Sunday, February 5, 2017

Diminishing returns

Perfection is not of this world. And one illustration of that is the law of diminishing returns. And why Pollard [the priest-physicist and friend of Einstein] talked about the “arrogance of success – it is to think that what you did yesterday will be sufficient for tomorrow. Learning and innovation go hand in hand.”

We must learn from history but must not live in the past. It is not about relativism. It is Darwin’s evolution – and the survival of the fittest. It is to be forward-looking not backward-looking. And it circles back to the growth mindset as opposed to the fixed mindset. Why is PHL not synonymous to innovation?

Since the law of diminishing returns comes from economics, let’s talk about the economy and the tools of monetary and fiscal policies.

It is common knowledge that we like the economy growing at 7% because that is the global benchmark, i.e., countries growing at this rate will experience better than average progress – and generate more wealth. And for an underdeveloped country like ours, that is indeed critical.

And so we are pushing tax reform as a major initiative based on the premise that it will stimulate the economy. In the US, they call it “trickle-down economics” – because there are more proactive options when it comes to stimulating an economy.

While tax reforms are a big positive, we need something above and beyond. Because we must be so geared if we are to catch-up with our neighbors. Consider: They have the greater ability to (a) attract FDI; (b) invest more in fixed capital like manufacturing; (c) develop, produce and market competitive products, both agricultural and industrial; (d) export more than import; and (e) generate a higher GDP per person.

The bottom line: they have lower unemployment and lower poverty, while we remain the regional laggard. And why it is imperative that we dissect the critical elements of our economy against theirs.

Our GDP (in $-B) is 312. For illustration purposes and for ease in visualization, let’s assume that the tax take of government is 10% or 31. Assume with tax reform that will go up to 12% or 37.

How can we truly play catch up? For example, if we match Indonesia’s agriculture with a contribution to GDP of 14% versus our 10%; and Vietnam’s industry of 39% versus our 31%, while keeping the contribution of services at current levels, our GDP will grow to 351 from 312. And to get there we need to learn from Japan Inc., and drive agriculture and industry like an MNC would.

Assume again that the tax take is 10%, that means from 31 our tax revenues will go up to 35; and assume that tax reform will raise it to 12%, that equates to tax revenues of 42 versus 37.

In other words, tax reforms will generate incremental gains, but not the quantum leap that one playing catch up must consider. It is not new; it is what the Asian tigers did. Yet we like to keep to our existing model? A fixed mindset, not a growth mindset?

But to indeed succeed in our efforts, we need the building blocks of an ecosystem. Development, especially for a poor country like ours, demands – beyond economic tools – erecting the requisite ecosystem. How? We must unequivocally demonstrate a sense of urgency in infrastructure development. And in parallel we must get industrialization going by stepping up investment and technology. Which we can jumpstart via FDI, a lesson we can’t seem to internalize owing to our parochial bias?

Will we ever see the day when infrastructure development, for example, in the Philippines will be a competitive advantage? Consider: “BMI analysts . . . pointed out that only four major conglomerates have been bagging PPP contracts, with constitutional limits on foreign ownership standing in the way of a more ‘diverse’ pool of bidders. Currently, foreign firms need to pair up with local companies through a joint venture agreement in order to take on a local infrastructure project.

‘Although the World Bank ranks the Philippines’ PPP regulations as among the best in the world as it has clear and well-defined laws, transparency requirements and an independent dedicated agency, our Project Risk Index shows that the operating environment for infrastructure projects is still far behind,’ BMI said.

“We believe that good PPP regulations are important in bringing private finance and expertise to the infrastructure sector, but the case of the Philippines shows that improvements in a country’s fundamental operating environment are also essential.” [BMI flags poor PPP environment, Melissa Luz T. Lopez, Business World, 3rd Feb 2017]

And given our dire straits and in this day and age – post the heyday of globalization – a.k.a. a world that is in chaos, it won’t be surprising if we are less confident of the future. In some countries where people are fleeing wars and/or autocratic rule, people view the world as though it is an express train to destruction.

And it is in times like this that people must again learn from history – but not to live in the past. Both the UN and the EU were responses to the challenge: how do we make the world a better and a peaceful place? But then again, because of the law of diminishing returns, these efforts are now outdated. Because man is at the center of humanity. The hierarchy of human needs can be the spur for good – but also for evil.

Self-actualization can mean moral progress where there is tolerance and interdependence. Yet it can also mean despotism. Think Hitler and Mussolini and present day despots.

Intolerance can also come from ideology or religion where believers compete for moral superiority, wittingly or not. And when religion and/or ideology commands governance, there is chaos. Who am I to judge, asks Francis?

One way for intolerance to become moot is for nations to be insular – where people live among themselves and speak the same language. Or think of Hitler's “master race.” Or at the opposite end, backwardness, the Stone Age.

Yet the early man chose to migrate from Africa and populate a vast piece of geography. He needed to feed himself – a basic physiological need and then some, i.e., to seek safety and security. And captured by Maslow in his hierarchy of human needs. It is the law of nature.

Interdependence – not isolation – is the law of nature? Do we wonder that at Davos Xi of China was preaching globalization? As some would know, the writer did deals in China and Vietnam and over the last 14 years has worked with Eastern Europeans polishing their free market instincts.

If people like Ted Cruz believe that people are bad and cannot change exempting himself, of course, why would the writer gain friends among people that once represented what Reagan called the “Evil Empire”? Clearly there are exceptions and why these friends don’t see Putin as Trump or Duterte would.

And the writer’s experience is not an isolated one. There is an expatriate community in the US that has a different worldview from that of Trump supporters, for example. And we in the Philippines know this given there are those of us with expatriate friends.

What about Muslims? The writer worked and played [golf] with Muslim friends in Malaysia during the decade he covered the region. And likewise in the New York Metro area, including other minority groups beyond Muslims. He was traveling on the highway from Alexandria to Cairo on 9/11, and was stranded in his Cairo hotel until flights were resumed. And Muslim colleagues kept him company.

What about Americans? “Timothy James McVeigh (April 23, 1968 – June 11, 2001) was an American domestic terrorist convicted and executed for the detonation of a truck bomb in front of the Alfred P. Murrah Federal Building in Oklahoma City on April 19, 1995. Commonly referred to as the Oklahoma City bombing, the attack killed 168 people and injured over 600. According to the United States Government, it was the deadliest act of terrorism within the United States prior to the September 11 attacks, and remains the most significant act of domestic terrorism in United States history.” [Wikipedia]

The writer and family being US residents also need protection, but from across-the-board, not one particular group minority or otherwise. Yet it doesn’t equate to America [the land of immigrants] being insular. And that’s not the minority view but consistent with why more people voted against Trump. Who is getting the hard lessons of reality – not “Reality TV” that had defined him and mistakenly brought to 1600 Pennsylvania Avenue? – barely a couple of weeks into his White House residency.

Or is it (a) a flip-flopping Trump presidency according to some or (b) a juvenile one needing adult supervision to elder legislators like McCain or (c) learning from their mistakes to kinder observers? Where there is no doubt is “[I]t has the lowest approval rating . . . ever recorded for a new president, going all the way back to Dwight Eisenhower. Trump claimed the title from Ronald Reagan . . .” [CNN/ORC poll]

Where are we in the Philippines? Or better yet, where would man be today if we were the forebears from Africa? We would have likewise migrated in search of food and safety and security? And would have similarly demonstrated the continuum of human needs?

"Arrogance of success is to think that what you did yesterday will be sufficient for tomorrow. Learning and innovation go hand in hand."

“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]

“National prosperity is created, not inherited. It does not grow out of a country’s natural endowments, its labor pool, its interest rates, or its currency’s value, as classical economics insists . . . A nation’s competitiveness depends on the capacity of its industry to innovate and upgrade.” [The Competitive Advantage of Nations, Michael E. Porter, Harvard Business Review, March–April 1990]

“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]

No comments:

Post a Comment