The self-actualized Juan de la Cruz

Is the status quo in fact our be-all and end-all because it serves our purpose? And that we weathered the Great Recession while the rest of the world tripped? More so since we believe that our faith holds the keys to heaven? Yet the status quo is also the reality of hapless Juan de la Cruz who can’t call the shots? [Thousands of miles away, while sitting through 2013 budget reviews, it wasn’t surprising that some of my Eastern European friends would reveal their inability to visualize the future – given their dark past – even when many of them have already benefited from the continuing education their leadership has put them through.]

But back to PHL: The good news is global finance types are talking about us as the next tiger, thanks to "daang matuwid.” Yet we ought to be circumspect given how they also saw Russia as part of BRIC, the supposed tigers? People in this part of the world who know what Russia is like take that BRIC label with a grain of salt. Russia is still very much driven by oil and Putin, and when oil is over $100 they are prosperous, and Putin is a hero – but not to the protesters in Red Square. What about PHL? Indeed we must be circumspect about being the next tiger. Fortunately we have "daang matuwid" instead of a Putin. Yet we can't take the status quo as our ticket to truly becoming a tiger, precisely why we needed "daang matuwid." We can't be like a house that is built upon the sand? And our elders drilled into us what that meant. In the hierarchy of needs, for example, they preached that we must recognize that a roof over our head comes before a car. [And which my wife repeated to our daughter after she got her driver’s license and thus had to make do with what was available in the garage, going against the American convention.] Of course in the modern era that has been supplanted by the credit culture peddled by bankers . . . until the bubble burst and plunged the world into the Great Recession. And my Eastern European friends would remind themselves that indeed there are risks in being roped into the credit culture of the West – as they witnessed how a property boom could turn into a bust.

But bad credit comes in different forms. And the Dutch have become the classic example of what is now known as the Dutch disease. And the best way to explain that is our OFW remittances have kept our consumption-economy humming; and we think its manna from heaven. And this has been reinforced by our half-a-dozen dominant entities that continue to prosper principally due to these remittances – and the simple arithmetic is reflected in our local economy being more than twice our export receipts. And we’re proud of it, making it our Dutch disease?

And that house upon the sand becomes glaring given the absence of something as fundamental as basic infrastructure. Add to that the absence of an industrial base of strategic industries that have a greater multiplier effect than our consumption-driven economy. And because our export history is one of third-party contracting, the sad reality is innovation – which directly impacts competitiveness – is a major gap in our capability as an economy and as a nation. And we gloss over this reality and look at an economy either as consumption- or export-driven. While nations that are steeped in innovation and competitiveness generate greater wealth; and why international agencies are preaching innovation and competitiveness especially to developing countries. On the other hand we like to think that our handful of dominant enterprises are great models failing to recognize that they are such not because of innovation and competitiveness but rather in our parochial society they are dominant in a market that is fairly large – of 100 million consumers. And thus we've remained poverty-stricken. To be parochial, as the last 50 years bear witness, can't make us a developed economy or raise our per capita output 10-fold. Meanwhile our neighbors who took the outward and global view developed their competitiveness and simply left us behind. 

And which brings us to the status quo, which in this day and age is not what we must preserve? What we need is to build our house upon a rock, one that has its basic infrastructure in place as well as its strategic industries that are sustained by continuing investments and innovation. We have no choice but to learn the ropes and move up the learning curve. We can't be an island unto ourselves, especially as we discourage foreign investors, the surest way to perpetuate hierarchy and oligarchy (and turn back the hands of time) like they do in Russia.

An escalator to the moon

There was none . . . yet Kennedy driven by the risk of giving the Soviets the confidence that could have led to greater adventurism on the part of Khrushchev set for the Americans a commitment to get man on the moon within a decade. The reality was even the scientists were uncertain how it would be done.

The Eastern European representative of US AID on the ground was selling me the idea of coming back after my one month commitment; and it so happened it was the US Thanksgiving Day and there was a celebration in the office for the handful of American consultants, including myself. [To the Eastern Europeans I am "Amerikanska," and spoken in Russian-like accent.] And one guy said he was jealous because he was not being asked. I took it as a joke: "Vensi, there, he just solved your problem." That night the Americans and their spouses celebrated Thanksgiving in a fancy restaurant that later on we would learn was not recommended for expatriates – to be expected of naïve Americans! The buzz was it was the favorite of the "local mafia" – former communist commissars that had controlled the transition to free market and taken over major industries like power, telecommunications, media and the like. Sounds familiar?

"We need to rapidly develop our fledgling enterprises especially because in 5 years we expect to be in the EU, but even today MNCs have already set up shop in this country. They will eat our lunch. And in your industry there is this one company that I believe has the best chance to successfully compete against foreign companies. They are begging if you'd give them a few minutes to present themselves. They asked me to have you try some of their products.” And as they say, the rest is history. But the point to make is that these people had no clue what they had to do other than the aspiration to succeed in a globalized world.

It's been well over a decade since the Ramos administration had to first deal with our nagging power issue. And we are in a better position that Kennedy was simply because power generation is not an unknown challenge. But it requires a Kennedy-like mindset. For example, we have to think outside the box, literally outside the Philippines and put out a project brief, something like: “From the outside one would see a market of 100 million consumers. Given this market size and the population and economic growth rates and per capita GDP, how would the market look like in 10, 20 or 30 years? Given those fundamental parameters as well as the characteristics of an archipelago and the distribution of the population and commerce and industry, what is the ideal energy mix that this country should have? They must deliver sustainable power supply as well as competitive rates, the object being to spawn other economic activity, i.e., attract foreign investments and pave the way for the establishment of strategic industries and beyond. What will the transition scenario be like from a supply and rates standpoint? More importantly, where are we, where must we be and how shall we get there?

Assuming a globally respected energy enterprise with a track record of success globally is presented this market, will they find it attractive? Only capable global entities will be prequalified to pursue the project; they can partner with local players when the latter’s facility or facilities fit the overall project design and objectives and thus would satisfy the supply and rates parameters envisaged. And they must spell out the mechanisms that will be put in place to ensure failure is not an option. Given the risk of cronyism and corruption, what is the ideal mechanism that will ensure a best-practice project management model? How can the process be made transparent including creating a totally independent project management team that will report to an oversight body (headed by a Warren Buffett-type) that will in turn be responsible to the Philippine leadership: the president, the energy secretary and the cabinet's economic cluster? How will the project managers interact with the relevant government agencies, the public at large, etc.? What communication mechanism must be in place so that there is absolute transparency; and what safeguards must be in place to ensure efficiency throughout the process and until project completion?”

Imagine Juan de la Cruz is putting a man on the moon; failure is not an option! It’s not about me and myself!

Why “pwede na ‘yan” won’t cut it

“America’s leadership in several areas has eroded much more rapidly than most Americans think. They (the authors of Innovation Economics: The Race for Global Advantage, Robert Atkinson and Stephen Ezell) are right to argue that classical economists are often blind to the fact that innovation is the product of ecosystems rather than individual companies and that ecosystems are fragile,” How not to be left behind – Why America cannot see that it is losing traction; The Economist, 13th Oct 2012.

If it could be argued that Americans (and classical economists) could be blinded, what about PHL? Of course we are proud that our resiliency was once again proven through the Great Recession. But is that to crow about? In today’s globalized world we remain inward-looking. In an age where innovation is valued and rewarded because it drives progress, we continue to reward hierarchy and the lopsided economy it yields. But we’re well-informed and proudly prescribe cures which could indeed be state-of-the-art. Yet we ourselves are missing something? We have yet to visualize the ecosystem that will create the climate conducive to transforming our efforts into a virtuous cycle? [Forward thinkers have realized the contributions of da Vinci, Einstein, Edison, and Jobs, among others, in the discipline and art of visualization, and made them confident as they pursued innovation.]

We are still touting the over 6% GDP we registered in the most recent reading but that is the outcome of stepped up spending by the government following the criticisms from last year that “daang matuwid” was choking the economy. And that GDP number does not represent bringing us to a virtuous cycle. We’ve recognized that basic infrastructure, for instance, is an imperative if we are to create that ecosystem. But while we read about new PPP initiatives to be sent out for bids, we have yet to make a dent on PHL’s very basic infrastructure needs. But because of “pwede na ‘yan” we’ve patted ourselves in the back, especially as we’ve addressed and are moving forward in the competitiveness rankings.

Those efforts are laudable, but if we are to move closer to creating the ecosystem that nurtures competitiveness, we have to start looking outward. Our enterprises, including banking services and property development, remain parochial targeting OFWs wherever they are in the world. Ergo: we have yet to look beyond our local market and our own people being especially proud that we are satisfying their needs – that as marketers we are constantly fine-tuning our target market and that we are successful businesses because we are focused on the market that is our strength.

But what is the reality in today's globalized world? That parochial bias is already accounted for by the $20 billon in OFW remittances absorbed by our economy each year which while incremental is at best a manifestation of incremental thinking – and as President Ramos says, “the pie is too small.” We are not creating a virtuous cycle that comes with moving up the learning curve in innovation, for example. How can we then prescribe cures though state-of-the-art when the platform of our economy remains backward: infrastructure-wise, strategic industry-wise and investment, technology and innovation-wise, for instance.

How do we create that ecosystem that will elevate us to that desired state of a competitive economy – and move from incremental to quantum-leap thinking? Otherwise we simply fall back on our old paradigm: OFW remittances and the same half-a-dozen entities that control our economy? And which is why it’s called spinning wheels – i.e., we would remain stationary (e.g., poverty levels) and fall behind the rest of the world as well – even Vietnam, Cambodia and who else?

Peace Accord

The Mindanao peace accord is a confirmation that “daang matuwid” will move us forward as a nation. Still we must be guardedly optimistic especially when individuals and/or parties remain skeptical if not opposed. And the administration would do a world of good to keep them engaged. Deep-seated concerns don’t just go away. And personal interests could indeed derail collective progress. But sincere efforts to engage disgruntled elements would minimize if not eliminate the downsides.

Transition efforts no matter how sincere would take some doing as experienced by Eastern Europe where to some it is taking a lifetime. But still we can’t afford not to capitalize on the Mindanao peace accord. People, like consumers, can’t be fooled. For example, “daang matuwid” must come down to the barangay level. Nature is hierarchical and why local bosses come about. It takes the civilized man to overcome nature’s hierarchy. (And why the late Cardinal Carlo Maria Martini was critical of the Vatican, being 200 years out of date.) In Eastern Europe to be tsar-like is rewardingly intoxicating. And in the US we have our “hot dogs”!

But hot dogs don’t necessarily build a culture of innovation, which is what the 21st century world is about. For instance, how does the West overcome the loss of manufacturing to China? The US cannot simply harp on their history of successes. And unfortunately financial engineering is not the way to go. Many years ago when derivatives first hit a bad patch it became clear that creating tangible value is key, not some mirage or financial mambo-jumbo. And later on the Eastern Europeans, after the initial euphoria with the stock market, had to learn that the stock market ought to be founded on enterprises that create value. And in the small countries in Europe the bias must be to become regional if not global players. This was on top of going through a property boom that went bust.

The good thing is their country’s leadership is accelerating infrastructure development while attracting technology enterprises from the West to make them a regional hub. And to their credit, they have built a modern airport with the requisite fly-over access to the main avenue and the city center; and the new subway system is well on its way to completion. They have the highway network to their seaside which attracts loads of tourists from the West practically done, and they are busily – in a more accelerated fashion – working on the highway to the border in the south that will ease travel to their mountains. They attract skiers from the West. This is the kind of mindset we can use in Mindanao and beyond especially the discipline . . . to prioritize.

Yet my Eastern European friends can’t ignore the imperative of creating a culture of innovation – beyond being activity-driven they must attain that desired state. Technology is a great leg to develop yet the object is the ability to create tangible products. Fortunately they’ve already overcome the first hurdle by looking beyond cheap products their compatriots could afford – which they realized had dictated their inward-looking bias. [And which we Filipinos have yet to realize: low-priced products may generate volumes and yield margins but the greater benefit from innovation comes in higher valued-added products that will find a broader international market and spawn corollary industries locally thus realize their multiplier effect.] And they’ve become globally competitive, developing across their four businesses products for a wider world. And with Asia a new addition to their geography, erecting facilities there is on the drawing board. But the excitement comes in the thinking and the discipline that undergirds the pursuit of the next generation of products. Instead of creating hot dogs they’ve created cross-functional teams that are moving up the learning curve developing higher value-added products, not by chance but via a virtuous cycle.

These people went though very tough times, and our folks in Mindanao could say something similar, and many are still pessimistic. And both need forward-looking leaders that will lead them away from primitive times and into the civilized age, where value-creation or innovation is rewarded, not hierarchy – because of its attendant poverty.

“Keeping it simple”

It is arguably a trait manifested by leaders and could be as rare as leadership? Supposedly high-end supermarkets in the US have had to recall their own store brands because of salmonella illnesses, a job for the leadership? The Clinton speech during the Democratic convention was credited for giving Obama the “convention bounce.” He keeps things simple and his exposition of ideas comes across, even to the opposition, with ease and grace because of the poetry in his prose – even when extemporaneous. In contrast, Obama’s performance in the first debate with Romney was unpresidential. Supposedly the most powerful person, briefed on major national and global issues on an ongoing basis not to be in command of them makes his leadership suspect?

The trait is ever present in the corporate world. At GE, for instance, the succession plans Jack Welch had and his ultimate choice of his successor confirmed that GE is a great school for leaders – as those who didn’t get the job became CEOs themselves in similarly high-profile companies. I’ve seen it during my years with an MNC and how senior executives would readily identify managers we would move around the world. And the next question would always be: who do we assign in her place. And across the board the leaders that were groomed for senior jobs were clear thinkers. They could “keep it simple” – and truly lead their organizations knowing where and how to get the people focused, on the right things.

And in the Philippines this reality is present too; whether it is “Tatang” Sy or Ramon Ang, head honchos like them come across as clear thinkers. And it brings us to the saga of the North Rail! Not again! Where is the outrage that we are once again going to the international arbitration court? We haven’t resolved NAIA 3 yet! We have become so callous about incompetence that we can’t even get biddings of projects done right? And so projects are left in limbo! Is corruption behind the incompetence and so it is in fact incompetence by design?

Could leaders be clear thinkers because there is integrity in their thinking? Which means they won’t simply compromise? And isn’t corruption a product of being unhinged that opens the door wide open for compromise? Unfortunately, when we call for compassion or inclusive or nuanced or whatever, the downside side is it opens up more not less compromise and sooner than later corruption has already reared its ugly head? "P101.8B lost to graft," blares the Manila Bulletin, 5th Oct 2012. "COA lists 19 government schemes to siphon off taxpayers' money."

On the other hand we believe libel in the cyber law is a priority – a clear and present danger? – but couldn't hide our bias against the anti-money laundering legislation? Indeed our society is dictated by the aims of our elites – and that to be a paid lackey is not uncommon that even senators talk openly about it? Is poor Juan de la Cruz ever to worry about libel or which foreign account to keep the less than $2-a-day he makes? In the meantime we keep pointing an accusing finger at others and hidethe embarrassment of being economic laggards yet when one comes down to it, PHL is about a hierarchical society that lends itself to abuse and finding solace behind the skirt of Christian charity?

We must capitalize on the new look foreign investors are giving us (thanks to “daang matuwid”) if we want those potential new investments to materialize? And we must have clear-thinking leadership to move critical infrastructure and strategic industries forward? Unfortunately, major projects are in limbo? Or power: should RE be in our portfolio to address (a) power shortage and (b) costs? Whatever it is, as a legislator laments, vested interests are fighting to preserve the status quo! With the world moving forward, the status quo means PHL is kept behind – as our laundry list of challenges expands. And that is a very bad sign because it is moving us farther away from economic development while perpetuating a lopsided economy – with poverty and oligarchy representing two sides of the same coin.

We have our job cut out for us; we can't keep shooting ourselves in the foot and face the world from a position of weakness – that we are a small underdeveloped nation. We can't pigeon-hole ourselves as such which, unfortunately, we carry because of our hierarchical culture? We are what we are because of decades of missteps that we must correct. We can’t be forever young?

Change and innovation

". . . Because our leadership elite are addicted to the powers and privileges associated to that past it is perpetuated," writes Mario Antonio G. Lopez, Changes, Business World, 1st Oct 2012. "Many would keep the pie small because they have control of it rather than make it grow and lose their power even when it promises greater personal and national benefits." His bottom line: we are "mired in the past."

And it explains our resistance to change and by extension our inability to innovate. And in one universal measure, i.e., patents, we lag and, unsurprisingly, in competitiveness too. What about our neighbors? Consider the latest rankings from IFI Claims Patents Services: IBM and Microsoft are in the top 10; Asian firms account for 25 of the top 50 U.S. patent-grant recipients for 2011, while US firms captured 17 slots; IBM wins the most patents for the 19th straight year with 6,180 patents. [Network World, 11th Jan 2012.]

There is an argument that patents can impede innovation. And it came up again in the Samsung and Apple patent conflict. Fortunately or unfortunately, for the Philippines, we’re not there yet. We must first walk before we run. We must first develop an innovation bias before we consider that patents impede innovation. And we can’t develop the bias if we are mired in the past – and find solace in the status quo. Our longstanding challenge is underdevelopment which demands change and innovation, unfortunately not second nature to us. And they are not going to come so long as our way of life preserves “the power and the privileges of the leadership elite.”

Change and innovation are inherent in developed economies because they reward progress which in turn spurs competition. It is what an egalitarian society ought to be. In a hierarchical society like ours, dominance by the powerful is what is rewarded. And thus when Eastern Europe broke away from the dominance and power of Soviet rule, the West wanted to rapidly share with them the elements of free market – and how to pursue them. They had to recognize that the free market does not mean gratis. They would have access to what the West had to offer but they also had to build their own economic base. As I write this blog, I am in the heart of Eastern Europe where for the last 10 years I have become part of that effort. While they are creative people, they still had to learn the thought process of creative thinking – and to this day the learning and the relearning continues and is a big part of their planning process.

My Bulgarian friends have no patents to their credit – yet – but that is not the object. They are about developing and sustaining an innovation culture and thus are constantly pursuing innovative product ideas (across four different but related businesses) that they then market in over 20 countries and counting. And not surprisingly, in 2011, the European Business Awards recognized them for being one of the best and fastest growing companies in the EU. [Theoretically big companies can bully smaller ones but the reality is smaller enterprises are faster on their feet. In fairness, IBM shares with clients their patents for the latter to build on and for their own benefit, i.e., patents don’t have to shut out innovation.]

And that innovation culture should win my Bulgarian friends their share of patents in future. They also draw inspiration in the thought that P&G, their model marketer, “currently owns over 35,000 active patents.” [http://us.experiencepg.com/home/phd_first_conference.html] And fairly recently they hired a scientist from a local university to head R&D of their latest business unit. They remember the story I shared with them that it was a small group of scientists from a renowned US university – working with our pharmaceutical subsidiary – that helped develop a breakthrough technology that earned my MNC employer a US patent and contributed to achieving 45% share of the global market for the brand. On the other hand, “Pfizer’s revenues fell 7 per cent from a year ago . . . as sales of Lipitor fell 71 per cent . . . during the quarter; the impact of the end to the Lipitor patent.” [http://www.ft.com/intl/cms/s/0/9820326a-9398-11e1-8ca8-00144feab49a.html#axzz287ixsDfC]

The bottom line: we can’t be mired in the past and the status quo if we are to pursue change and innovation – and thus accelerate economic development and appreciably reduce poverty.

The realities of foreign investments

The first reality is we have the least ability to attract them when compared to our neighbors. And that is reflected in how we are reacting (emotional is an understatement) to the news that Manuel V. Pangilinan would retreat to Hong Kong. There are those who believe we pissed him plenty. While others think he was flexing his muscle knowing full well the country needs every dollar of investment.

The second reality has been articulated by President Aquino, thus: “We must have a level playing field.” And in pursuing an undertaking we can't be half-hearted if we are to succeed. And the fact that as a people we are still ambivalent about foreign investments, we are thus into this arena of global competition with our hands tied. We unwittingly are in a shrinking world of our own creation with very few options to overcome the demands of the 21st century? What is that world? Despite lagging in gross investment, the PHL economy is skewed to the same half-a-dozen entities: it is consistent with our cacique-paternalistic model and thus comes with CSR as well as livelihood and poverty-alleviation programs? Thrown in is land reform, farms-to-market roads and stepped-up PPP? And for good measure we have adopted economic stimulus as a tool like they’ve done in the West only to complicate affected infrastructure projects from a finance, audit and legal standpoint, to paraphrase Boo Chanco. [The Philippine Star, 28th Sept 2012]

The reality is a developing economy doesn’t need an economic stimulus per se unlike developed economies – where the economy is efficiently functioning yet in a recession may be unable to sustain demand. A developing economy needs a coherent development plan by definition – i.e., to invest in the requisite building blocks of an economy like basic infrastructure and strategic industries. [Coherent simply means that; our inability to address basic problems like power, NAIA, MRT 3, among others, speaks volumes. There must be something we’re not doing right? It takes a big person to accept his shortcomings, to paraphrase FDR?] We are like a car without the requisite four wheels and so we need more than “fill ‘er up.” A developed economy has all four wheels and filling up the tank makes it run.

The next reality is that foreign investments are not an act of charity. They are a business proposition. In primitive times man’s reflexes were dictated by nature – and so in the hierarchy the lion was king – thus the big guys would bully and exploit the small guys. In the 21st century, man is more civilized and in pursuing a business proposition, the object is a win-win partnership. For example, when the West responded to Deng Xiaoping’s call for “money and technology,” it was meant to be a mutually beneficial undertaking. Was the West stupid (like those of us who responded accordingly) for supporting China only to see China today bullying the small guys? Man can always choose evil over good. But it does not mean that man doesn’t have the capacity to seek the common good – which is not to say it is a cakewalk. Man’s choice then is to dig deep into the human spirit or to rationalize that it is pure naiveté?

First Pacific, which Manuel V. Pangilinan represents, is one of over a dozen entities of Anthony Salim. They are constantly fine-tuning their portfolio of business interests in many parts of the world. And so they have explored partnerships (for instance, like with our group, though it didn’t go forward, more than 20 years ago) and separately acquired and/or sold businesses over the years because each was meant to be a business proposition that contributed to the object of their enterprise. Can they pull out of the Philippines? If the Philex environmental disaster would put their investments at risk and if the graft cases filed against Ongpin, et al re Philex shares would drag them into a PR disaster and beyond, they don’t need that. They had a bad experience in Indonesia surrounding the ouster of President Suharto. They have been burned before and have learned their lesson. [Anthony Salim’s come back…, Businessweek, 3rd May 1999]

Which brings us to our ambivalence about foreign investments, and unwittingly have restricted our options to our favored few and thus are finding ourselves hanging by a thread? We’ve created our own shrinking world and if the consequences still aren't clear, we can only be paying more? But we won’t skip a beat because: (a) it's the price of patriotism or (b) it's a Christian community we live in or (c) it serves our purpose?