Monday, June 6, 2016

Where the rubber hits the road (II)

“Asked whether the new Cabinet is keen on adopting the current government’s economic targets and assumptions, Mr. Diokno said: ‘It’s a bit premature.’ [Benjamin E. Diokno was handpicked by president-elect Rodrigo R. Duterte to lead the Department of Budget and Management (DBM)]

‘Sonny [Dominguez] (Finance), Ernie [Pernia] (National Economic and Development Authority) and I will have to meet as a team to review Aquino’s first two quarters... Offhand, I think the 6.8 to 7.8% GDP growth [target] is on the high side, despite the 6.9% GDP growth in Q1.’

‘We will do a quick and dirty assessment on what has and has not been implemented... We’ll see which may be augmented consistent with programs of the Duterte administration,’ Mr. Diokno said, referring to the camp’s eight-point economic agenda.” [Yawning budget hole contemplated, Melissa Luz T. Lopez, Business World, 1st Jun 2016]

That’s the perspective of the incoming administration. What about Juan de la Cruz? “The Filipino people actually have a widely shared common vision for self and family. The Filipino wants a ‘comfortable life with the family, free of hardship and worry.’ An overwhelming majority (79.2 percent) of Filipinos aspire for a ‘simple and comfortable life.’ Only 16.9 percent aspire for an affluent life; and, a tiny minority 3.9 percent to have the life of the very rich. How does the Filipino describe a “simple and comfortable life.?” [Filipino people’s aspirations, Elfren S. Cruz, BREAKTHROUGH, The Philippine Star, 2nd Jun 2016]

Realistically, what has the GDP growth for Q1 or even 2016 or 2017 got to do with the aspirations of the Filipino people? And that is why people, if not within the economics community itself, are raising an issue about GDP as the be-all measure of a people’s well-being.

But that is getting ahead of ourselves. Being from the private sector, the writer would rather provide the perspective of the sector. For example, how does an enterprise deal with the future?

In a prior posting the blog talked about the imperative of an ecosystem. This piece on driving revenues must be viewed in that context. But looking far out into the future presupposes being proactive not reactive? And government managers and more so the leadership must make us unlearn “crab mentality” lest we be in constant sub-optimized mode?

We must learn to be kids again – not perturbed even when they deal with countless Lego tiles. Inherent is their ability to let their minds wander and put together the right pieces to erect what they can imagine. It also explains why kids are more computer literate than adults.

Whether an enterprise is in a growth phase or in fact stalling, figuring out how much it must grow for the next quarter or the full year is not top of mind. What the leadership wants is to understand the drivers of the business: where are revenues or sales coming from? That is why investment, technology, innovation as well as people development, product development and market development are the critical metrics.

In progressive global enterprises how much people must be paid is part of the competitive instincts of the enterprise. It is to pay top dollar in order to attract the best and the brightest yet put them on continuing education and training and develop them to their potentials and to retain the right people in the right jobs. The converse is heads roll when they must. There is no free lunch.

Sales or revenues are called the top line because that is where everything starts. To translate that to an economy, that would be the average income of the nation – or GDP per capita. In an underdeveloped economy, how much the nation is generating in per capita income is more relevant than GDP growth per se. And where the revenues are coming from. In the case of PH, that number is pretty meager and explains why we are poor. To fulfill the aspirations of Juan de la Cruz, we must become a wealthy nation.

That is why it is economics not politics – especially not politics Philippine-style which is the heart of our culture of impunity.

The biggest agribusiness of PH is coconut. That is where the bulk of the revenues are coming from. In terms of industry, it is BPOs and electronics. And as far as money simply coming in, it is OFW remittances. But we also know that despite their contributions (i.e., OFW remittances, the BPO industry and the electronics and coconut industries) they have not raised our average income above underdeveloped levels. Simply put, we need more income sources. Not manna from heaven!

And so beyond the economic managers meeting among themselves to review GDP growth, the country’s CEO (President Duterte) by definition must figure out how to rapidly enlarge and accelerate these income streams.

For example, coconut must be a focus being our biggest agribusiness and where every incremental productivity effort will have a big impact on income. And likewise the current portfolio of coconut-based products that we market. Those are the two legs of the industry: (1) Production and productivity levels and; (2) products and markets that we can/can’t reach. And that is a function of our ability to move up the value chain, an imperative initiative if we are to aggressively drive revenues.

But we need more that coconut. What other major agribusiness products must we pursue in a similar manner? That must be the strategic intent. Farming must be more than a livelihood program; it must be a pillar of the economy as demonstrated by our neighbors. And that means making it an integral part of a well-crafted agribusiness enterprise.

Economies of scale, technology, innovation and competitive products are facilitated by integration. We have to think big not small like the shortsightedness of land reform. When we have the big picture and a better sense of a world-class agribusiness effort and its components and parts, we can then situate the farmers. For example, do we set them up as cooperatives as opposed to solitary efforts?

The thinking has to be the reverse of how we’ve always done it. It must be outcome-driven – begin with the end in mind – not activity-driven. It is lateral thinking – and connecting the dots – not linear thinking.

While old habits die hard, the reality is to stand still is a risk we can’t afford – unless we want to be pushed and shoved by the rest of the world. We must toss a fixed mindset for a growth mindset. We can’t stop the hands of time, so acknowledged Francis? In other words, the 21st century is a highly globalized and competitive world. To simply be parochial and insular would turn us into a fish out of water.

And we must unlearn the bias to be third-party providers – whether in services like OFWs or in garments manufacturing or electronics. That is why the world has left us behind in innovation and competitiveness. We must think – it all starts in the mind – as standalone providers, not third-party providers. But if the subservience inherent in our way of life has migrated to our business perspective, our efforts to raise our competitiveness must start there.

Competition is not for the faint of heart. Nor is it a function of hierarchy and destiny, that those in the lower rungs are destined to be subservient while those higher up are to be the tyrants. That is so yesterday! That is why man invented freedom and democracy and the free enterprise system.

The JFC’s 7 industry winners must be another piece of the puzzle. The Duterte administration must dialogue with the JFC in order to understand how to support – in fact champion – and prioritize the efforts behind “Arangkada Philippines.” For example, how do we move beyond computer chips in electronics and be higher up in the value chain? How do we prioritize the 7 industry winners? Where will their homes be? Beyond Metro Manila, where else will these industries be located?

If we have a good handle on driving revenues, we will have a bigger pie – beyond the focus on the national budget. Why do we have a Napoles? We are fixated on the national budget while essentially blind to the imperative of aggressively raising economic output. With a bigger pie we can afford other things too. And respond to the aspirations of the Filipino people. Because the wider our industry base and the more globally competitive they are the more they will generate jobs.

Jobs cannot be guaranteed by politicians or by make-work schemes. Time and again the blog has talked about the follies of Soviet-rule and how the system collapsed under its own weight. Rebels like politicians can’t guarantee jobs or make-work schemes either.

Lining up behind industry will likewise dictate how infrastructure must be prioritized. We have to stop thinking of government as the Catholic Charities or the Red Cross. Remember Japan Inc. or Singapore Inc. or China Inc. instead.

We must understand where the rubber hits the road.

“Can President Duterte bring about real social change? It depends on how well he and his supporters orchestrate the three-way dance of changing the social structures and selling their proposed cultural values to enough citizens by convincing them that it benefits them to do so. If he does not win this important social contest during his term, the result will be as predictable as a spring mattress -- our society stays the same.” [Is change really coming (?), Benito L. Teehankee, The View From Taft, Business World, 1st Jun 2016]

“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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