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]