PH: 2018 and Beyond (from our economists)

“FMIC, UA&P economists: above-7% growth doable,” Melissa Luz T. Lopez, BusinessWorld, 5th Jan 2018. “Improving global demand will add to continued strong investments and household consumption to fuel gross domestic product growth to hit the government's 7-8% target for 2018, according to economists of First Metro Investment Corp. and the University of Asia and the Pacific.

“Bigger and faster spending on infrastructure, the continued buildup of capital goods and strong private construction will boost economic activity, alongside the recovery of the manufacturing sector and an upbeat tourism sector …”

On the other hand, “By the looks of it, the Philippine economy has been getting more Manila- and Luzon-centric in the last 20 years. While I’ve noted that our economy’s growth is getting more inclusive …, it’s in the geographic dimension of inclusiveness where we don’t seem to be making progress. In fact, we seem to have moved in the wrong direction.

“The numbers say it all. Luzon accounted for 73 percent of our total gross domestic product (GDP) in 2016, even more dominant than its share 10 years prior (2006) when it was just 66 percent.

“Metro Manila alone (aka the National Capital Region or NCR) accounted for nearly 37 percent of GDP … Calabarzon is the next largest contributor to national output, being a far second with a share of 16.8 percent, followed by Central Luzon (9.5 percent) and Central Visayas (6.5 percent).

“The Cordillera Administrative Region (CAR) is third with P133,654 ... The case of CAR, while surprising at first blush, affirms that manufacturing, prominent in Baguio City, is the most potent driver of jobs and incomes in any regional economy. It is the common thread in all the regions with higher economic shares and average incomes.

“The lesson that emerges from all this is apparent: Manufacturing, which has been growing faster than the overall economy since 2010, deserves an even greater boost. And it’s not just about big factories.

“Much of it can and should take the form of greater value adding on farm products by more small enterprises all across the country. I’ve long argued that this would help raise farmgate prices received by our farmers with more competition to buy their products, rather than have a single large processor dictate monopsony prices that squeeze our farmers, as is still common in our countryside.

“If our economy is to be less Manila- and Luzon-centric, we ought to pursue even more strongly this goal of having more geographically inclusive small-scale manufacturing.” [“Development beyond Manila,” Cielito F. Habito, NO FREE LUNCH, Philippine Daily Inquirer, 5th Jan 2018]

In recent postings, the blog has argued that if we are to conquer poverty, we must drive sustainable wealth generation – and that comes from competitive products. And this is where our dilemma sets in, which is unsurprising given how Western higher education has influenced us. That is, it is logical yet linear and incremental.

For example, we’ve been addressing the factors of production to assist farmers become productive – and take it for granted they will farm the right produce. And in the case of rice, we assume it is a must being a staple – and more dramatically, rice is food security.

We take it as a good example of foresight but it isn’t. The evidence? We are still importing rice despite the bruhaha about food security. Because it is classic logical, linear and incremental thinking.

One technique in developing foresight is to ask the question, what is the end in view? Or where do we want to be? And the blog gave the coconut industry as an example. [See below re The Competitive Advantage of Nations]. To become world-class the industry must be producing the right portfolio of coconut-derived products where synergy amongst the products – both consumer and industrial – puts us head and shoulders above competition. It means taken together they will generate the greatest revenues versus friends from other countries.

The same exercise must be done with other agriculture products. Instead of simply doing crop rotation, we must be more circumspect and ask the question, what crops must we rotate – that will address man’s needs and raise his well-being? Will the portfolio give us a competitive advantage?

Once we know what to produce, we can walk back and retrace the food chain and figure out what each link demands – again, the end in view is to attain competitive advantage and generate the greatest revenues. Thus, we must tap the right technology, the right location of the farms and the right scale. And as we keep retracing the food chain we can figure out the dots that we must connect.

That is an example of how innovation and product development is pursued in the private sector. Those who read about Steve Jobs will recall how he conceived the iPod following the Mac. He recognized that music is the way to the soul and he wanted to move beyond the Sony Walkman.

And so, he asked the question, why a hundred songs, not a thousand songs? And that meant moving to digital technology. And to connect the dots, he sent his team to Japan to look at their transistor technology and they found a hard drive the size of a dollar coin. And the rest as they say is history.

On the other hand, how we designed the support system behind land reform is, again, logical yet linear and incremental. It missed the object of the exercise: to make the farmers and their produce globally competitive. It will take some doing … and time …

That is why the title of this posting is about 2018 and beyond.

Granted that beyond a consumption economy (aka OFW economy) we now recognize that manufacturing is key, are we in fact forward-looking and forward-thinking measured against global yardsticks?

The blog has argued that we are limiting our perspective because of our instincts of parochialism and insularity. And it also explains why our local economy is larger compared to Thailand (3/4 of PH), Malaysia (1/2) and Vietnam (1/10). But let’s hold that premature celebration …

Sadly, despite the war on poverty to boot, we’re tops in poverty rate: Vietnam, the worst performer of the 3, has only half of ours; Thailand at a third; and Malaysia at less than 1/5.

Again, our failure to produce competitive products limits our ability to compete beyond our shores. Recall the new UN sustainable development goals (SDG): rapid infrastructure development, industrialization and innovation and competitiveness. To add insult to injury, our structural flaws and deficiencies negatively impact our ability to attract FDIs.

And the correlation is so stark … and explains why we’re the regional laggard: If we set our FDIs/Exports at index 100/100, the comparison looks very scary: Malaysia = 189/381; Thailand = 301/493; Vietnam = 180/407. Very scary? Because regional/multilateral trade agreements (e.g., c/o APEC) will sink us deeper absent export-competitive PH products. Go figure.

Nine years ago, when the blog was born, it pointed out a very similar picture. Have we asked ourselves why we’re so out of whack? An organism that is unable to adapt that it risks extinction?

Our underdevelopment is beyond the function of imperial Manila. Think of it as the “effect” and our culture as the “cause.” But it’s a great soundbite indeed (no different from food security) yet it doesn’t bring us closer to understanding ourselves.

It’s then pleasing to read the article, “If federalism is the answer, what is the question?” It’s: (a) a great way to employ foresight, and (b) a good “cause-and-effect” exercise.

And economists concede that culture matters: We are parochial and insular; defer to hierarchy and expect paternalism in return; and value and rely on political patronage and dynasties and oligarchy. And that is the “why” of imperial Manila, if we still don’t appreciate it.

Simply, we wear a blinder and can’t see beyond hierarchy … and beyond our shores. Yet there is no denying that GDP will grow in the 7% range. Still, that means we need at least one generation to get over the hump – given how far behind structural flaws and deficiencies have brought us.

Short-term thinking plus logical, linear and incremental thinking would explain why we sound like a broken record. We’ve yet to gear up and educate Juan de la Cruz in big data and analytics. It is fundamental to innovation and competitiveness. And a good starting point is to understand the imperative of benchmarking, which demands maturity: we must accept and learn from the foresight and genius demonstrated by the Asian Tigers.

The writer heard it first 50 years ago – that the ensuing year’s economy would be better than the previous – when he started his career. If we can’t change our ways, Rizal is truly prescient …. And we don’t want the elite class to be the present-day Padre Damaso ...

“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]

Drive sustainable wealth generation … not the war on poverty (or drugs)

That is to build upon a recent posting, to wit: “To conquer poverty, we must think wealth – sustainable wealth generation – not subsistence farming and paternalism nor charity and subservience. Recall the distinction between a growth mindset and a fixed mindset.” 

If it isn’t obvious yet, the blog has constantly raised the imperative of a growth mindset if Juan de la Cruz will have a prayer in his aspirations to attain a better life. A fixed mindset undermines the ability to imagine and visualize the future – which is what foresight is about … that made Adam and Eve superior to the rest of creation.

Unfortunately, this phenomenon is a recent discovery (from the social sciences) and is yet to become the norm. While logical, linear and incremental thinking has guided Western higher education from day-one. 

That is why all along we assumed the war on poverty is the key to move the nation and Juan de la Cruz forward. As the blog has argued, Juan de la Cruz is programmed to wear a fixed mindset. And that is reinforced by our deference to hierarchy that all he could demand is paternalism.

And it gets worse. We submit to tyranny – courtesy of political patronage and dynasties and oligarchy – because our instincts say we must be inward-looking, i.e., parochial and insular.

It explains why we can’t imagine and visualize prosperity and sustainable wealth generation. Unsurprisingly, here is an example of how we are greeting the New Year: “Bright prospects for the new year,” Editorial, Philippine Daily Inquirer, 1st Jan 2018.

“Prospects remain bright for the Philippine economy in 2018, thanks to the continuity in fiscal and monetary policies and the enactment of the crucial first phase of the tax reform program of the Duterte administration.

“Add to this the intentional focus on ramping up infrastructure spending, dubbed the ‘Build, Build, Build’ program … The board of the National Economic and Development Authority chaired by the President approved in 2017 P1 trillion worth of infrastructure projects, and these will most likely go on stream in 2018.

“With the expected jobs to be generated by these projects and the increased purchasing power to be triggered by the income tax cuts starting this month, the economy is truly looking forward to a prosperous new year.”

Nothing wrong with the message. It is classic logical, linear and incremental thinking. Which is no different from how we conceived and waged the war on poverty. With the bulk of poverty coming from rural Philippines, we pursued land reform and supported it by a menu of initiatives albeit with varying degrees of success, i.e., agriculture extension programs, irrigation, farm mechanization, farm-to-market roads, finance access, etc., etc.

Throw in CCT for good measure – because the farmer’s income hasn’t moved him up the ladder, mired in subsistence farming ... Not large-scale cooperative agribusiness with a clear-eyed focus on producing and marketing a portfolio of products that will win in the market place. This is not the first time the blog raised this critical and crucial point. We need more of our collective imagination and energy behind it.

The issue is when it comes to economics and economic development we focus on finance but not the products and services – which make up the GDP numbers – that will give us the greatest revenues, and why we fell into shortsightedness and the trap of OFW remittances. Because we have yet to learn, develop and employ the “how to” of foresight.

Sustainable wealth generation comes from competitive products. And Tim Cook, the Apple CEO, must be the first one to recognize it. Recall Steve Jobs and his product ideas made Apple the most valuable enterprise in the world. And that is a tough act to follow.

The bottom line: PH poverty remains embarrassing and pitiful while our neighbors have long fixed the problem. How? They figured out and traversed the journey from poverty to prosperity. It’s a great model of foresight.

But Build, Build, Build is our eye to the future? It still equates to logical, linear and incremental thinking. Think of the latest UN SDGs (sustainable development goals), i.e., rapid infrastructure development, industrialization and innovation and competitiveness.

And recall how the JFC expressed frustration that after 6 years of the Aquino administration – while the Du30 administration still must make a definitive pronouncement on where they stand – Arangkada Philippines (aka the 7 Big Industry Winners) hasn’t really progressed. That is notwithstanding the uptick in manufacturing that is ahead of our neighbors, i.e., we are coming off a low base that is a function of our structural flaws and deficits. We cannot keep our eye away from the ball and fall into the trap of denial.

The bottom line: All the positives we are seeing are factored in our GDP growth, that is in the 7% range. And that means we need at least one generation at these growth levels – confirmed by the international financial institutions that are supportive of these GDP numbers – for Juan de la Cruz to see the end of the tunnel.

Of course, those of us in the elite class will naturally benefit from a year-on-year bump but those outside the economic mainstream will not. And they constitute most Filipinos, including subsistence farmers. [The first 20 years of the writer’s career were spent in the Philippines and lived through this year-on-year phenomenon, yet 30 years since we are still a poor, underdeveloped nation and the regional laggard to boot. And why he is beating up on the elite class that he represented.]

Hence, we want to drum up MSMEs while raising the alarm bells that foreign competition can undermine our small businesses. But precisely why the blog explained the difference – that is, self-reliance – between Uncle Sam and our Chinoys on one hand, and our small entrepreneurs on the other.

In other words, victimhood is our starting point instead of self-reliance; not surprising given our hierarchical instincts and deference to oligarchy.

What is the reality in the bigger world? Try this news report from Wall Street: “Unilever: If you can't beat 'em, imitate 'em,” Yoel Minkoff, Seeking Alpha News Editor, 3rd Jan 2018. 

“Under siege from an army of small-batch upstarts, Unilever (UL, UN) is looking to imitate its ‘ankle biter’ competitors … ‘We have to match them in terms of insight, speed and the ability,’ said CFO Graeme Pitkethly, who is helping spearhead the company’s globe-spanning reorganization.

“Consumers have gravitated in droves toward smaller, niche or locally made products, and in many cases, they are seeking out healthy alternatives.”

To the writer’s Eastern European friends, that is no news. They know it firsthand since they have been approached by these Western behemoths – wanting to partner with them – being the David amongst the Goliaths.

And we Pinoys have snacks brands, among others, that are successful despite global competition. We just need more of them. And that brings us back to the imperative – to rapidly drive industrialization and innovation and competitiveness – beyond Build, Build, Build.

As important is for our MSMEs to exercise greater foresight and chart a course of self-reliance. We cannot be globally competitive – and drive sustainable wealth generation – if we fear competition. But will instead find ourselves in a race to the bottom, in the company of uncivilized societies and their despotic leaders.

Happy New Year to one and all!

“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]

Do it once, you’re a fool … but twice makes me a fool

If we cannot take that premise, then this posting must be destined for the trash bin.

The Marcos killing fields made him a fool. To celebrate EJKs – the second killing fields for this proud Christian nation from the hands of its leader – makes us a fool. And there is a word for it, uncivilized. To quote from an earlier posting, civilization means development – or evolution, progress, refinement, sophistication, advancement … of people, society, nation, culture, polity. [Thesaurus]

And it explains why progress – growth and development – has eluded Juan de la Cruz. We the elite class that Juan de la Cruz looks up to – as models and thought leaders to advance PH civilization – bear the burden if democracy dies again in the Philippines, to paraphrase Prof. Edilberto C. De Jesus [of the Asian Institute of Management.]

We can rationalize our failings yet we must recognize when enough is enough. President Ramos rallied us behind the slogan “Global Philippines” but it appears we can’t undo parochialism and insularity. And to celebrate EJKs confirms our deference to hierarchy that has promised prosperity. But that is so patronizing to even be credible. Why? Prosperity comes with civilization. And we run the risk that beyond failed institutions we are inching closer to a failed nation – if we’re not there yet. Recall the pronouncement of the late Miriam Defensor-Santiago.

Many postings ago the writer shared the experience of a visit to Papua New Guinea. Consumer-product companies have a terminology for such visits, i.e., trade visits or store checks. And they are not confined to developed economies given competition means winning in the global arena. But even more intrusive is the pursuit of global household penetration and pantry checks.

They are examples of how to go full circle and connect the dots to drive innovation and competitiveness: to validate the hypothesis of the undertaking – from product concept … all the way to the pantry of the consumer, to confirm that the product serves the purpose and addresses a human need.

The thinking model applies to agribusiness and more precisely, how we can reform Philippine agriculture. And that is, we must start with the coconut industry since it accounts for roughly half of agriculture exports. Sadly, the industry, which impacts the most number of rural poor families, is not a world-class enterprise [even when political patronage has appropriated its spoils.]

The question to answer is not: how do we innovate? Because innovation is not innovation for innovation’s sake. It must be: what human needs can coconut-derived products serve? And that is where innovation and competitiveness begins. In short, it is not about consumerism but how to raise man’s well-being.

Coconut is a great gift to mankind because of its varied by-products, both consumer and industrial. It is here where our scientists must demonstrate their expertise. We are constantly talking of making finance accessible to farmers yet there is no equal energy and drive to ascertain what portfolio of products we must produce and market – and win on the global stage … and generate the greatest revenues.

To conquer poverty, we must think wealth – sustainable wealth generation – not subsistence farming and paternalism nor charity and subservience. Recall the distinction between a growth mindset and a fixed mindset. From the coconut industry, we must do a similar exercise for the rest of Philippine agriculture. But there is a BIG caveat: Prioritize, Prioritize, Prioritize. Toss “crab mentality” from the get-go before it drops us into the blackhole. 

But let’s get back to PNG. The village elder must know the unspoken questions from visitors that straightway he addresses the subject of civilization. “Senseless killings are a thing of the past. And back in the day, it was about the instinct of survival. We would hunt for food which is not like going to the store today to pick up stuff. So, if a family keeps livestock in the backyard and an intruder dared to steal what is precious, a fight will ensue. And there is no guarantee that life won’t be lost.”

If we’re uncertain how to wrap our head around the idiocy of EJKs, we probably need a national cleansing. We can’t resent being referenced as tree people or people living in trees when we celebrate EJKs – which the whole world views as uncivilized. Yes, EJK is uncivilized, if we still don’t appreciate it. It explains why the community of nations called out our inanity.

The bottom line: The community of nations is committed to advance civilization, saved for the handful of despots. And we can’t be stuck in our parochial and insular instincts – that unwittingly we brought Marcos and Duterte upon ourselves. And God forbid, Bongbong is waiting in the wings. The kleptocracy of the family still revolts the world. Think of why the Romanians won’t have a Ceausescu again, ever.

And to be engaged in the war on poverty and the war on drugs speaks volumes. As the blog has argued, they are not the path to progress, growth and development – and prosperity.

There is a wealth of knowledge that we can tap to guide us in the pursuit of prosperity. But does naiveté get in the way and add insult to injury? In other words, our parochial and insular posture makes us rationalize our desire to stand apart from the community of nations, including the West.

Consider: We define independence as the freedom from foreign meddling – and more precisely, kicking out the US military and shutting the door to FDIs. And look at other nations, wealthier than we are, that demonstrated pragmatism. China led by Deng is one as well as Singapore and Malaysia. While Trump is cajoling Europeans – including very wealthy Germany – to spend for defense instead of relying on the US.

Which brings us full circle to our value of and reliance on hierarchy aka political patronage and dynasties and oligarchy. Because we recognize that rank has its privileges, do we confuse it with submission to tyranny as Rizal noted? Unsurprisingly, we are unable to internalize the egalitarian ethos – which we unfortunately share with uncivilized societies.

Egalitarian? Think why Francis chose to stay in the guesthouse with other Vatican guests instead of the Papal apartment.

More to the point, Marcos was a fool, and to let Duterte reprise a Marcos makes us fools. If we have a hard time internalizing check-and-balance, do we need to ask the question: are we ready, mature enough for freedom and democracy? [See above re Prof. De Jesus]

And why the blog keeps challenging our deference to hierarchy ... which likewise undermines innovation. Docility will not bring out creativity … nor the best in people. And why a Rizal quote leads the conclusion of every posting …

“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]