Wrong policy equals inefficiency

It’s about Latin America – but we can learn from them?

According to a study by the Inter-American Development Bank, and reported by The Economist on March 25th: “. . . Much of Latin America has performed poorly over the past two generations. The gap in income per head between the region and developed countries has widened since 1960, while many East Asian countries that were poorer have leapfrogged ahead. The root cause has been Latin America’s slow—or even negative—growth in productivity . . .

“Productivity growth—gains in the efficiency with which capital, labor and technology are used in an economy—is the elusive holy grail of economic development. It is true that most Latin American countries have not invested enough, or provided their people with a good enough education (though both these things are improving). But productivity growth means squeezing more output from the same inputs. And Latin America has been particularly bad at this. Why? The short answer is that the typical Latin American firm is a small, inefficient service business and may well be operating in the informal economy. Productivity growth tends to be higher in manufacturing and agriculture than in services. It also tends to be higher in large firms which benefit from economies of scale. And it is much higher in formal businesses, which can invest in innovation . . .”

That must be why Vietnam is embracing a former enemy – i.e., America – because the country’s common good is not about the past but about pursuing the right policy? And so the Americans are now the biggest investors in Vietnam. They must have seen how China did it; China opened its doors and attracted much needed capital from the West. Instead of sulking about the past, the Vietnamese understand that to lift their economy, they need capital! And capital can be from Arabs, Asians, Europeans or whoever – friends and former foes alike. Capital in poor countries is limited no matter how wealthy the few are! And so Vietnam, and China, and the Asian tigers have chosen a policy that is outward-looking, not inward-looking – because it would benefit the common good, not just the few. Something we Filipinos have yet to internalize given our brand of patriotism or nationalism?

For example, the Filipino business community in Vietnam has invited other Filipinos to invest in the country because it has a decidedly more business-friendly environment. An international rating agency has pointed out the weaknesses of our economic fundamentals, e.g., we’re lagging way behind the region in investment especially foreign direct investment; the saving grace, again, being OFW remittances; and yet, as the agency stressed, our presidential candidates have failed to articulate a sensible economic program that would put us on better economic footing. Shouldn’t we be all over them – and our economic managers too?

We mirror much of what Latin America is? There is nothing wrong in promoting small businesses. But the better policy goes further: to seek competitiveness beyond our shores; and as importantly, the right policy is to attract and compete for capital – so that we can invest in bigger and better things that will generate economies of scale and efficiency, and innovation . . . for the common good.

The writer has talked about being proactive. And it also means being forward-looking? Being outward-looking? Being peace-loving? And growing up – not blaming others but revisiting our policy? It’s not about them; it’s about us? It is about taking personal responsibility – the lesson of Eden?