Thursday, June 30, 2016

What will Francis do

“No pressing need for DTI reforms, says incoming chief,” Richmond Mercurio, The Philippine Star, 20th Jun 2016. The details of the news consistent with this pronouncement of the incoming DTI chief got this writer thinking about Peter’s Pence and the reforms at the Vatican Bank . . . And the question that chances are we’d heard before: are we more Catholic than the pope?

“Peter’s Pence’ is the most characteristic expression of the participation of all the faithful in the Bishop of Rome’s charitable initiatives in favor of the universal Church . . . The Church can never be exempted from practicing charity . . . because in addition to justice man needs, and will always need, love.” []

What about the Vatican Bank? “Francis’ response, Bloomberg Businessweek wrote, was to call on six high-profile lay Catholics from the financial world to help devise a plan to increase financial transparency in the Vatican . . . including oversight of the bank . . . The pope has also brought in the consulting firms . . . to focus on modernizing and reforming the bank itself.” [The Pope’s Overlooked Legacy: Reforming The Vatican Bank, Ben Walsh, The Huffington Post, 28th Sep 2015]

“Change is coming with the Duterte administration but that may not be necessary to the Department of Trade and Industry (DTI), said incoming secretary Ramon Lopez who sees no need to initiate drastic reforms in the agency.

‘No change because I am all for fair trade and liberalization. Calibrated liberalization is the way to go, we cannot backtrack. We are part of the global system and if we backtrack, we will be out of that global system,’ Lopez said.

“According to Lopez, incoming president Rodrigo Duterte has only two primary mandates for him as head of the country’s trade and investment promotions agency – uplift the quality of life of Filipinos through entrepreneurship and no corruption.” [Mercurio, op. cit.]

But what is missing in the article is the impact of SMEs on the economy. SMEs account for more than 99% of all registered businesses and over 2/3 of the workforce yet contribute less than a third of economic output.

“What the Philippines needs is not more jobs but better jobs … The quality of jobs being created was not meeting aspirations of young people entering labor market,’ said Jan Rutkowski, lead economist at the World Bank.

“The scarcity of ‘good jobs’ reflects the structure of the Philippine economy, where low value-added activities predominate. This is partly due to constraints in the investment climate and the high cost of doing business in the formal sector.” [WB cautions vs scrapping contractual work practice, Ben O. de VeraPhilippine Daily Inquirer, 18th Jun 2016]

In other words, the state of SMEs in the Philippines is a reflection of the Philippine economy. More to the point, to assume we can uplift the quality of life of Filipinos through entrepreneurship while keeping the same “hopper” – that is, the reality and dynamics of the Philippine economy – is garbage-in, garbage-out.

Which brings Bill Gates to mind. “In experiment after experiment, [Stanford psychologist Dr. Carol] Dweck has shown that the fixed mindset is a huge psychological roadblock—regardless of whether you feel you were blessed with talent or not… To protect your self-identity as someone who’s super smart or gifted, you often steer clear of tough challenges that might jeopardize that identity.” [What You Believe Affects What You Achieve, Bill Gates, 7th Dec 2015,]

In the case of the Vatican Bank, Pope Francis recognized the challenge, i.e., reform. And what about PH?

An underdeveloped economy needs investment – and technology. And we can’t attract them if we are not a truly open economy. And that is the real dilemma – and why we created the perfect storm that has been with us for decades. Simply, a parochial and insular mindset shuts FDIs out while nurturing political patronage and dynasties and cronyism and oligarchy.

And the world will not wait for us to wake up or shape up, ever. For instance, India just announced “sweeping changes to throw open its economy to foreign investment.”

But there is good news from the Duterte administration, expressed by the incoming Finance chief Carlos G. Dominguez: “We cannot transform government without transforming the community. We cannot evolve a rules-based economy without a rules-based ethos for the whole community. We cannot have good governance in the public sector without good governance in the private sector.

“It is to change the way we do things as a nation. It is a patriotic call to start building a truly 21st century society where citizens trust their institutions and consumers trust producers. It is a society of Shared Value where each one benefits from the excellence of the other.

“It is not enough to say the economy is growing . . . the government has to develop measures that will show how that economic growth converts into a more livable life for ordinary people.

“We need to radically transform the way we do things so that economic growth does not translate into further entrenching the oligarchy.

“For all Filipinos to truly benefit from the country’s nascent economic gains . . . the government and the private sector would have to jettison their traditional mindsets and radically change the ways they do business and deal with or serve our people.” [Progress for all vowed, Chino Leyco, Manila Bulletin, 21st Jun 2016]

“[T]he Duterte administration is ‘listening to the people’ . . . They want poverty rates to go down. They want their standard of living to go up. They don’t really care whether the growth rate is 5 percent or 4 percent or 7 percent because what they want is their personal lives are much better.’

“Incoming Socioeconomic Planning Secretary and National Economic and Development Authority (Neda) Director-General Ernesto M. Pernia . . . also cited the need to shift from a consumption-driven economy to an investment and export-driven one to achieve poverty reducing growth. At present, consumer spending accounts for two-thirds of the economy.

“The agriculture and manufacturing sectors should also be supported to create more jobs even for the less skilled members of the labor force . . . while the share of services to the economic output may have to be reduced even as it is now a huge contributor to economic growth.

“We will try to generate more jobs here so the desire to go abroad will be lessened . . .” [Poverty incidence reduced to 16% by 2022—incoming DOF chief, Ben O. de VeraPhilippine Daily Inquirer, 20th Jun 2016]

In the meantime, the Aquino administration feels compelled to defend its records. If there is something they appear not to internalize, it is the distinction between enablers and drivers of the economy. And that is not surprising given where we are in nation-building. And it explains our inability to prioritize. Of course we need social safety nets. And education is an imperative. And raising the budget for infrastructure is a must.

But to figure out what our priorities must be, we must have a good handle on the drivers of the economy. Fundamental in economics and business is the scarcity of resources. And why we must not take Pareto for granted. As this writer's Eastern European friends explained, given their communist background, they still struggle to distinguish drivers from enablers and embrace Pareto. Yet the outstanding ones are able to compare and contrast their best practices and success stories from their own past mediocre performance.

In our case, do we have a bigger hurdle? That we in the chattering class see our paradigm as supreme? How could a Vietnam, for example, be more geared for a highly globalized and competitive 21st century than PH? Because of our insular worldview, we see the negatives of our neighbors but not their best practices and success stories? 

Yet Juan de la Cruz can’t escape responsibility. Between our populist bias and crab mentality, community and the common good has escaped us? “The incoming social welfare secretary says she is not inclined to institutionalize the government’s conditional cash transfer program . . . Why would you institutionalize a stop-gap measure?” [A contradiction in terms, Editorial, Manila Standard Today, 26th Jun 2016]

And back to the DTI chief. It appears the administration has two tracks to manage: (a) to gear up SMEs to be competitive – while the administration delivers on (b); and (b) is the imperative to pursue an aggressive agro-industrial development, as articulated by Messrs. Dominguez and Pernia, i.e., to shift from a consumption-driven economy to an investment and export-driven one to achieve poverty-reducing growth.

Given our track record in this arena isn’t sterling, the call is timely – for “the government and the private sector . . . to jettison their traditional mindsets and radically change the ways they do business and deal with or serve our people” – and a real challenge to Juan de la Cruz.

It is not about catering to our instincts of populism but rather a call for accountability – and character.

“Why independence, if the slaves of today will be the tyrants of tomorrow? And that they will be such is not to be doubted, for he who submits to tyranny loves it.” [We are ruled by Rizal’s ‘tyrants of tomorrow,’ Editorial, The Manila Times, 29th Dec 2015]

“As a major component for the education and reorientation of our people, mainstream media – their reporters, writers, photographers, columnists and editors – have an obligation to this country . . .” [Era of documented irrelevance: Mainstream media, critics and protesters, Homobono A. Adaza, The Manila Times, 25th Nov 2015]

“Development [is informed by a people’s] worldview, cognitive capacity, values, moral development, self-identity, spirituality, and leadership . . .” [Frederic Laloux, Reinventing organizations, Nelson Parker, 2014]

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