Friday, July 21, 2017

Why we’re the regional laggard

Two articles can only make the writer shake his head. Because we’re supposed to be in the 21st century, several decades removed from his childhood days in Sampaloc (near the Holy Trinity Church on Calabash Road), an inner city of Manila, where as a young boy he witnessed roads being laid out in their neighborhood – and brought the demise of the “looban.”

He understood from his elders that it was a sign of the progress to come. He still remembers his first escalator ride in a movie house on Azcarraga Street and the time his father’s employer moved from Plaza Moraga to Ayala Avenue, which was essentially an open field saved for the sprinkling of buildings under construction and the gated communities surrounding them.

Every time he drives along Paseo de Roxas, he remembers how as an 11-year old he successfully steered on a straight line the VW Beetle driven by the PR Manager of his father’s company though seated away from the steering wheel, and qualified him to represent the company, with another boy, in the Philippine Soap Box Derby. (Which was not a surprise given he was experienced driving bumper cars, then popular in Burnham Park, Baguio.) The race track was a converted section of Quezon Boulevard by JUSMAG, where they erected an elevated ramp at the starting line – given the cars were gravity-propelled. Those were the good old days:  how pleasant Quezon Boulevard was and, of course, the old Makati Commercial Center.

It also introduced him to the real world. In the US, boys personally built their soapbox derby cars, as mandated by the rules. But not in his case. Bigger boys at Don Bosco San Lorenzo did it for him. Yet the photo ops, which appeared in a couple of dailies, showed him hard at work on his car.

We always had it so good and easy – living for the moment and oblivious that man is meant to look far out into the future because there is no free lunch even for succeeding generations – and decades later are paying the price?

And these are the two articles referenced above: (a) “Ang acquiring Prieto interest in Inquirer,” [Krista A. M. Montealegre, BusinessWorld, 18th Jul 2017] and (b) “Starving the small firms (and farms),” [Cielito F. HabitoPhilippine Daily Inquirer, 18th Jul 2017]

Is this Marcos Martial Law redux – that was supposed to rid us of oligarchy only to reinvent it in another form? While small firms and farms continue to starve?

In an earlier post the blog spoke to Modern Math and the concept of sets and subsets. This one can build on that. How do we solve a problem like Maria?

“There is wide scope for widening our MSMEs’ access to capital, and unless we succeed in this, we will remain the region’s bottom-dweller in having small firms become the inclusive economic growth driver they could and should be.” [Habito, op. cit.]

Capital is indeed a subset of development. But as the blog has argued, our challenge goes beyond the conventional wisdom of monetary and fiscal policies.

Coming from the private sector, the writer has a free-enterprise bias which can best be illustrated by this piece. “This Is The Shakeup Procter & Gamble Needs,” Josh, 18th Jul 2017.

Procter & Gamble, an old, familiar pre-WW II name in the Philippines, was associated with “Tawag ng Tanghalan, emceed by the venerable Patsy and Lupito, whom the writer met as a kid through the step-father of his dad who was in show business (he went by the name of Gregorio Ticman). And as fate would have it, the writer would be at the opposite camp, competing against P&G during his MNC days … and up to the present as a consultant to his Eastern European friends.

What’s the latest with P&G? “To say that I haven't exactly been a huge fan of consumer staple giant Procter & Gamble (PG) in the past is quite the understatement. I've felt the stock was tremendously overpriced for a long time based upon a complete inability to grow or even adapt to changing markets, such as the turmoil it has experienced recently with its Gillette business, as an example, as newcomers like Harry's and Dollar Shave Club have taken share. To me, PG is a shining example of a bloated corporate iceberg unwilling to accept that there are actually competitive companies out there willing and able to take market share from it and as a result, I haven't been interested in the stock.” [Arnold, op. cit.]

What can we learn from this? “PG is a shining example of a bloated corporate iceberg unwilling to accept that there are actually competitive companies out there willing and able to take market share from it …”

Does it sound like PH when compared with our neighbors? Are we unwilling to accept that there are actually competitive countries out there? As the blog has argued, we don’t have the platform of an inclusive economy – unlike the rest of the region that they drastically reduced poverty.

We now appreciate that our failure in infrastructure development, industrialization and competitiveness cannot easily be compensated by our two major income streams, OFW remittances and the BPO industry. Nor can tourism turn PH into an economic miracle like an Asian Tiger – and Greece is the example to avoid.

And what about our inability to support MSMEs via access to capital? We have a couple of handicaps that unless we harness into the bigger set of development – i.e., beyond the subsets of capital and alternative financial instruments – we shall be in an untenable position against our neighbors.

MSMEs thrive and flourish when a nation is industrialized like Japan and South Korea have demonstrated, and where MSMEs play the role of auxiliary or support industries. And which is the real world’s translation of the multiplier effect of investment economists talk about; and cars and consumer electronics products and their support industries are good examples which these Asian countries can be proud of.

An industrialized nation is more competitive than one that is not – like PH where we lag in infrastructure development, industry development and innovation and competitiveness.

To illustrate, our economy is consumption and domestic driven which is reflective of our inability to compete in the global arena. More to the point, the exports of our neighbors are so staggering when compared to ours: Indonesia are 358% more, Malaysia – 438%, Vietnam – 443%, and Thailand – 497%.

And precisely because of our inability to compete in a free enterprise system, banks will not be gung-ho to support our MSMEs. On the other hand, if our MSMEs are globally competitive, even foreign banks will come knocking on our door. It is again the laws of physics, i.e., water seeks its own level.

And why the blog often talks about the writer’s Eastern European friends, with their principal banker coming from the West but had to aggressively compete against local banks – to win their business.

Which comes first, the chicken or the egg? We must first, as the blog has argued, overcome our parochial and insular instincts as well as our values of hierarchy and paternalism, political patronage and dynasties as well as oligarchy. Because they are the subsets of the vicious circle that we know as culture of impunity.

Not surprisingly, we are starving ourselves of investment – which in the case of Singapore equated to over a trillion US dollars in FDI – technology and innovation as well as people, product and market development.

But how can small farms, for example, even have a chance in a free enterprise system that is highly globalized and competitive?

“Economic development depends upon exploiting scale and specialization, but poor societies start with neither. How can government policies promote or inhibit the exploitation of scale and specialization?”

That is lifted from the course “From Poverty to Prosperity: Understanding Economic Development” offered by Oxford University. In other words, we must be able to respond to the question: How can government policies promote or inhibit the exploitation of scale and specialization?

The challenge goes beyond capital formation. We cannot look back and inward to supporting small farms. We must look forward and outward and develop the foresight to exploit scale (e.g., consolidated not individually fragmented farms to attain economies of scale) and specialization. Until we learn from our mistakes and continue to assume populism is the be-all and end-all, we can kiss prosperity for Juan de la Cruz good bye. And why in previous posts the blog discussed the imperative of foresight.

The Marcos Martial Law did not turn us into an Asia Tiger. Marcos was no Lee, no Mahathir or Deng. And Marcos is the idol of Du30?

We are in a downward spiral … do we need a Proctor & Gamble-like shake up so that we don’t get into a death spiral?

“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]

“Learning and innovation go hand in hand. The arrogance of success is to think that what you did yesterday will be sufficient for tomorrow.” [William Pollard, 1911-1989, physicist-priest, Manhattan Project]

“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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