Can conglomerates come to the rescue?

That’s a reaction to Boo Chanco’s “Conglomerates to the rescue?”, DEMAND AND SUPPLY, The Philippine Star, 29th Oct 2018.

“Economist Raul Fabella, a national scientist, delivered a lecture last week that all but gave up on government’s ability to make a real difference in poverty reduction and economic inclusion.

“Fabella pointed out early in his lecture that the world has successfully halved the incidence of abject poverty since 1990. Unfortunately, the Philippines was one of the few that failed (34 percent in 1990 and 26 percent in 2015).

“Our problem, the economist pointed out, is weak institutions. Our rules are unstable and so is enforcement. Our institutions operate beyond their realm of competence. There is institutional capture by private groups for private gain... good ol’ rent-seeking.”

When rules are unstable – and enforcement as well – what should we expect? In the social science they coined a terminology, to wit: “A society is high-trust if citizens’ and organizations’ behavior towards each other is predictable. In such a society, actors follow broadly understood norms of behavior, supported by the rule of law. This is fundamental to the accumulation of social capital and economic growth.

“Citizens in a low-trust society are challenged by divergent or opaque behavioral norms. This makes behavior of others unpredictable, impairing social capital and economic activity. These societies may experience high levels of corruption and inequality.” [Brett Whysel, Lecturer, Public Economics & Decision Making at City College of New York; Quora.com]

And it also explains why we miss the forest for the trees as well as our bias against simplicity. For example, “Party-list road to hell,” Editorial, Philippine Daily Inquirer, 27th Oct 2018.

“Familiar to many is the proverb or aphorism that ‘the road to hell is paved with good intentions.’ Many people take this to mean that many ventures start out with well-intentioned purposes, but somewhere along the way from conception to execution, something goes awry and ends up in disaster—or hell.

“The party-list experience in the Philippines is fast proving this rather cynical saying true. What was originally intended as a political mechanism to give so-called ‘marginalized sectors’ a chance to participate in mainstream politics has, through the years, evolved into a hodge-podge of special interest groups, associations and quasi-political parties.

“From parties contesting seats in the House of Representatives for such groups as farmers, laborers, the disabled and women, party-list contenders now include security guards, electric cooperatives, sports personalities, savings and loans associations, and parent-teacher groups.

“Even more absurd than the extension of the title of ‘party list’ to any sort of gathering of folks and mere barkada is the choice of the top nominees.”

Yet we never learn? And why well into the 21st century we’re still into infrastructure issues when the Asian Tigers have had a leg up of at least 50 years?

We can’t keep it simple and so we assume complexity is an advantage? Does this explain why despite the efforts of JICA we never got around to addressing Metro Manila’s infrastructure shortcomings? Which brings us back to perceptive judgment. Experience is the best teacher, including, when it comes to figuring out cause and effect. And in the Philippines, given we’re the regional laggard, we need a lot of development experience before we can truly make the right call.

And the nuance is dissected by the following, the caveat being the bottom line, i.e., either way it must be understandable: “Simplicity is the Ultimate Sophistication. While Leonardo da Vinci is widely recognized as having coined this pithy phrase, in our day, Steve Jobs is known for having used this mantra to define his company’s visual appeal.

“Most of us, when we think of the sleek, sexy products that Apple has developed over the last 20 years, we recognize the wide-reaching appeal that simplicity has had on our society.

“In my design classes, students always want to say, ‘simplicity is key for all designs!’ Sure, simplicity has its place, but so does complexity. There are many times when designs ought to be complex, and sometimes have to be (maps of complex areas, like amusement parks, for example aren’t necessarily simple—but that doesn’t mean they can’t be understandable).” [“Simplicity is the ultimate sophistication,” Curtis Newbold, 16th May 2013; the visualcommunicationguy.com]

Here’s the perspective the blog has raised over the last 9 years. Defining the PH challenge around poverty is precisely why we can’t demonstrate foresight and thus miss the forest for the trees. And in recent postings it discussed the coconut industry.

And so we quote: “We cannot address the plight of the coconut farmers by simply talking poverty. Our mindset and paradigm must be to generate enormous wealth in this industry.

“And beyond coconut, we must likewise: (a) benchmark the product portfolios of what the DTI calls the priority industries; (b) figure out which products generate the biggest returns and largest margins; (c) prioritize – and not fall into crab mentality – the ones we must aggressively develop; and (d) obtain the requisite technologies from wherever especially state-of-the-art. And ... generate enormous wealth ... and create the ecosystem for sustainable growth and development.

“And that’s how we must develop roadmaps ... and after – not before – we ascertained the big picture, i.e., the outcomes and the business objectives. And for the enterprise we call The Philippines, that means focusing on efforts that will directly generate enormous wealth. It is beyond a-7% GDP growth rate per se which as we now say isn’t inclusive.”

The JFC and the DTI seem to be pointing at the same set of priority industries. Yet it appears we’re still uncertain how to push the envelope. And why the blog has raised the following barriers that we won’t appreciate being negatives. But it takes growing up to accept our shortcomings.

First of all, and it is not our monopoly, very few people truly have developed their sense of foresight. And why Steve Jobs is considered a genius. Recall that the heart of the iPod that became the precursor to the iPhone is the hard drive the size of the dollar coin. And it is Japanese technology. Ergo, the one who has the foresight wins! The Japanese did not know how to monetize their own technology.

And as we know in economics, there is such a thing as deficit financing or why we have borrowed so much. The problem is we don’t put these funds to productive and efficient wealth-generating use.

Now, let’s tee up those priority industries. If the conglomerates can take on the coconut industry, for example, then their capacity to deliver which government doesn’t have will bring us a windfall.

And we quote again from an earlier posting: “Coconut is a versatile fruit and offers a range of products that will scale the value chain. But we must benchmark the portfolio against neighbors that have grabbed the leadership from us so that we can figure out which ones give the biggest returns and largest margins and must be the focus. In other words, the coconut industry must be founded on innovation and global competitiveness. That is the big picture – the industry must generate enormous wealth that will lift all boats within the industry, especially farmers, and appreciably raise its share of exports … and PH per capita income.

“But it requires technology to develop these products. Technology in fact is demanded across the board, from farming to production as well as marketing of these products.  

“But we can acquire technology from other parts of the world and don’t have to reinvent the wheel as we like to do. As in: parochial and insular. To develop STEM (science, technology, engineering and mathematics) does not mean reinventing the wheel. How many decades have we wasted and yet are still clueless going forward because we can’t shift paradigms?”

In other words, we don’t have to undo the efforts of the JFC and the DTI re the priority industries. But here’s where the challenge lies. Will Juan de la Cruz agree how the conglomerates will divide the spoils among these priority industries?

For example, remember the coco levy funds? Power corrupts and absolute power corrupts absolutely. And so despite tons of money generated by the funds, we never acquired the expertise to make the PH coconut industry truly a global leader for Juan de la Cruz.

That’s what we should figure out next.

In other words, we need more than CSR initiatives from the conglomerates. We need them to spur enormous wealth generation for Juan de la Cruz, not simply address poverty. They must also demonstrate that they aren’t parochial and insular and tap investors and technologies from wherever. The big picture being to generate enormous wealth in these industries.

Development as the blog has constantly raised, is the road from poverty to prosperity as our neighbors have demonstrated.

“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]

“Now I know why Paul dared to speak of ‘the curse of the law’ (Galatians 3:13). Law reigns and discernment is unnecessary, which means there is little growth or change in such people. When you do not grow, you remain an infant.” [Faith and Science, Open to Change, Richard Rohr’s Daily Meditation, 23rd Oct 2017]

“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]