell us about our situation; and (3) What do we need to do to transform our situation?”

“What does this mean for theology? Let me mention two concrete repercussions: (a) the theological reflexivity; and (a) the role of praxis in theological method . . . I would like to argue that the voices, sentiments, reflections and praxis from the rough grounds are necessary to develop, change, modify or subvert the way we have formulated our doctrines, dogmas and beliefs. This is not a new thing. The Church has always recognized the sensus fidelium. But when a doctrine is challenged by voices from the ground, the Magisterium and theologians alike close their doors and say, the Church is not "a democracy" or doctrine is not about statistics, etc.”

Sunday, October 26, 2014

Road maps don't define nirvana

A road map presupposes we know where we are and where we want to be and thus a GPS is a “wonder tool” – it tells us how we will get from point A to point B. And in the case of PHL, given our state of underdevelopment, indeed we need a number of industry road maps precisely for the same reason. But then comes the bigger hurdle: these road maps will not be operating in a vacuum. Overarching a set of road maps is an ecosystem. And what does that mean? I asked my Bulgarian friends 6 months after we set up our office in Manhattan what they would see that makes the place attract every conceivable enterprise. And, without exception, they said: the system works! And then I shared the story of British friends from 25 years ago that were surprised how much could be done via the telephone thus saving an errand if not an undertaking so much time – and, without exception, they said the system works.

How do we illustrate that in the PHL setting? The policy we proudly trumpeted to the world decades ago of “Filipino first” was nurtured and fed by our parochial nature and our cacique masters, and also found expression in the supposed preferred trade agreement with our colonizer, the U.S. And the fallout? It guaranteed stunting the development of local industry – and PHL's broader industrialization efforts – while reinforcing and perpetuating our oligarchic economy.

With the exception of vested interest, it was the right first few baby steps that as a young nation we needed to make, i.e., what we call today as a road map. And without vested interest human development would have been the principle behind that road map that would have evolved into a much more competitive construct over time. And we weren't ignorant of human development – because Rizal already gave us an exposition on the Age of Enlightenment, over a century ago.

Decades later, sadly, we are revising history. How? That opening PHL to the rest of the world was bad for us. In marketing parlance our concept of free enterprise was “half-pregnant.” It was neither here nor there. [A concept upon which a product is based, developed and marketed in order to win in the marketplace must be simple, sharp and crystal clear if consumers are to understand, accept and embrace it as responding to a perceived need. To put it in the context of a nation, the framers of the U.S. Constitution crafted a simple, sharp and crystal clear concept: the pursuit of life, liberty and happiness.] It was protective of our cacique masters under the guise of nationalism. And precisely because of our deficient concept-definition, we're uncertain how to give credit where credit is due. We continue to be half-hearted if not critical of the Asian tigers instead of benchmarking our efforts against theirs. Yet we know that in Singapore, the system works.

Let's bring that to the present, to our auto industry. Where are we, where do we want to be and how will we get there? Is Pinoy abilidad again lurking? Do we see China (i.e., rising costs structure) and Thailand (i.e., undermining freedom and democracy given recent political developments) beginning to show their nakedness? And thus fate must be smiling upon us? Didn't Ambassador Oscar M. Lopez say that many Japanese firms have seen that nakedness too but those companies chose Indonesia, for instance, to pour their investment monies instead of PHL?

Thus in developing a road map, the first imperative is to answer the question: why would foreign investors choose another country over PHL? Granted we're seeing an uptick in FDIs, benchmarking is a rigorous exercise no different from academic rigor. For example, we lag even Vietnam in FDI! [And our worldview remains suspect when the Central Bank makes comments like foreign investors must know that our fundamentals are strong and thus should realize the benefit of investing in PHL. But that is easy to test.]

So the first element of our definition of where we want to be is for Toyota or VW, for example, to choose PHL over our neighbors. And given AEC, we are presented a different playing field than what we’re familiar with, our local market. Thus to define where we want to be as in to reduce foreign exchange demands that come with importing car parts like we do today misses a very fundamental hurdle, i.e., to be the preferred investment destination.

There are very critical yardsticks that will measure if we are to be preferred over our neighbors: (a) will we fit the supply chain model that these auto companies are constantly fine-tuning; (b) will a PHL regional hub enhance their competitive advantage in the region; (c) will the PHL local market give them a solid foundation to reinforce (a) and (b)?

Supply chain is very crucial especially in a global enterprise and it happened to be the expertise of Tim Cook. And as they say, the rest is history, Steve Jobs chose him as successor over Jony Ive, the design master from the UK. Yet every time Jobs introduced a new Apple gadget it was all about it being an “insanely great product” – and he would go to the extent of claiming that his soul mate in designing Apple products was Jony Ive.

As far as autos are concerned, Thailand is considered the Detroit of Southeast Asia because they measure up to the above yardsticks. And so does China, with their ability to be the world's biggest car market.

Let's dig deeper and dissect the supply chain challenge: A good model to look at is Apple. Apple initially built a state-of-the-art facility in California to produce the Macs. But in a globalized world where consumers are spread across continents, Apple needed a supply chain that will deliver the benefits of economies of scale . . . rapidly . . . and . . . cost-effectively. Ergo: China is preferred over California and even Taiwan.

What do we in PHL have to offer against that model? Why would foreign investors choose PHL over our neighbors? The first consideration when developing a supply chain model is infrastructure. How many export-processing zones have we put up? But are they competitive against those of our neighbors? How about power and other utilities (i.e., phone, internet and beyond) and roads and ports, etc. and, as importantly, the requisite supporting industries like those required in ship building, for example? By that simple measure we can’t claim PHL is world-class and has competitive advantage?

And since we're not world-class from a supply-chain standpoint, how can a PHL regional hub enhance the competitive advantage of Toyota or VW? Competitive advantage simply defined is making winning a habit. What about our local market, will it provide a solid foundation for these companies’ efforts? For instance, Thailand, given GDP per person despite smaller population base than PHL, has a buying power of 1.5 to 2 times versus PHL. While Indonesia given population size net of poverty has 3 times more than PHL. In short, we should not be surprised why we are unable to attract foreign investment.

The bottom line: road maps per se don’t define nor will deliver nirvana to PHL. And we can’t keep banking on Pinoy abilidad. “It’s more fun in the Philippines” as a reflection of our mindset or our sub-optimized approach to problem-solving seems to pervade what now appear to be our policy prescriptions to our economic woes? It’s not about fate but hard work. “The events of human life unfold in a fair and just manner only when individuals and society work hard to make this happen,” from research work at the Yale Mind and Development Lab, Yale University, Does everything happen for a reason (?), Konika Banerjee and Paul Bloom, The New York Times, 19th Oct 2014.

Thursday, October 23, 2014

Paying the price: failures in human development

Do we even care? Do we believe we’ve shot ourselves in the foot, not once, not twice but many times over? Do we expect the world to think like we do or value our beliefs and way of life? We in the elite class may be enjoying the best of all worlds but that is not the yardstick of PHL development – i.e., when do we do “community sense” and the “common good”?

“The other major deterrent to foreign investment is the much more difficult one: policy consistency. The Philippine political system is so structured as to give the president wide-ranging power to change policy at whim, with almost no counterbalancing control. It’s not just this President; to attack him is not my intention. It’s all administrations. It’s the Philippine system.” [Policy consistency and labor laws, Peter Wallace, Philippine Daily Inquirer, 16th Oct 2014]

Didn’t we say that the reason we aren’t as prosperous as Singapore or why we lag Malaysia is that these nations are autocracies? When do we pull out our “dibdib” or heart and step up to the plate? Do we still want to rationalize our reality – that we aren’t suited to Western-style democracy? It has nothing to do with Eastern versus Western – it’s all about embracing an egalitarian society instead of valuing hierarchy despite ‘rank has its privileges’ including patrons of the poor? As a Singaporean scholar argued, the Asian tigers and the Asian century could be described as Asians espousing how the West pioneered and learned human development.

It is thus about human development, not the myopic pro-poor bias we equate with our faith and expressed in our dole-out culture that smacks of condescension and contempt – because it perpetuates our cacique system and structure, reflective of our misunderstanding of our faith. It is not that Filipinos are born to be poor per se but a select few cornered PHL’s resources that the rest of the nation has no fighting chance to pursue and sustain development – making Juan de la Cruz all but cursed.

It was the pursuit of human development that made Europe prosperous which they then brought to the new world via higher education. And it was what Rizal encountered – in the expressions of the Age of Enlightenment – while in Spain. After over a hundred years of failures – in human development – don’t we owe it to ourselves to ask: (a) who is fooling who and (b) “who am I to judge,” to quote Pope Francis – or more to the point, who are we to expect the rest of the world think like we do and value our beliefs and way of life?

“Gloria Arroyo had 10 years to mess things up. She imposed market-distorting controls. She halved drug prices; issued an executive order that capped oil prices in Luzon after Tropical Storm “Ketsana” (“Ondoy”) and Typhoon “Parma” (“Pepeng”); froze a tuition increase in state universities and colleges and urged their private counterparts to do the same; and cancelled the Ninoy Aquino International Airport-3 contract without proper compensation.” [ibid.]


But which our neighbors have overcome by their ability to attract FDI – that comes with technology and innovation and people, product and market development . . . and thus competitiveness – predicated on a country’s infrastructure development and the overarching metric of good governance. In other words, an ecosystem. It takes an ecosystem to attain sustainable profitable growth in the private sector – and economic development for that matter. Which is simply the fundamental given in freedom and democracy and free enterprise that we have yet to espouse.

“She also cancelled the waste-to-energy project with Australian firm Jancom Environment Corp. five years after its approval. Early in her term, she ordered the renegotiation of contracts with independent power producers due to an insistent public clamor to bring down electricity rates. It was a popular measure, but a surefire way of discouraging businessmen from investing in the country.”

“Under the current administration, the most glaring and disastrous was the President’s ill-advised decision to review the tax on mining—without a thorough study and intense discussion with all involved. It sent the industry into chaos; it put one of the potentially most beneficial sectors on hold. Billions of dollars in investment and exports, thousands of jobs, have been lost. On a whim. Then there’s the cancellation of the Laguna Lake dredging project with a Belgian firm. The company is suing the government. Maybe the company’s proposal wasn’t the best solution, but it was a signed contract. If there were valid reasons to cancel—and they’d have to be very strong—then full and immediate recompense had to be made. It wasn’t done.”

How do we make heads or tails of all these? “We must accept the fact that, for the last 100 years of our independence, we have not succeeded in making our country strong enough to be among the best in Southeast Asia in terms of sustained economic progress and social stability. We are dwarfed by the achievements of our neighbors, like Thailand, Singapore and Malaysia . . . Now, even Vietnam, Myanmar and Indonesia seem to outpace us.” [Limits of politics: What the private sector must do, Ariel Nepomuceno, Decision Time, Business Mirror, 15th Oct 2014]

“We must accept the reality that, in the coming decades, poverty and corruption will keep haunting us, since our political system is not capable of quickly paving the way for the solutions that we urgently need. Meanwhile, our neighbors are resolutely focused on strengthening their capabilities and competitiveness.”

“Mining has become a divisive issue, yet it need not be. Efforts to clarify and sharpen the Philippines’ mining policy have generated intense debate among stakeholders, spanning the business community, civil society and the central and local governments. The debate largely centers on increasing the government’s share of the total mining revenues.” [Mining for inclusive growth, Ronald U. MendozaPhilippine Daily Inquirer, 16th Oct 2014]

“Yet the narrow focus on revenues runs the risk of keeping other important aspects of mining policy unaddressed, resulting in failure to generate cohesive support from all sectors . . . This translates to a projected decrease in mining investments in the Philippines (both domestic and foreign) of anywhere from 13 percent to 67 percent. If investments drop, so, too, will revenues.”

“Focus also on investments, not just revenues. International best practice also emphasizes that mining policies should explicitly state how mining wealth will be managed and invested. Successful countries invest their mining revenues in areas that will continue to generate returns for future generations, such as investments in children and youth. The trick is to convert natural-resource wealth into drivers of inclusive national economic development, including strong human capital investments and industrial diversification.”

Can we say that PHL has a positive prognosis despite the absence of a track record – and in today’s highly competitive world? ‘The glass is half full’ has proved an expression of our fatalism? Is there a role for media in light of all these?

“The Philippine media have been accused of an inordinate focus on politics, which is true enough. But because the politics that is their main concern has been limited to the reporting of scandals without looking into their causes, they succeed only in encouraging citizen indifference to political issues, and in preventing understanding of the political system in terms of such fundamentals as who wields political power, how and for whom, as keys to citizen empowerment in understanding corruption and doing something about it.”[Understanding (and not just exposing) corruption, Luis V. Teodoro, Vantage Point, Business World, 16th Oct 2014]

“Corruption may not be the sole reason for the poverty that has haunted this country for centuries, but it is an important factor in the continuing impoverishment of the many. Corruption is rooted in the exclusionary character of the political system, which over the decades has become the preserve of a handful of political dynasties . . . The Philippine media can provide citizens the knowledge they need that’s vital to informed political action.”

How much longer are we going to pay the price – for our failures in human development?

Wednesday, October 22, 2014

A fundamental given . . .

And it’s expressed in different ways, e.g., nothing happens in a vacuum or insanity is doing the same thing over and over and expecting different results, are two of them. Precisely why world-beaters are such that they make winning a habit. Do we Pinoys want to truly internalize what competition is or what to be competitive means and what it entails?

And the science says it is not a question of brainpower which we Pinoys definitely have – i.e., the brain is not a static organ but one that expands when demands are put on it. It is about the mindset. And change has to happen within, not without or with extraneous elements – and it applies to all people, not just us Pinoys.

“Philippine economic managers have urged Japanese investors to pour money into the country’s infrastructure in order to sustain the growing economy.” [Japan investors urged to fill gap in PH infra funding, Ben O. de VeraPhilippine Daily Inquirer, 11th Oct 2014]

We don’t control how Japanese investors decide where they pour their money. But we control what we have to offer. Or we can spend advertising dollars to attract foreign tourists with “It’s more fun in the Philippines,” but that won’t translate to fixing the infrastructure deficits that PHL has [because it’s the classic sub-optimization bias to problem-solving.] And if we’re benchmarking our efforts against those of our neighbors, we would know why they’re doing a better job. It is when we address the “why” that is under our control that will deliver results, not merely hoping that foreign investors will pour or tourists spend their money in PHL. And that is a fundamental given – and that the private sector understands and why they invest in the pursuit of “competitive advantage,” while running away from sub-optimization.

What about the president securing billions of investment pledges? How many presidents have claimed that? And that is not judged in a vacuum but against reality – and what our neighbors attract and generate. And haven’t we been doing road shows for years and years and still lag in attracting FDIs? What principles are at work here? When the student hasn't learned the teacher hasn't taught. Similarly, when the buyer hasn't bought the salesperson hasn't sold . . . When all one has is a hammer, everything looks like a nail.

“The [Philippine] government is working to step up investments in infrastructure to be at par with other competing economies and to meet the country’s future growth requirements,” Socioeconomic Planning Secretary Arsenio M. Balisacan said during the Philippine Economic Briefing in Tokyo. . .”

“The Aquino administration aims to jack up infrastructure spending to at least 5 percent of the gross domestic product (GDP) by 2016, from a mere 2.2-percent share in 2012. In a statement Friday, the Investor Relations Office reported that Philippine officials encouraged the more than 400 Japanese businessmen and government representatives at the Tokyo road show to look into the opportunities being presented by the public-private partnership (PPP) infrastructure projects to be rolled out within a year’s time, on top of prospects in the capital markets, tourism and power sectors. The PPP projects are worth $12.28 billion.”

That reads well but what is reality? “Sustaining the economy’s high-growth trajectory requires continued investment in infrastructure,” Economic Planning Secretary Arsenio M. Balisacan told Japanese businessmen . . .” [Urban decay threatens hot PHL economy, Business World, 12th Oct 2014]

“As part of that, the government will pursue its so-called public-private partnership (PPP) program. More than 50 projects are being put out to private builders. Mr. Balisacan also said implementing a P2.6-trillion ‘dream plan’ drafted by the JICA was a top priority. The agency’s plan calls for an expansion of rail and toll road networks to provinces north and south of Manila, spreading economic activity, as well as a subway system for the capital.”

“Many of the projects cited by the Japanese plan are included in the PPP pipeline, but these have moved painfully slowly due to regulatory delays and court cases between rival bidders. Fewer than 10 contracts for the public-private partnership program have been awarded during Mr. Aquino’s first four years in office, with no projects yet completed.”

“And while Mr. Aquino’s intentions are laudable, there is only a limited amount it can do before his term ends in the middle of 2016 . . . Many of these projects are perfectly doable, especially the airports and toll roads... What’s needed is a multi-administration plan... many of them take up to three administrations to finish.”

“Manila residents, in the meantime, have little choice but to count the personal cost of the urban decay.”  And that translates to persistent poverty? What to do?

“At this point, I would like to propose that instead of tackling the wide range of horrendous problems caused by poor infrastructure, such as the truck ban in Manila and perennial flooding, let us take one step back and look at the bigger picture.” [Infrastructure, innovation, information for inclusive national growth, MAPping the future, Ambassador Cesar B. Bautistainquirer.net, 13th Oct 2014]

“The private sector has the pragmatism to realize that many demands for infrastructure require huge financing, which is always in short supply. This imbalance between requirements and capabilities mandates us to follow the Pareto 80/20 Rule in the decision-tree planning process and use limited resources to tackle the country’s most immediate needs. Infrastructure projects account for a big portion of country’s Gross Domestic Product at the expense of other services, such as social safety nets. These must therefore be well selected and well spent.”

“The doctrine structure follows strategy is often used by management gurus such as Peter Drucker, and Michael Porter when they talk about appropriate structure in corporate organizations. These experts know that the success of any company depends on the choice of organization structure that best meets the needs of the business strategy. Define your strategy first, they say, before we talk about appropriate organization structure. The same approach should be observed in infrastructure development in pursuit of inclusive growth.”

“The country’s infrastructure priorities are well-defined in the Philippine Development Plan. China’s impressive development in the past 30 years is attributed to a series of five-year plans which defined each period’s desired economic outcome and the rank-ordering of infrastructure projects to achieve them.”

“The Philippines, through Neda’s PDP, can make the five-year strategies as the common template to coordinate links for sustainable progress. It is expected that some local leaders will still pursue their own ‘vanity projects’ to build up their image but this is where the private sector, through the NCC, can help the Cabinet Economic Cluster to stay the course of national strategic growth.”

We don’t control extraneous elements – be they Japanese investors or foreign tourists – but we do control what we have to offer and the “local leaders . . . that pursue their own ‘vanity projects’ to build up their image” . . . and it’s called leadership – in the private sector.

And indeed the private sector can be the role model: What is the role of business? Business should be ‘securing itself as the leader (take an actual role) in protecting and improving the system that gives [capitalism] life’. [B]usiness should ‘lead by being innovators developing new business models and strategies and as architect for good gov’t as effective institutions.’ ” [Sustainability in the board room, Flor G. Tarriela, Manila Bulletin, 13th Oct 2014]

“Who should lead and initiate the effort?  Government or business?  In the book ‘Capitalism at Risk, Rethinking the Role of Business’ of Lynn Paine with Harvard professors Herman Leonard and Joseph Bower, they agreed that government play a role but that business should lead the way. Business in so doing ‘should pursue opportunities and develop innovative business strategies, to be profitable and strengthen its foundation.’ ”

“The good thing with business people is that challenges are looked at as opportunities.” And what about doing the same thing over and over and expecting different results?

Saturday, October 18, 2014

The gilded age and the robber baron

“The net debts of 17 of the largest Philippine corporations nearly tripled from 2008 to the first quarter of 2014, the fastest pace in Southeast Asia, according to studies made by Standard & Poor’s Rating Service (S&P).” [Top conglomerates’ borrowings nearly triple in 5 years, says BSP, Ted P. Torres, The Philippine Star, 8th Oct 2014]

“The 17 companies, all listed at the Philippine Stock Exchange (PSE), are among the country’ leading conglomerates. S&P managing director Michael Seewald noted that over the past few years, revenues have been thinning while debt growth have been expanding. Of the 17 companies, five are overly leveraged (more debt) while only four are among the least exposed to huge debts. Those with large debts often use the funds for spending or acquisitions . . .”

“However, S&P said it expects credit quality to decline further over the next 12 months. We see no sign of a slowdown in spending as Philippine companies continue to invest,” Xavier Jean, S&P director for corporate ratings in Asia Pacific, said in a press briefing yesterday.”

Note the following lines and why they inspired the title of this blog – The gilded age and the robber baron: “[D]ebts of 17 of the largest Philippine corporations nearly tripled from 2008 to the first quarter of 2014, the fastest pace in Southeast Asia”. . . “[O]ver the past few years, revenues have been thinning while debt growth have been expanding”. . . “[F]ive are overly leveraged (more debt) while only four are among the least exposed to huge debts” . . . “We see no sign of a slowdown in spending as Philippine companies continue to invest . . . [thus] expect credit quality to decline further over the next 12 months . . .”

Yet PHL lags the region in investment. In other words, we have the worst of both worlds: when a very small group accounts (as in our cacique system and structure and why they are able to tap the credit market even against “thinning revenues” – i.e., is the Central Bank asleep/not asleep at the wheel in light of declining credit quality?) for an overwhelming chunk of a nation’s aggregate economic activity, there won’t be enough to go around given PHL is utterly underdeveloped. In the West or the developed parts of the world, given the erosion of the middle class and rising poverty, they can talk about GDP and GDP growth rates as obsolete yardsticks because theoretically they have enough to go around with GDPs per capita in the range of $30,000 – $50,000 – against our less than $5,000 (at PPP or purchasing power parity).

It is that miniscule per person share that explains why in PHL we don’t have enough to go around. Unfortunately, even among us in the elite class, we keep missing the distinction because we like to applaud our GDP growth rates when compared to the lower rates in the developed economies – forgetting that we’re comparing apples and oranges, i.e., we can’t compare PHL’s GDP of less than $300 billion to those in the $3 trillion – $16 trillion range on top of the equally lopsided per capita measures . . . and, not surprisingly, our persistent poverty.

And here’s a bit of history: “The Gilded Age in United States history is the late 19th century, from the 1870s to about 1900. The term was coined by writer Mark Twain in The Gilded Age: A Tale of Today, (1873), which satirized an era of serious social problems disguised by a thin gold gilding . . .” [Wikipedia]

“In social criticism and economic literature, robber baron became a derogatory term applied to wealthy and powerful 19th-century American businessmen that appeared in North American periodical literature as early as . . . August 1870 . . . By the late 1800s, the term was typically applied to businessmen who used what were considered to be exploitative practices to amass their wealth. These practices included exerting control over national resources, accruing high levels of government influence . . . [and] squashing competition . . . to create monopolies . . . The term combines the sense of criminal (‘robber’) and illegitimate aristocracy (a baron is an illegitimate role in a republic).”

And where are we today in PHL re the proposed competition law? As the Fair Competition Act gains ground in the 16th Congress, forces that have traditionally been resisting this game-changing economic measure for well over two decades appear to be training their guns on it again, in and out of Congress. Arguments being raised against it appear to be either based on a flawed grasp of what the proposed law seeks to do or deliberately meant to muddle the issue. Meanwhile, within Congress, quiet efforts are being made to undermine the efficacy of the law should it get enacted. And chances are it will, if one is to go by recent public statements coming from Congress leaders.” [Competition law: what it is not, Cielito F. Habito, No Free Lunch, Philippine Daily Inquirer, 7th Oct 2014]

“Certain critics of the measure would now have us believe that the proposed law is a devious scheme to allow foreign competition to break up large Filipino businesses and pave the way for foreign giants to lord it over our economy. It sounds to me like a shallow but devious ploy to exploit an appealing emotional theme with the xenophobic nationalists among us, an argument with a seeming Quezon-esque undertone. (Remember the quote ‘I would rather have our country ruled like hell by Filipinos than one ruled like heaven by foreigners’?) Yet nowhere in the proposed competition law is there any intent to break up existing large dominant businesses. Indeed it recognizes that bigness or dominance cannot be considered bad in itself; rather, it is the abuse of dominance to ‘unreasonably and substantially prevent or restrict competition’ that the law prohibits. One couldn’t fault a firm that has grown and achieved dominance within a fair arena through years of effective and efficient management, and legitimate business acumen.”

“Besides, nothing in the proposed law particularly refers to foreign business, much less favors them. If those critics were thinking of certain constitutional restrictions on foreign business ownership, then that’s a completely different matter altogether. Under the competition law in question, the same rules on fairness would apply to all firms, foreign or domestic alike.”

We want transformation – or at least there is a group that is growing that is calling for one? Where we are as a nation is beyond even a President Aquino to fix despite his sincere belief that ‘daang matuwid’ is the be-all and end-all. Because we have created an ecosystem not of the positive kind but, to a tee, of a disaster waiting to happen – i.e., a culture of impunity founded on political dynasties and political patronage and influence peddling and crony capitalism and oligopoly? “The net debts of 17 of the largest Philippine corporations nearly tripled from 2008 to the first quarter of 2014, the fastest pace in Southeast Asia . . .”

And we proudly claimed that we despised the hypocrisy and the greed and the unfettered capitalism of Western-style democracy and free enterprise? That’s not the reality that our Southeast Asian neighbors [and the world] are seeing: “Of the 17 companies, five are overly leveraged (more debt) while only four are among the least exposed to huge debts . . . [and thus] expect credit quality to decline further over the next 12 months . . .”

It's heartening the president finally abandoned the idea of a second term. We should perhaps constantly ask ourselves the question: can condescension and contempt displayed by authority be encouraged by our docility? As my Bulgarian friends explained after they went to the polls very recently, “we're a poor country and so we had to kick out [translation: they took to the streets daily, without fail but peacefully, for months until the world took notice and the EU intervened] the errant last two governments . . . and we won’t hesitate to do so again if the incoming leadership doesn’t learn the lesson.”

Freedom and democracy and free enterprise are indeed the ideal . . . and they don't come on a silver platter. In other words, to be docile is not a redeeming value? Neither is a hierarchical cacique system and structure? A very close family friend posed the question to our group of three couples after a hearty meal in a restaurant just off Times Square: where and why did Juan Tamad come about?

“A new generation is learning that to float along and hope for the best is not enough. Hope is not a policy. The world is dangerous.” [Roger Cohen, God bless America, The New York Times, 11th Oct 2014]

“France is sick . . .”

“. . . and we are facing difficult times. We have no choice but to reform this country,” Emmanuel Macron, France Economy Minister. [Emmanuel Macron of France is the face of the new socialism, Liz Alderman, The New York Times, 7th Oct 2014.] “Still, even as he means to help Mr. Hollande push an ambitions but politically perilous drive to brand France as a country that is open for business and unafraid of globalization, he does not want his country to lose its innate egalitarian Frenchness . . . [H]e pushed the president hard to break with the ‘old socialism,’ helping to draft a so-called Responsibility Pact that increased flexibility in France’s rigid labor market . . . ‘We have to shift the social model from a lot of protections toward loosening bottlenecks in the economy.’ ”

And back in PHL, news items: PH economic team mounts Tokyo roadshowChino Leyco, Manila Bulletin, 5th Oct 2014 . . . Make it official – ToyotaBernie Magkilat, Manila Bulletin, 5th Oct 2014 . . . WB downgrades Phl growth outlookTed P. Torres, The Philippine Star, 6th Oct 2014 . . . Competition law: what it is not, Cielito F. Habito, No Free Lunch, Philippine Daily Inquirer, 7th Oct 2014 . . . Orchestrating an innovation ecosystem, Senator Edgardo J. Angara, Manila Bulletin, 4th Oct 2014.

Let’s recap them: “PH economic team mounts Tokyo roadshow” . . . but then . . . “Make it official – Toyota” . . . “Toyota Motor Philippines, the country’s largest car company, is taking it with a grain of salt MalacaƱang’s proposed $600-million automotive industry support fund unless the government will make it official.”

“TMP President Michinobu Sugata told reporters . . . they would like to see such comment being translated into the completion of the long-delayed automotive industry roadmap or the issuance of an executive order . . . [I]t came as a surprise following a long period of silence from the government on the state of the planned roadmap. But while it provides a breath of fresh air, industry players remained skeptical . . . Sugata would like to see such comment being translated into the completion of the roadmap or an EO.”

Is that simply the left hand not knowing what the right hand is doing? On the one hand we’re working to attract foreign investment yet on the other we’re giving foreign investors “the silent treatment”? Or are we Pinoys, by and large, reform-challenged? Can we learn from France’s socialist government? And it could start from the nation’s leadership and go all the way down to the barangay level, for example? “If you don't know where you are going, any road will get you there,”Lewis Carroll [“the pen name of Oxford mathematician, logician, photographer and author Charles Lutwidge Dodgson, is famous the world over for his fantastic classics (like) "Alice's Adventures in Wonderland,” Wikipedia.]

In the absence of “where we want to be” as a nation or of a vision, we will have the blind leading the blind – and out of frustration the leadership is left with little else but invoke authority and exhibit autocracy? “Aquino wants ‘broader picture’ of 2016 landscape,” Christian V. EsguerraPhilippine Daily Inquirer, 7th Oct 2014. Is that scary or what – i.e., are we a banana republic or do we have a demigod? “Coloma said the President ‘would like to continue getting feedback from various stakeholders, especially on what can be done to ensure the continuity and permanence of reforms.’ ”

And somewhere along the line is us – the elite class – and we ourselves are defenders of the status quo? And so we’ve chosen to remain an inward-looking, hierarchical cacique culture and thus our psyche: we are an island unto ourselves? And it is reinforced by the euphemism: “we are pro-poor” and “pro-Filipino,” and must protect local entrepreneurs? And we believe we have the best of both worlds: our enterprises catering to the local market especially the poor, not the foreign market – given we’re uncompetitive in any case? Is that in fact a misuse of brainpower? Consider: in 3-4 months of rigorous training, one can attain a higher level of skill, from “The Power of Mindsets,” Robert Brooks; he’s on the faculty of Harvard Medical School and has served as Director of the Department of Psychology at McLean Hospital, a private psychiatric hospital.

Not surprisingly, “As the Fair Competition Act gains ground in the 16th Congress, forces that have traditionally been resisting this game-changing economic measure for well over two decades appear to be training their guns on it again, in and out of Congress. Arguments being raised against it appear to be either based on a flawed grasp of what the proposed law seeks to do or deliberately meant to muddle the issue. Meanwhile, within Congress, quiet efforts are being made to undermine the efficacy of the law should it get enacted.” [Competition law: what it is not, Cielito F. Habito, No Free Lunch, Philippine Daily Inquirer, 7th Oct 2014]

Surprise, surprise: WB downgrades Phl growth outlook, Ted P. Torres, The Philippine Star, 6th Oct 2014. “The World Bank said growth can be sustained and made more inclusive by pursuing structural reforms and investing more in human and physical capital in the medium term. Key structural reforms include protecting property rights, promoting more competition, and simplifying regulations.”

And are the international institutions ganging up on us? “Last month, the Asian Development Bank (ADB) and the Economist Intelligence Unit (EIU) launched the Creative Productivity Index (CPI) — a new way of rating a country’s capacity for innovation.  Specifically, the CPI measures how a country efficiently converts creativity “inputs” (i.e., knowledge base, skills, and infrastructure) into “outputs” (i.e. patents granted and studies published). Of the 24 mostly Asian economies surveyed, the Philippines ranked a dismal 18th, measuring only a medium capacity for “creative productivity” and hence, a limited ability to ensure long-term economic growth.” [Orchestrating an innovation ecosystem,Senator Edgardo J. Angara, Manila Bulletin, 4th Oct 2014]

France says they are sick, what about PHL?