The acid test for CREATE and RICH

These two initiatives will not deliver their intended results in one year. And so, we better toss the 6%-6.5% GDP growth rate mantra – that has created a small mind in Juan de la Cruz and perpetuated the crab mentality.

Worse, it taught us learned helplessness – i.e., the reliance on OFW remittances (and more recently, the BPO revenues) and oligarchy, in cahoots with political patronage. As necessary, we must discard our caste system. In concert, they generated the perfect storm we’ve faced for the longest time.

Consider our instincts: We are parochial and insular. We value hierarchy and paternalism that we rely on political patronage and oligarchy that ours is a culture of impunity.

What is CREATE, and what is RICH?

CREATE: “The Corporate Recovery and Tax Incentives for Enterprises Act (CREATE) is the latest incarnation of the TRABAHO and CITIRA bills and is now part of the COVID-19 stimulus package put together by the government’s economic team.” [CREATE: Tax reform response to COVID-19, Donna Frances G. Ylade-Torres, Suits The C-Suite, BusinessWorld, 21st, 28th, Jun 2020]

RICH: “Senator Richard J. Gordon refiled a bill creating the so-called Regional Investment and Infrastructure Coordinating Hub (RICH) of Central Luzon as Senate Bill No. 1549, which also positioned it as a measure in response to the coronavirus pandemic.” [Gordon refiles vetoed bill creating Central Luzon investment hub, Charmaine A. Tadalan., BusinessWorld, 28th Jun 2020]

If we get rid of the global yardstick of 6%-6.5% GDP growth rate, how do we measure progress?

We must be less inward-looking and be more forward-thinking. We must benchmark against our neighbors – and beat them. Once and for all, we mustn’t be the regional laggard.

We must put our money where our mouth is. We can’t merely cry nationalism and be the laughingstock of the region, if not the world. Juan de la Cruz cannot keep to a small mind. That is why Padre Damaso must be in our consciousness. An absolutist is a little mind.

If we get rid of the global yardstick of 6%-6.5% GDP growth rate, how do we measure progress? We must aggressively generate incremental GDP of $200 billion and beat the hell out of our neighbors!

That is the acid test for CREATE and RICH.

Start with the CIT or corporate income tax. “By 2027, our CIT rate will be comparable to that of Thailand and Vietnam, currently at 20%. It will then be just a matter of time before our country matches the ASEAN average of 23%.” [Ylade-Torres, op. cit.]

Recall Samsung Vietnam in 2019 exported $51.38 billion worth of smartphones and parts. And more recently, AirPods Vietnam came into being. Both are regional technology manufacturing hubs. We are in the same business category but producing intermediate products, not finished consumer electronics products, and at minuscule levels. That is how Vietnam rapidly broke the back of poverty, and we can’t.

Vietnam’s exports (2019) were $304.3-B against our $70.3-B. Isn’t that very chilling?

Enter: forward-thinking, not analysis. An analysis is a double-edged sword when invoked at the wrong time. Recall why several years of celebrations given our GDP growth didn’t lift us from being the regional laggard.

Does that clear the cobwebs?

If it did, we could then consider that Vietnam and Thailand’s CITs are at 20%. If we are to attract current China and Vietnam FDIs like yesterday, how do we beat the hell out of these countries?

Try 15% CIT.

From forward-thinking, we must then get into visualization mode – that is, before running the numbers. The key is to leverage brainpower.

Start at $50 billion in revenues that we want to attract. How will that translate in taxes at 15% CIT; then run the numbers for 10%, 12%, 18%. Why not 20%? Samsung Vietnam will not uproot to move to the Philippines for the same tax benefits.

They may not even at 15% if they see other intangibles to be in Vietnam. But then a CIT better than Vietnam and Thailand will attract many others to want to come to the Philippines.

Then we can be selective. We want to prioritize high technology manufacturing because we need to quadruple our exports at a minimum. Plus, they must deliver higher margins than our current ones.

That is how we must fine-tune CREATE. Which industries must we target to rapidly attain incremental exports that will be four times our current efforts and at the right margin levels?

That is where RICH comes in. And it must likewise look outward and forward, outward to the Pearl River Delta Economic Zone. And if we can replicate the magic of that China initiative, we will surely beat the hell out of our neighbors.

For example, we must develop Central Luzon faster than other regions because it is far advanced than the rest of the country. That is where we need clarity in our thinking. We want rapid export growth, so we must locate the targeted new investments to the region that will deliver speed equally.

We want more significant tax revenues fastest and at higher levels – which we can then utilize to develop the rest of the country. We cannot mix apples and oranges.

There is a long list of industries that are more suited to the less developed regions. We cannot romanticize the exercise that must rapidly break the back of poverty like Vietnam did.

There are very fundamental givens that we keep taking for granted. Let’s stop and ponder. 

Beyond Padre Damaso, who is no different from the scribes and Pharisees, is the wisdom and the science behind the Great Commandments. The science comes from Pareto and which in pop culture translates to the vital few against the trivial many.

But given our caste system, we don’t think beyond entitlement. And so, we fall into the trap of the isms. Isms are human-made and can’t equal perfection or the gospel truth.

Take our mantra on MSMEs. Their potential can come not from outside interventions but the dynamism of the entrepreneurs. That was the conclusion of the UP ISSI study.

That is separate from the impact of the pandemic. In a prior posting, the blog spoke to aggressive response and direct subsidies to the marginalized sectors, including MSMEs. We must raise both the supply and demand sides of the economy sharply to recover from a contracting GDP quickly.

In the meantime, to build upon the UP ISSI study, recall what the writer committed to Eastern Europe. He took on the challenge faced by an MSME because of the owner’s dynamism while he dropped another one for the opposite reason.

And today, after seventeen years, they are giving Western giants a run for their money being a more formidable competitor and tapped into state-of-the-art technology, including robotics and artificial intelligence.

And as discussed, several postings ago, we need a thousand of our MSMEs to step up to the plate to make a marked impact on the economy. And that means visualizing how they can each be a hundred-million-dollar enterprise. And socialism is not the way forward. Recall the blog keeps bringing the banishment from the garden. It is about personal responsibility, not an entitlement. 

Consider these simple questions again: Where are we? Where do we want to be? How do we get there?

It is a similar exercise we are doing to make CREATE and RICH a reality.

For example, we better know the Pearl River Delta Economic Zone even better than the Chinese did. Remember, it was a new initiative for them, and they committed lots of mistakes in the process. Today, there is so much information about this success story that we don’t have to repeat those mistakes.

But that can only happen if Juan de la Cruz becomes less inward-looking, parochial, and insular.

We must take CREATE and RICH as two sides of the same coin. First, we must stop and ponder, and then indulge in some forward-thinking severely.

And our economic managers and legislators must demonstrate leadership and educate Juan de la Cruz on how to toss the small mind, how to look outward, and how to forward-think and break the back of poverty.

We want to beat the hell out of our neighbors. That is the acid test for these two initiatives.

Gising bayan!

“Here is a land in which a few are spectacularly rich while the masses remain abjectly poor. And where freedom and its blessings are a reality for a minority and an illusion for the many. Here is a land consecrated to democracy but run by an entrenched plutocracy, dedicated to equality but mired in an archaic system of caste. 

“But the fault was chiefly their own. Filipinos profess the love of country, but love themselves – individually – more.” [Ninoy Aquino, Foreign Affairs magazine, July 1968; Stanley Karnow, New York Times Magazine, “Cory Aquino’s Downhill Slide,” 19th Aug 1990.]

“Why independence, if the slaves of today will be the tyrants of tomorrow? Moreover, 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]

“True social reform has little to do with politics. To unmoor ourselves from the burdens of the past, we must be engaged in the act of continual and conscious self-renewal. All men are partially buried in the grave of custom. Even virtue is no longer such if it is stagnant.

“Change begins when we finally choose to examine critically and then recalibrate the ill-serving codes and conventions handed down to us, often unquestioned, by the past and its power structures. It is essentially an act of imagination first.” [David Henry Thoreau; American essayist, poet, and philosopher; 1817-1862]

“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]

“You have to have a dream, whether big or small. Then plan, focus, work hard, and be very determined to achieve your goals.” [Henry Sy Sr., Chairman Emeritus and Founder, SM Group (1924 - 2019)]

“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]

“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]