Wednesday, June 27, 2007

America is in the mind

COULD “admiration” for America—given that most of the world hates it, according to a recent 18-nation survey—be a "rational" behavior? We think so, contrary to what many easily dismiss as a blatant show of slavish colonial mentality.

When asked how much do Filipinos trust the US to act responsibly in the world, 85 percent of Filipinos answered “a great deal/somewhat.” The Israelis practically answered the same. The rest of the world—specifically Argentina, Peru, Russia, France, Armenia, Indonesia, China and Thailand—has a negative view.

While most of the responding countries believe that the US is playing the role of the world policeman, 57 percent of Filipinos disagreed. While places like Argentina, Palestinian territory, France, China and Ukraine think Americans should have fewer bases, 60 percent of Filipinos think the US should have “about as many as now.”

In other words, we are the only ones—besides Israel—who admire the Americans while the rest of the world is suspicious of her motives.

Naturally, the country’s intellectual class is aghast (See discussions in Philippine Commentary, for instance). That only confirms Filipinos’ colonial mentality, says one. Says a blogger: “Filipinos’ faith in America is like their faith in the Catholic Church: unreasoning, uncritical, and unrequited.”

It’s purely an affair of the stomach, says another, referring to the fact that we receive billions of dollars of remittances from relatives in the US.

All these opinions have grains of truth. But we think there are deeper reasons. Well-informed, Filipinos are aware of the bumbling and fumbling that the Bush Administration had committed in the international scene and many Filipinos are critical of these actions. Yet, they generally have a positive idea about that country because they look at America more as an idea, as a model for an open and democratic society that we wish to emulate.

It’s a place where people complain about their corrupt and stupid politicians yet manage to achieve an economically and technologically advanced society through the exuberance of private initiative and individual freedom.

It’s a melting pot of all cultures, different creeds and colors, and different ways of doing things—yet Americans are always able to come together toward something with the simple idea that they are Americans.

It’s a place where citizens routinely complain about bad schools and universities and yet they always dominate the Nobel Prize in economics, medicine, physics and other fields. It’s a place of dropouts and iconoclasts who defy convention and yet are always able to produce new and exciting technologies that are transforming our lives for the better.

It’s a place where inequality is stark as manifested by the shocking view of the homeless in rags dragging carts, and yet it also has the most number of billionaires coughing up billions to save the world’s myriad problems, including malaria, HIV, tuberculosis, among many others.

It’s a nation of contradiction, but its contradiction doesn’t produce paralysis and stasis but change and progress. It’s topsy-turvy and chaotic but it’s a functioning and creative kind of chaos.

In other words, because of our own contradictions, we look at American society as a model for development.

In the last three decades, we have seen the rise of tiger and dragon economies in the Asia Pacific Region. Many are late industrializers guided by the authoritarian hand of the state. In the name of “Asian values,” many of these countries suppressed individual rights (freedom of the press and assembly, for instance) for the sake of social stability, economic growth and technological progress. Apparently, the approach worked for them and it seems that most of their citizens are happy. Many of these countries are now rich and prosperous, but Filipinos have rejected that model of development because it didn’t work for them.

Filipinos rejected the authoritarian model of development by toppling Marcos through “people power.” They rejected it by not supporting attempts by military adventurists like Gringo Honasan, and recently, the “version” of Antonio Trillanes IV, to grab power by the barrel of the gun.

Filipinos rejected that tendency when they denounced President Arroyo’s move to declare a “state of emergency” supposedly to foil military adventurists. And recently, Filipinos elected Honasan and Trillanes to the Senate when they turned to parliamentary struggle, knowing that by doing so they were sending these men the signal to fight their cause the “constitutional way” while spiting the dwellers in Malacañang whom they perceive as having lots of things to account for to the Filipino people.

Admittedly, the type of development path that Filipinos have taken is slow and frustrating compared to the frenetic pace of growth being achieved in China, Russia and Vietnam. But Filipinos know they are going to get there as well through a different mode knowing that progress—which should encompass economic, political and social choices and freedoms—is a doable project under democratic processes.

Filipinos are certain about that because others are already there and America is one of the best examples. This is a perfectly rational expectation.

Is the Filipino’s admiration for America uncritical? We don’t think so. When SWS asked Filipinos whether or not the US as a superpower should continue to be the preeminent world leader in solving international problems, 55 percent said, “The US should do its share in efforts to solve international problems together with other countries.”

It means Filipinos are critical of the unilateralist approach that President Bush and the neocons have taken so far and want reforms. That sentiment pretty much reflects global opinion about America’s role in international politics. We love America as an idea but we are not always comfortable vis-à-vis some of the nasty things that its leaders did. Now, that’s a very level-headed view.

(Note: Originally drafted as editorial for BusinessMirror, 28 June 2007).

Tuesday, June 26, 2007

Globalization as a stabilizing force in Philippine politics

During the Hawaii phase of the Jefferson Fellowship, I got the chance to deliver a talk to the faculty and students of the Philippine Studies Center of the University of Hawaii in Honolulu (see photo). My major point? Globalization has become a stabilizing element in Philippine society—so far. Highlights below.

The Philippines is no longer the same place we knew ten years ago. In the last few years, the Philippine economy has been growing within the 5-6 percent GDP growth band, courtesy of robust services sector that has been growing at 6-7 percent. It seems to have overcome the boom and bust cycles that characterized much of the 80s and the 90s.

Why? Because of the emergence of new growth drivers, the most notable among them are the rising remittances from overseas Filipinos, recovering export sector particularly electronics and semiconductors, mining, agribusiness and cyberservices.

From coco chips to micro chips
Ten years ago, electronics and semiconductors accounted for only 42 percent of the country’s exports with farm-based products like coconuts, pineapples, bananas, tuna, seaweeds, and baskets having significant percentages. Today, manufactures account for 86 percent of the country’s exports, the bulk of which are electronics and semiconductors. Farm-based products now account for only 4 percent.

Ten years ago, 36 percent of our exports were purchased by the Americans, such that we would always a catch cold, nay influenza, when America sneezed. When combined with our exports to Japan, Netherlands, Hong Kong, Great Britain and Germany, more than 70 percent of our exports were purchased only by seven countries. China and India were not even listed among our markets.

Today, America only accounts for 18 percent of the country’s exports. China is now our third largest market next to Japan. Suddenly we can see our friends in the Asean buying about 17 percent of our products. The rest are accounted for by Europe and the rest of the world.

What we see here is a diversifying export market for Philippine products, a trend that should lessen our vulnerability to external shocks.

Outsourcing blooms
It used to be that after office hours, Ayala Avenue and the main thoroughfares of Ortigas Center are empty. People are home after their 8-5 routines. Now, going around these places after five you will see young people arriving. Work for them starts at 9 pm until the five in the morning. These young people are workers of call centers, a major component of the fast growing business process outsourcing industry that includes back office operations, medical transcription, software engineering, animation, among others.

The industry practically shot up like mushrooms in the last five years, growing at 57 percent per year on average. Today, the industry generates more than 3 billion dollars in service exports, employing more than 250,000 workers. At the rate it is growing, industry leaders project a 12 billion export revenues by 2010 with the total number of jobs reaching as high as 800,000 to a million workers.

The rapid growth of this industry has been so fast that Makati and Ortigas Center’s business centers are running out of office space. During the height of Asian financial crisis, vacancy rates in Metro Manila went as high as 50 percent; now it’s down to three percent, thus sending developers on a scramble to build more buildings. That is why property developers these days are expecting a property boom.

Overseas Filipinos
We seem to think of the OFW as a hardscrabble worker in some forgotten desert who can only afford low-cost and low quality dwelling. A few weeks ago, I was surprised to find out that almost 40 percent of the buyers of the high-end Manansala Tower condominiums situated right smack of Makati central business district are OFWs. By the local standards, prices in these prime locations—at least 100,000 pesos per square meter—is beyond the reach of ordinary office employees. But at the current exchange rate, that’s only about 300 dollars worth of monthly amortization for a nurse working in the US or UK. Overseas Filipinos are now major player in the local property market.

A significant number of these buyers are overseas Filipinos who left the Philippines in the 70s during Martial Law. Now they are in their 50s and 60s and are thinking of coming back home.

It would be easy for OFs these days, and even the emerging middle class, to buy properties these days because interest rates are low—as low as 3 percent. Banks are offering a fixed 11 percent rate for properties payable within 25 years. They are doing this lately because inflation rate is tapering off, and they were able to unload their bad assets due the SPV law that was passed a few years ago. With the SPV law, they were able to securitize those assets and disposed of them so easily.

Revolution from beyond
You might be wondering how these new growth drivers emerged. There are a lot of reasons but I would like to cite two major ones.

First—demographic change in advanced countries prompted rising demand for medical and other professionals and the Filipinos responded to this opportunity quite well. Also, high crude prices brought riches to oil and gas producing countries. They are recycling these petrodollars in exploration and development as well as construction of rigs and oil platforms and are hiring an increasing number of Filipino engineers, architects, geologists, mining engineers, and skilled construction workers. That explains the double digit growth of remittances each month in the last three years.

And the second—the Philippines has a relatively more open economy, courtesy of a major wave of economic reforms unleashed by the Edsa people power revolution, a process that was accelerated by World Trade Organization’s entry into force in 1995. Specifically, greater competition led to the modernization of the country’s telecommunications industries. When the Department of Trade and Industry started promoting the Philippines as an investment destination for BPOs in 2000, the country was prepared for the challenge.

The BPOs in the Philippines are part of the fast-growing global “new economy” that emerged in the 90s. The global recession that followed the dotcom bubble in 2000 may have discredited the “new-economy” prophets. Nevertheless, “new economy” remained current as global companies took to heart its core doctrine that companies should “focus on their core competencies” and outsource the rest using information technology.That’s how we came to have all these outsourcing companies in our midst. And their presence is expanding rapidly. Its new metamorphosis is the knowledge-process outsourcing (KPO) where local MBAs, engineers, and economists perform analytics like risk analysis for global corporations and organizations.

The electronics and semi-conductor industries of course have always been there since the days of the Marcos dictatorship. But the search by Japanese companies for skilled labor and lower cost areas in response to the appreciating yen since the early 90s brought a lot of them to the Philippines.

Somehow, I believe that these two factors qualify as examples of what journalist Thomas Friedman, author of the Lexus and the Olive Tree, calls “revolution from beyond,” and externally induced process of change that is affecting almost every facet of Philippine society, including politics.

Globalization as a stabilizing element
I could only cite two major impacts. First, based on some estimates, more than 60 percent of the country’s GDP are accounted for by the globalized sector of the economy whose imperatives are determined largely by global economic and political dynamics. Somehow, this has led to the “decoupling,” albeit partially, of the country’s growth prospects from the country’s rambunctious political dynamics.

The economy has been growing quite decently despite all the political noises. Critics of the government are finding it hard to mobilize warm bodies for mass actions. I guess the middle or the lower middle classes, the main actors of the Edsa I and II “revolutions” are benefiting from the opportunities generated by the new growth drivers.

Second, globalization has completely changed the references in political and social discourse thus making the old framework about what is “Left” and “Right” from which the great political debates were anchored has become less relevant.In the formulation of old, Leftists long for the “historical inevitability” of change in contrast with those of the Right who cling to the status quo. These days, however, the Left instinctively oppose market-oriented reforms aimed at undoing local monopolies and oligopolies, policies that should have immense welfare benefits to society. They long for the return of dirigiste policies of the past that nurtured the oligarchic structure of the Philippine economy. It’s so easy for Leftists these days to link arms with military “adventurists” and Marcos remnants for whatever issue they find convenient to oppose, thus lessening their credibility.

Class struggle within the country’s borders, the imagined schism between the owners of capital and the possessor of the brawn, has lost its immediacy as both workers and capitalists suddenly found themselves struggling for survival against foreign competition. Suddenly, “global competitiveness” became the buzzword requiring strategic alliances among the various social actors—politicians, business, workers, and civil society.

The current crop of politicians now generally assume the future of the country lies in global connectivity, and the only debate left is to what extent and how fast should we hitch on that global dynamics. These differences by themselves wouldn’t make interesting election discussions as politicians would rather go for mass marketing techniques characterized by hype and spectacle to get the votes.

In the campaigns, politicians sing and dance and the crowds are entertained. Yet it seems to be no big deal to many. That’s because the increasing globalization of the Philippine economy is making the mid-term elections a side show to what the people think are the “real issues.”

Based on the intensity of media coverage on the recent nursing board leak scandal that doomed the November 2006 batch of nursing graduates from practicing in the US was a bigger issue than the mid-term election. When Angelo de la Cruz, a construction worker captured by insurgents in Iraq and was shown on CNN pleading for his life a few years ago, the sympathy generated at the grassroots forced President Arroyo pull the few troops we had in Iraq, thus altering the country’s foreign policy overnight.

Several months ago, civil society organizations and the Catholic Church hierarchy expected a million people to show to its anti-charter change rally. Only about 20,000 came. During the height of Hello Garci controversy, many were expecting protest actions to gather momentum for another Edsa revolution. It didn’t happen. It seems there are more economic incentives for the “middle forces” to shun political action in favor of “stability” by which they could maximize the opportunities by the new growth drivers.

There are indications that most of those uprisings in the past were supported by the business elite. They are concentrated in the banking, real estate, export, and trading. Most of these sectors now are raking in money from overseas remittances, outsourcing, and recovering exports. It means they now have a stake in the stability of the system.

They are not apathetic—far from it. In fact, there’s a growing movement for a clean and honest elections. They just want to make sure that the political process should no longer take short cuts like the Edsa Dos and Tres that eventually hurt the overall prospects of the Philippine economy.
Certainly, globalization poses risks and challenges, but so far it has become a stabilizing force in Philippine politics. If the government could guarantee a credible election in May, the Philippines may yet achieve a higher growth trajectory (6-7 percent) in the next three years. That’s the only way the government could make serious headway in the fight against joblessness and poverty.

No English language skills, no social mobility

Dalits, the underclass in India’s caste system—says the Wall Street Journal—are benefiting from India’s rapid economic growth. Says WSJ:
“India's rapid economic expansion -- and its booming high-tech sector -- are beginning to chip away at the historical system that reserved well-paying jobs for upper castes and menial jobs for Dalits. With annual gross-domestic-product growth exceeding 9%, companies that have hired tens of thousands of workers in recent years are looking beyond their traditional sources of employees. High-tech firms, both foreign and domestically based, are at the forefront of that search. As a result, some Dalits are rising into India's middle class.”

Encouraging so far, except that when one reads deeper into the story, the author says that only few of the Dalits are actually benefiting:

“Still, success stories … are rare. Estimates of the number of Dalits with skilled jobs and steady salaries in India's New Economy vary from tens of thousands to around 100,000, according to employers, workers, experts and government officials. That's out of a total Dalit population estimated at about 167 million, or about 16% of India's total population of 1.03 billion.”
Government and the private sector are actually trying hard to recruit Dalits into the economic mainstream through affirmative action. The problem?

"Many Dalits, especially in rural areas, don't have a shot at a decent education-- a must for the fastest-growing areas of India's economy like software development, medicine and engineering. Those that are educated are typically taught in their native language, leaving them ill-prepared to compete with wealthier, English-schooled job applicants."

Yes, poor education and, specifically, lack of English language skills! They can’t just rise up the social ladder because they are poorly educated and can’t speak decent English!

This is also true in the Philippines. Wherever you go, companies always require good English skills. And yet some people in this country are still saying adopting English as a medium of instruction in elementary schools would aggravate the social divide. I don’t get it.

Related posts
Master English or perish
Mastering English the Chinese way
Addressing skills-jobs mismatch in the Philippines

Monday, June 25, 2007

The highwaymen are here again!

The politicians don’t just want your money. They want your soul. They want you to be worn down by taxes until you are dependent and helpless. When you subsidize poverty and failure, you get more of both.

–James Dale Davidson, National Taxpayers Union (An American antitax advocacy group)

WHEN President Arroyo said last week that there wouldn’t be new taxes, we were apprehensive because politicians always end up implementing the opposite.

“Read my lips: no new taxes,” said candidate George W.H. Bush during the 1988 Republican National Convention. He ended up eating crow and Americans having to pay more taxes when he took power.

Indeed, finance officials declared a few days ago that they were looking for ways to enforce the 12-percent VAT on toll ways. We use the term “enforce” because the expanded-VAT law author says this particular service has always been “VAT-able.”

Here’s the rub: toll-way operators currently don’t pay VAT since, they say, the old law doesn’t specifically tell them to do so. So counterintuitively, Malacañang spin masters thought that if the law doesn’t say so, it could also mean the government is not prevented by the law from collecting VAT from the toll ways.

It’s a kind of creative and funny logic. We’d like to laugh but we can’t because of its possible negative implications. The government hopes to collect at least a billion pesos but it’s not certain how much it would cost ordinary Filipinos. It’s certain that toll operators would pass the extra cost to consumers by raising fares.

Economically, that would mean higher transport costs to vehicle owners and operators, which could cascade in terms of higher bus and FX fares for commuters; higher prices of fruits, vegetables, fish, meat and cereals as viajeros are likely to pass on the cost to consumers; higher cost of business to entrepreneurs big and small on top of the already high transactions cost (read: expensive electricity, high port users’ charges and high cost of long-distance calls) that they currently bear; and which could ultimately spell economic difficulties to wage earners.

Of course, finance officials—and even the VAT author, Sen. Ralph Recto—are saying that the toll operators should not pass on the tax to consumers because from the start, they’ve been expected to charge VAT-inclusive fees.

Yet, on the other hand, the operators, for instance, the Philippine National Construction Corp. (PNCC) through its spokesman, say they haven’t done so. And if the State were to insist on enforcing it now, they’d have to jack up the fees to include the VAT, and thus have to seek permission from the Toll Regulatory Board.

Don’t get us wrong. We want the State to have more money to finance growth. And we’ve always stood for collecting the right taxes, because in a country of scarce resources, everyone should pull in weight. But we feel that the revenue generated should be fair and just, and this one is certainly not because of its potential impact on the poor.

What adds salt to injury is the fact that government taxmen don’t really have to hit the toll ways had the ruling party been diligent in working on the country’s fiscal-reform program.
For instance, the fiscal-rationalization bill has been languishing in Congress. That tax proposal would have added more or less P5 billion to the country’s coffers without hurting the poor. And yet, Malacañang has not lifted a finger to nudge its allies to ensure the bill’s passage.

The continuing failure of the government to reform the incentive system could mean that the country would continue to suffer a hemorrhage of at least P300 billion a year in terms of forgone revenues.

And now, the government simply wants the easy way out by shaking the toll ways. It is this kind of mentality that is destroying the country.

In hindsight, the real issue here is probably not all about taxes but governance—or the lack of it. If we take it from, Sen. Ralph Recto, tolls are “VAT-able” and have always been covered by the original VAT law. What motorists are paying right now is already VAT-inclusive—supposedly.
That means we have always been paying VAT at the toll and there’s no need to raise toll rates.

If his presumption is right, the question now is “where’s the money?” Does it mean the toll operators like PNCC were collecting VAT money and pretending it’s their money?

Yet the way the PNCC spokesman responded to questions from DWIZ’s Karambola hosts on Monday, it’s obvious they never folded in the VAT into pass charges, so there’s nothing to spit out.Now, we have a very complicated situation here and the government, especially Finance Secretary Gary Teves, should clarify this matter first, and urgently, before even contemplating about shaking out the people at the tolls.

(Note: Originally prepared as editorial for BusinessMirror, 26 June 2007)

Saturday, June 23, 2007

The future of Silicon Valley

Last month, I participated in the Spring 2007 Jefferson Fellowship on “innovation offshoring” sponsored by the East-West Center in Honolulu, Hawaii, with funding from the Freeman Foundation. The Fellowship brought us to major innovation centers in Silicon Valley, China (Beijing, Shanghai) and India (Bangalore and Chennai) where we interacted with innovators, tech start-ups, venture capitalists, academics and experts on innovation offshoring. Below are some of my notes about the Silicon Valley.

SAN JOSE, California—Silicon Valley, says San Jose/Silicon Valley Journal editor Norman Bell, is more of a state of mind than a piece of geography. For such an imagined technological Shangri-La, Silicon Valley continues to transform the world’s economies all the way from the United States to Ireland, Israel, India and China through an expanding tangle of collaboration, innovation and entrepreneurship. Experts believe if the rest of the developing world like the Philippines could tap into the dynamics of this collaborative network, everybody else could flourish.

Well, Silicon Valley is a tangible piece of geography—only not anyone there could agree where its boundaries lie. Tales about its origins abound. Some say the term “Silicon Valley” emerged in the early ’70s when journalists tried to describe a concentration of electronics firms in Santa Clara County that flourished after Stanford University in Palo Alto leased a huge chunk of its campus to high-tech companies after World War II. (Silicon, which is derived from silica and silicates, is extensively used in the manufacture of microchips, hence the term Silicon Valley.) Stanford then was in dire financial straits and what better way to address this problem than by setting up an industrial park?

Thus, from a rural wilderness where prunes and apricots grew (the romantics used to call it “Valley of the Heart’s Delight”), it evolved into what it is today—a kaleidoscopic region whose fortunes and boundaries changed as companies suffered booms and busts as they leap from one “the next big thing” to another: semiconductors in the ’60s to the ’70s, personal computers and work stations in the ’80s, network computing and the Internet in the ’90s, and mobile computing, biotechnology and nanotechnology in the new millennium.

“Today the tech-focused kingdom has expanded up the peninsula and over the Santa Cruz Mountains,” says Bell, who was a participant in the Spring 2007 Jefferson Fellowship on innovation offshoring sponsored by the East-West Center in Hawaii. “It spreads from downtown San Francisco, down Highway 101, past the biotech campuses of South San Francisco and the corporate campuses to the IBM software labs in south San Jose and on to the RFID [radio frequency identification] works in Morgan Hill. To the west, most agree it has spread to the coast, where the University of California Santa Cruz is making a name for itself in gaming and nanotechnology.”

Marguerite Gong Hancock, associate director of the Stanford University Project on Regions of Innovation and Entrepreneurship, estimates that Silicon Valley today covers 1,500 square miles, covering 35 cities and four counties populated by 2.4 million people, about 40 percent of whom are foreign born. It employs 1.2 million workers, about a fourth of whom are doing high-skill occupation, with productivity rate 50 percent than the national average.

And for such a small place, Hancock says the Silicon Valley accounts for 5 percent of the US gross national product and a tenth of the total number of the US patents. Then again, it is home to the current icons of American global economic power and influence—Google, Yahoo, Sun Microsystems, Hewlett Packard, Oracle, Apple, Intel and YouTube.

“It’s a complex, dynamic region,” says Hancock, while presenting a map of the San Francisco Bay area running from San Francisco City all the way to San Jose. “It’s a proximate collection of independent cities, most of them small towns. It was unplanned, has no formal identity, no borders.”

Enduring strength
What makes Silicon Valley tick? And could it survive offshoring and outsourcing as global companies seek the cheapest locations worldwide?

These are the questions that confront Silicon Valley today but Hancock, who is currently studying innovative regions all over the world, points out that over time it has evolved “four pillars of enduring strength.” It’s a nexus of innovation and entrepreneurship; a fertile habitat for the best talents; it has supporting institutions (universities and research institutions, including Stanford and University of California); and a linkage of people, technology and capital—a network that spans across innovative cities in countries like Israel, China, Taiwan, India, Germany, Sweden, Singapore and Japan.

“People here are willing to take risks,” explains Hancock, stressing that entrepreneurs are not all afraid to fail. “When firms collapse, government doesn’t rescue them.”
Bell describes Silicon Valley as having the “frontier mentality” manifested by its “ever-changing cut-throat search for the next big thing.”

“The result is a boom-and-bust economy where serial entrepreneurs proudly list their failures and venture capitalists bet millions on companies with no customers and no revenues,” Bell writes in a paper for the Jefferson Fellowship.
The business environment is almost Darwinian: Those who have the best business ideas and models thrive because, according to Hancock, the Valley has a fertile business environment or “habitat” characterized by meritocracy, favorable government policy, open business environment, and the presence of specialized business service infrastructure that include venture capital, hotshot lawyers and accountants.
Hancock, though, admits that Silicon Valley is losing some jobs due to offshoring, as well as gains made by other centers of innovation in Israel, China, Taiwan and India.

Activities like mass manufacturing have long been gone. Back-office operations like office support, business and financial support, as well as the jobs of IT administrators, legal assistants and statistical analysts, are going to India and other offshore locations like China and the Philippines. Even jobs for entry-level computer and software engineers, quality assurance and test engineers, as well as product and process engineers, are vulnerable to offshoring.

According to economist Dieter Ernst, a senior research fellow of the East-West Center, there are fears that “innovation offshoring,” or the internationalization of product development and research toward the Asia-Pacific region, especially China and India, poses competition to Silicon Valley and other innovation centers in the United States.

Companies like Google, Yahoo, Cisco, Dell and others in the Fortune 500 are increasingly setting up R&D centers in China’s major cities like Shanghai and Beijing, while local companies like Huawei are increasing their capabilities to design and produce high-technology products, Ernst notes.

Fast changes
As early as 2003 Oracle CEO Larry Ellison already pronounced “the end of Silicon Valley as we know it.” Even further back, in 1991, the Los Angeles Times noted in an editorial that the “dreams of striking it rich are fading in Silicon Valley.”

But AnnaLee Saxenian, professor and dean of the University of California School of Information, is just amused by this kind of talk.

“In the ’80s I wrote a master’s degree thesis saying Silicon Valley is going to stop growing. I said that housing costs were too high, labor was expensive, and the roads were way too congested,” said Saxenian in a lecture to Jefferson Fellows.
She predicted that Silicon Valley was going to consolidate, that it would become like the car industry with only a few big companies surviving, and that new companies are not going to locate operations in the area. By the mid-’80s, however, the Silicon Valley’s economy was still booming, and fueled the robust growth in demand and production of personal computers. Among the leading companies at the time were Apple, Silicon Graphics and Sun Microsystems.

“I was wrong,” Saxenian concedes. “I had to revise my ideas.”

There were a couple of things she missed, she says. The first is the fact that companies in the region are part of what she considers a “regional ecosystem” built around a network of open collaboration, making firms operating in the valley more resilient and flexible. The flow of information among them is fast and smooth and this has accelerated technological change in the Valley. “They really tried to avoid hierarchy,” she notes.
This was not the case in the ’60s and ’70s. Saxenian says during those times IT companies competed based on vertical integration where they control all aspect of hardware and software production. “This kind of business organization couldn’t cope with the rapid phase of change,” she notes.

The Argonauts
The second factor she missed is the role of immigrants. Silicon Valley has a tremendous depth of talent, and about half them are foreign born, mainly Indians and Chinese. Since the ’70s and ’80s, thousands of students from developing countries, including Ireland, Israel, Taiwan, China and India, went to Stanford and other universities in California to study engineering and the sciences. Based on a 2000 survey, there are around 20,000 Indians studying in California, and another 20,000 Chinese.

Unsure of what awaits them back home, many of these students, armed with postgraduate degrees, ended up working in high-technology companies in Silicon Valley. Some of them even started setting up their own businesses in the area.
Today more than a quarter of Silicon Valley’s highly skilled workers are immigrants from several countries like China, Taiwan, India, the United Kingdom, Iran, Vietnam, the Philippines, Canada and Israel.

“By the end of the 1990s, Chinese and Indian engineers were running 29 percent of Silicon Valley’s technology businesses. By 2000, these companies collectively accounted for more than $19.5 billion in sales and 72,839 jobs. And the pace of immigrant entrepreneurship has accelerated dramatically in the past decade,” notes Saxenian.

After working a decade or more in Silicon Valley, many of these workers went back to their homeland and set up businesses, especially when the economies of their respective countries started to improve.

Saxenian admits she doesn’t have exact figures but she estimates that about 10 percent to 15 percent went home after having “marinated” in the Silicon Valley culture. Around 30 percent to 40 percent of them shuttled back and forth between Silicon Valley and their home countries, setting businesses mostly in high-technology industries, and serving as bridges to firms and innovators in both countries.

She calls them “the new Argonauts,” in reference to Greek mythology where Jason and his band sailed the high seas in search of wealth and adventure. These “Argonauts” are responsible for creating cross-Pacific collaborations that, for instance, fueled Taiwan’s rise in the 1990s as a global center of technology production.

“A similar process is now underway linking both Silicon Valley and the urban centers of Eastern China,” Saxenian said in another paper for Cornell University entitled “Brain Circulation and Capitalist Dynamics: The Silicon Valley-Shinchu-Shanghai Triangle.”

“And transnational communities have played a central role in the emergence and upgrading of software capabilities in India, Ireland and Israel.”

Tapping into this dynamic global network, she explained, could bring benefits to developing countries like the Philippines. To take advantage of the network, developing countries should invest in technical education.

The rise of innovation centers in Asia, many of which are manned by returning scientists, has been worrying some analysts, especially since this has often been associated with the loss of jobs, as well as the perceived decline in American technological superiority. According to East-West Center’s Ernst, numerous American companies are opening R&D centers all over India and China in a phenomenon called “innovation offshoring,” thus raising fears that China may eventually leap over the US in terms of technological superiority.

But Gregory Shea, president of the United States Information Technology Office representing high-technology companies in China, dismisses this view. He argues that these new R&D centers are more involved in development rather than research. Ultimately, he believes that offshoring and outsourcing will even strengthen American multinational companies.

“When you look closely at these [R&D centers], they usually involve less-than-leading-edge technology. Rather they are aimed at producing high-volume, relatively commoditized products and components for local and regional markets,” notes Shea. “These investments are critical for securing and building a strong market position in such a large and expansive market as China.”

He adds: “They are also critical to ensuring continued revenue growth for the company as a whole, which is vital to supporting high-end jobs in research, design, marketing, finance, legal and other areas of corporate administration in the headquarters [in the US] and other countries.”

Saxenian believes Silicon Valley serves as the hub of this global innovation network that reaches as far as Beijing, Shanghai, Bangalore, Ireland and Israel. “These [innovation centers] don’t compete; they complement each other,” she says.
She admits, however, that regional economies in the Asia-Pacific region will eventually develop their capabilities in innovation as they invest more in education and research, and form relevant institutions.

As such, Saxenian says Silicon Valley’s dominant role in innovation and technological change will eventually diminish. “This does not imply decline,” she quickly clarifies. “Rather it will become one of many nodes in a more open and distributed global network of differently specialized and complementary regional economies.”

Will Saxenian be proven wrong again? Only time will tell.
(Note: This article was published in BusinessMirror on 19 June 2007)

Amartya Sen's "Identity and Violence: The Illusion of Destiny"

When Harvard political scientist Samuel Huntington released the book “The Clash of Civilization,” I was wondering whether or not he was correct. I was hoping he was wrong because if he was right, then the world’s "civilizations"—Western, Islamic, Hindu, Chinese, etc.—are destined to clash. When terrorists slammed those planes into the World Trade Center in 9/11, my fears about his thesis grew.

Well, Huntington is wrong says Amartya Sen in his latest book “Identity and Violence: The Illusion of Destiny.” Released in 2006, Sen argues that possession of a unique identity is an illusion because in the real world, people define themselves in a variety of ways through class, gender, profession, language, literature, science, music, morals, politics, among many others. Defining people based on a single identity anchored on religion or “civilization” is not only conceptually flawed but dangerous as it sustains violence and ethnic strife, more so when this concept is elevated into high theory (Just like what Huntington did). Anchoring one’s identity on an overarching culture or civilization denies us the possibility of reasoned choices as to how we define ourselves.

Written in deeply philosophical fashion and beautiful prose, Sen overturns the usual stereotypes as the ‘monolithic Middle East” or “the Western Mind” or “Asian values” and provide us a way of attaining peace through the respect of humanity and diversity of others.

Friday, June 22, 2007

Philippines has become a normal country with the usual problems

Gone are the days when journalists do really exciting work here in the Philippines. In the 80s until the 90s, foreign wires, international magazines, CNN, BBC and major American newspapers like New York Times had huge presence here. Foreign journalists were happy because they had coup attempts, mass demonstrations, raging insurgency, Sparrow units (communist assasins), and our general helplessness to feast on. Even local broadcast and print reporters were strutting around like rock stars. Yes, like rock stars and many of them (Noli de Castro, Loren Legarda) became senators of the republic.

Not anymore. We no longer get much attention from global media anymore, unless a landslide that buried thousands has occurred. But even in that department, we have to compete for the world’s attention from the wildfires in California, the drought in Sydney, flooding in Indonesia, etcetera and we don’t always win. There are super typhoons occasionally it’s not an exclusive spectacle because these freaks of nature either go to Taiwan or Vietnam after devastating some areas in the Philippines.

The Philippines has become a boring country—and that’s good. Has anybody noticed the huge difference?

That’s because we have become a normal country with very normal problems (to borrow a line from the South Africans). And that’s great!

In the last 4-5 years, we have been growing 5-6 percent in terms of GDP. In the first quarter this year, we grew by 6.9 percent. These are decent growth figures. But the world has not noticed that because it’s a normal thing. The not-so-normal thing is either a miserable 3 percent or an extremely high figure of 7-11 percent being experienced by Vietnam, India and China. We have occasional bombings and kidnappings but the world no longer cares because there are bigger, bloodier, and nastier bombings in Iraq and occasionally India, Indonesia or Pakistan. We just had a funny mid-term election but it was not exciting enough compared to the continuing drama that followed the ousting of Thaksin Shinawatra in Thailand.

Yeah, the Philippines has just too boring for the global media—and that’s good for the Philippines. Low inflation, strong peso, the rise of outsourcing and electronics, real estate boom, stable industry sector—ho hum!

And that’s great for all of us.

Wednesday, June 20, 2007

Mastering English the Chinese way

A Reuters story in Yahoo online says China is requiring its pilots to speak good English. Well, Chinese authorities do realize the country’s rise as a superpower entails the mastery of the English language. So the story there is that they are teaching English in classroom and stadiums. Their newspapers are full of ads for English language teachers, and they want native English speakers to teach them. They are already good in the math and the sciences. With their mastery of English, their rise as a colossus is assured.

They are so desperate to learn English that they are even willing to undergo surgery so they could supposedly pronounce English words well. It’s bizarre but yes they are doing it. Notes this BBC story:

“More and more people in China are seeking tongue operations to improve their English.

Plastic surgeons say that with minor surgery, patients can improve their pronunciation almost overnight.

With China's growing internationalisation, people's determination to become more proficient in English has reached fever pitch.

The operation itself is simple and quick - just a snip of the muscle under the tongue using local anaesthetic - even if it does make you twinge.

Plastic surgeon Dr Chu Jian is inundated with people begging for the operation because they want their English pronunciation to be clearer, freeing them from that tongue-tied feeling.”

Here in the Philippines, a lot of people are still confused as to the importance of the English language and insists on the continued use of mongrelized Tagalog they call “Filipino” in schools.


Please read related posts

The Philippines should master English or perish!
Philippines needs a globalized nationalism
Addressing skills-jobs mismatch in the Philippines

For a really good take on the English language debate, please read Philippine Commentary. Global Voices also has a good review of the different perspective re English.

Scandal in Philippine ports!

ON Tuesday, Malacañang ordered all government agencies to seek approval from the National Economic and Development Authority (Neda) Board before they can raise fees for their services.

This was in reaction to the World Bank study and exporters’ complaints that the Philippines right now has the highest port charges and fees in Asia. Sounds good, but is that the only thing that the dwellers of the Palace could do? Why are they so afraid to address the real problem?
Also, the government is supposedly investigating the $20/50 dollar per container “security fees” being levied on traders by the Bureau of Customs (BOC) while not lifting a finger to stop an imposition that should certainly be creating havoc on the competitiveness of the country’s exporters. This is a classic case of the policymakers pretending to do something while not doing anything.

For a developing—nay, Third World—country, we shouldn’t be charging needlessly high shipping fees in order to encourage manufacturers and exporters to export our way out of misery. That’s almost a classic formula adopted by our Asian neighbors in their transformation into tiger and dragon economies, starting with Japan, South Korea and Singapore, among others. Not only should a country have competitive (read: cheap and of good quality) export products, the support structures should also be efficient (read: cheap but quality service). It’s a great irony, therefore, why we can’t seem to get this so simple wisdom by charging fees so high we are actually killing our own export industries.

According to the World Bank study, the handling cost in the Philippines totals $1,336 per 20-ton container as against $848 in Thailand, $382 in Singapore and $335 in China. Yes, the country’s port authorities are charging fees four times higher than in Singapore and China, whose ports are among the busiest in the world! And it keeps on rising because the BOC has also started charging “security” fess. It seems like we are not content with having the highest electricity rate in Asia, and the most expensive international long-distance calls—we also want the notoriety of having the most expensive port services.

Why this perverse policy environment? It’s because we have a long-standing policy environment that nurtures monopolies and oligopolies through our one-port, one-operator rule. On top of this is the cruel policy by Maritime Industry Authority that encourages oligopolies in interisland shipping supposedly because of some vague “cabotage” rule. When you have monopolies and oligopolies in arrastre and port operations as well as interisland shipping, buttressed no less than by government regulatory bodies (Marina and the Philippine Ports Authority), you certainly would have higher freight and port handling costs. That’s one of the main reasons why over the years, we have failed to evolve durable manufacturing industries.

With high port and shipping costs, many companies are constrained to grow and be globally competitive. No wonder why our entrepreneurs would rather content themselves with speculating in real estate and in putting their money in services that have less links with the rest of the economy. Managers of these industries do not require dealing with the ports and customs authorities, many of whom reek with corruption.

And of course, many bureaucrats in these agencies—Customs, PPA, and Marina—would really be really be more inclined to make money for this sleazy tangle with monopolists and oligopolists for them to think about public interest.

Too bad for the ordinary people, because it means the Philippine economy would never be able to build factories and businesses that would create more jobs. Too bad for Mindanaoans because that island’s economic potentials will always be stymied by the high cost of shipping goods from Mindanao ports to major markets in the Visayas, Luzon and to other parts of the world. Almost two decades ago, integrators were complaining that it’s cheaper for them to buy corn from Argentina than to ship them from Bukidnon and South Cotabato. That World Bank study confirms that this problem is valid even until now. Through the years, the government and the policymakers of this country simply ignored this problem, and it seems it is bent on compounding it with the new “security fees” that would surely make exporting and trading in the Philippines more expensive.

Certainly, the solution is clear. We have to deregulate and open up shipping and port operations to instill greater competition in these businesses. Policymakers should also look into putting greater transparency and public accountability in the operations of the government’s regulatory bodies.

These reforms are long overdue because these agencies have become a burden to society. In the first quarter of the year, for instance, the country’s GDP grew 6.9 percent, a proof that economic activities have expanded. And yet, the government’s tax collection has even declined, leading people with little choice but suspect that corrupt bureaucrats have become too greedy to pocket the gains. Now, we suspect that the rising charges in the ports are probably one of those ways to fleece the economy even more. The policymakers should act to address the problem.
No, giving a lame order for agencies to seek Neda Board permission before increasing fees isn’t good enough. It’s far from good enough. If the Executive is truly serious about addressing the ironic situation of the high cost of doing business vis-à-vis a dearth of revenue, it should look at the larger issues, such as those raised in this space. Otherwise, it’s all more smoke blown to cloud the real story. (Originally prepared as editorial for BusinessMirror, 21 June 2007).

Monday, June 18, 2007

A second look at the April 2007 labor force survey

ON May 31, the National Statistical Coordination Board announced that the Philippine economy grew by 6.9 percent in the first quarter. Then on June 15, the National Statistics Office (NSO) announced that based on the April labor force survey, unemployment went down significantly.

Those two statistical releases seem to indicate that, finally, the Philippine economy is strengthening and has started to produce more jobs. Maybe—but let’s not celebrate yet.

A keener look at the numbers seems to indicate that our recovery remains fragile and skewed. Those gains in jobs could evaporate unless the government can attract substantial investments in the next three years.

According to the April labor force survey, the country’s unemployment rate, using the International Labor Organization definition, went down from 8.2 percent to 7.4 percent.

That’s not really miraculous because it simply means seven out of a hundred are jobless, compared to eight out of a hundred a year ago. In absolute terms, there are 33.7 million employed people in April this year, compared to 32.7 million in the same month last year—translating to about a million extra jobs.

But given our chronic high jobless rate, that’s an encouraging sign—more so because underemployment has gone down by almost 7 percentage points from 25.4 percent to 18.9 percent.

Lower underemployment could be interpreted to mean there are fewer workers who feel dissatisfied with their jobs during the survey. The underemployed are the ones who think they need more sidelines, more overtime, more working hours, or new high-paying or more satisfying jobs. Their percentage share is down.

Are wages rising? We can only speculate to that effect. That is quite observable in the case of the fast-growing industries like the call centers, other cyber services and electronics.

It’s also possible that the continued flow of skilled workers abroad has started to tighten labor supply, especially among skilled workers. Or it’s also possible that the 6.9-percent growth rate may have really created more job opportunities. It’s quite obvious, given the fact that there are more than a million employed people in April this year than in April last year.

The decrease in underemployment may suggest that those who are already working simply took advantage of the opportunity by moving into those relatively better-paying jobs—maybe. We say “maybe” because, this time, the labor force survey doesn’t provide much detail the way it used to, and we can’t help but wonder what the NSO is trying to hide.

Anyway, if seen by industry or sector, it’s obvious that the share of agriculture in employment has increased. So the farms are contributing significantly despite the fact that agricultural growth has been stable at 4.2 percent.

The share of construction is also rising. This is quite consistent with the supposed recovery in the real-estate sector. And then it’s obvious that private households are hiring more. We are not disparaging the farms, but we know that farm work, as well as construction, tends to be seasonal. It was summer and that’s when people usually start repairing their houses and building up buildings.

By occupation or skills, it’s clear that the percentage share of machine operators and assemblers rose. It seems to suggest the factories are a little busier. Laborers and unskilled labor also have the same trend. This is quite obvious because the farms employ lots of seasonal workers and the construction sector usually hire unskilled labor in summer to do manual and menial jobs.

By class of workers, there is clearly an improvement in the share of wage and salary earners, while that of own- account workers declined.

Is the availability of quality jobs improving? One could be tempted to think that way. Private establishments are definitely hiring; so are private households. The only problem is that those employed in private households are mostly unpaid family members. There’s the rub. So it seems the small guys here are not yet the real beneficiaries of the higher growth rate.

Underemployment has gone down but the gains are largely confined in the industry and services. That seems to validate our earlier observations that so far the major beneficiaries of the recent surge in the economy are urban dwellers. And they are concentrated in the 35-years-and-over category, indicating that those who benefited most were probably supervisory or managerial level workers. Underemployment in the farm sector has actually worsened.

In summary, the major beneficiaries of the 6.9-percent growth are primarily those who are urban dwellers working in the industry and services sectors, mostly in the supervisory and managerial levels. The secondary beneficiaries are those engaged in the farm, construction and real estate sectors whose jobs are probably seasonal or cyclical. More so because those construction jobs were probably triggered by electoral considerations and may therefore vanish once the government feels they are not collecting enough revenues.

How about the other sectors of the economy? The share of manufacturing, mining and quarrying, and electricity, gas and water either went down or stayed the same. The same trend could be observed in wholesale and retail; hotels and restaurants; transport, storage and communications; and finance.

This should be a surprise given the generally higher growth in the economy. Well, if one looks at capital formation in the country’s national-income accounts, which is still in the negative, the trend seems to indicate that we don’t have the critical mass of investments yet to propel the economy forward.

That means that if the government really wants to spread the benefits of growth, it has to attract more investments, especially foreign direct investments, on a scale that our Asian neighbors do. That would, in turn, require really serious investments promotion and significant reforms to improve the investment climate.

Is the government up to the challenge? That’s the question.

(Note: drafted as BusinessMirror editorial, 19 June 2007)

Sunday, June 17, 2007

General Antonio Taguba: “They always shoot the messenger”

“From the moment a soldier enlists, we inculcate loyalty, duty, honor, integrity, and selfless service... And yet when we get to the senior-officer level we forget those values. I know that my peers in the Army will be mad at me for speaking out, but the fact is that we violated the laws of land warfare in Abu Ghraib. We violated the tenets of the Geneva Convention. We violated our own principles and we violated the core of our military values. The stress of combat is not an excuse, and I believe, even today, that those civilian and military leaders responsible should be held accountable.”

That qoute is from retired army general Antonio Taguba who was told to retire from US military service after preparing the report that shed light on the abuses at Abu Ghraib. He is American but his father was a former Filipino guerilla who fought against the Japanese. He was recently featured in the New Yorker, my favorite news magazine.

“They always shoot the messenger,” Taguba told me. “To be accused of being overzealous and disloyal—that cuts deep into me. I was being ostracized for doing what I was asked to do,” he said.

Good guys don’t always win. Many of them simply just retire and fade into the sunset, with bitterness in their hearts intact.

But I do hope that someday you write a book about your life, general, and I’ll be among the first to buy and read it.

RP's 6.9 percent GDP growth is trickling down, but...

Was the 6.9 percent growth rate achieved by the Philippine economy in the first quarter of 2007 trickling down to ordinary people? The latest labor force survey by the National Statistics Office seems to indicate so.

As shown in the box, the country’s jobless rate went down to 7.4 percent (using the ILO definition) from the previous year’s figure of 8.2 percent. That’s significant an improvement, more so that underemployment has also gone down to 18.9 percent from 25 percent.

Are wages rising? It’s possible. That is quite observable in the case of the fast growing industry like the call centers, other cyberservices, and electronics. It’s also possible that the continued flow of skilled workers abroad has started to tighten labor supply. Or it’s also possible that the 6.9 percent growth rate may have really created more job opportunities. The rise in underemployment may suggest that those who are working simply took advantage of the opportunity by moving into those higher paying jobs. Maybe. That’s only my initial thoughts after looking at the aggregate numbers.

Now let’s look deeper. The NSO does not provide much details but
Table 1 seems to provide some indicators. If seen by industry, it’s obvious that the share of agriculture in employment has increased. So the farms are contributing significantly despite the fact that agricultural growth has been stable at 4.2 percent. The share of construction is also rising. This is quite consistent with the supposed recovery in the real estate sector. And then it’s obvious that private households are hiring.

By occupation, it’s clear that the share of machine operators and assemblers rose. It seems to suggest the factories are a little busier. Laborers and unskilled labor also have the same trend. This is quite obvious because the farms employ lots of seasonal workers.

By class of workers, there is clearly an improvement in the share of wage and salary earners while that of own account workers declined. Is the availability of quality jobs improving? One could be tempted to think that way. Private establishments are definitely hiring; so are private households. The only problem is that those who are employed in private households are mostly unpaid family members. There’s the rub.

As shown in
Table 2, reduced underemployment is largely confined in the industry and services. That seems to validate my earlier observations that so far the major beneficiaries of the recent surge in the economy are urban dwellers. Speaking about the limits to a services-driven economy

So should we be happy? Sure—why not? But let’s cross our fingers that we continue growing 6 percent or higher so we could eventually spread the benefits of higher growth to the broader sectors of society.

Wednesday, June 13, 2007

Philippines needs a globalized nationalism

PHILIPPINE Independence Day has come and gone, and it was as if we never had one.

No less than the country’s chief magistrate, Reynato Puno, said that we still don’t have real independence more than a hundred years since our leaders proclaimed it in Kawit, Cavite. A country that continues to suffer hunger, fear and ignorance, he said, could never be free. Many among us assail the lack of nationalism among Filipinos as the reason why we can’t seem to free many from want and misery. And yet, there’s a different way of viewing this matter.

We do believe we have had many “nationalistic” policies, except that they were not inclusive. Many were of a perverted type manifested in higher tariff walls for infant industries that never matured, of monopolies that penalized consumers and the poor through high-priced and shoddy products, fiscal incentives for “pioneer industries” that subsidized expensive machines so factory owners could hire only a few workers, and grandiose programs like the “11 major industrial projects” that ended up as milking cows for the conjugal dictatorship and its cronies. For several decades under Marcos, we had that kind of exclusive nationalism that really traumatized the poorer segments of society.

In those days, not many could afford a TV set, even just black-and-white, because, shielded from foreign competition, our domestic industry was charging monopoly prices. An air conditioner then was a status symbol because the ones who could afford them should really have lots of cash.

Naturally, the economy was in shambles so the poor didn’t really have the chance to earn enough for these amenities. And because of high tariff walls, smuggled goods, including apples and oranges, occasionally trickled in. The people who patronized them were despised for their “colonial mentality.”

Culturally, “nationalism” then surfaced as simple hostility to foreign direct investments and multinationals, and utter disdain for entrepreneurship. Foreign direct investments and MNCs then were “big business controlling the commanding heights of the Philippine economy.” Entrepreneurs were considered “capitalists in primitive accumulation” who are out to exploit the working class. Intellectuals—people from the academe who advice politicians, policymakers and interest groups— kept on telling us that we should be wary of the flows of capital, goods and services across the borders because some guy from Berlin named Andre Gunder Frank thought these linkages would impoverish us even more while making the rich world even richer. And we are told we should disdain English for being an elitist language of the imperialists. Never mind that many of these intellectuals themselves had fellowships from Harvard, Stanford and Yale.

Those were the days, of course, and no one but a few fanatics in Utrecht believe these pernicious ideas anymore. When the Philippine economy started reforming the country’s tariff system, most of us Filipinos discovered that under a liberalized trading environment, most of us could actually afford TV sets, air conditioners and refrigerators. In fact, they are actually cheaper than the ubiquitous cellular phones! And the people have lots of choices.

But the ghosts of the exclusivist policies of the past continue to haunt us until now. Not that our policymakers believe in those policies; it’s because they remain a convenient excuse to protect certain vested and oligopolistic interests that continue to shackle the prospects of the Philippine economy. And sometimes, we continue to maintain them simply because we really haven’t realized we are hurting ourselves and missing a lot of opportunities to achieve broad-based economic growth.

For an archipelagic country comprising more than 7,000 islands, we need a robust and competitive shipping and ports industry. But we hold on to our one-port, one-operator policy that encourages oligopoly because of some “cabotage law” that dates back to World War II.
We refuse to open our skies even when we know that the flood of tourists to our beaches, hotels, restaurants, resorts and hospitals (for medical tourists) is one fast way to create jobs. We refuse to open the country’s telecommunications industry for greater foreign participation despite the fact that we suffer from very high call charges. And we are reluctant to put back the prominence of the English language in our schools despite the fact that the mongrelized Filipino being imposed on an archipelago with diverse languages and dialects doesn’t land young graduates jobs.

Yes, we need nationalism and we need it more than ever. But we need an inclusive kind of nationalism. And in this day and age, that kind of nationalism should be a global one that takes what the world could offer and not reject. It’s a kind of nationalism that is open and enthusiastic about foreign direct investments, technologies and knowledge. It’s a kind of inclusive nationalism that maximizes the gains of global engagements for the broader segment of the population. And we could start by reforming the old exclusivist policies while moving fast-forward toward greater global economic engagements.

But is there really such a “globalized nationalism?” Christopher Hughes from the London School of Economics says there is. He is talking about China. And we know how China is opening itself to the world, collaborating with all nations in science and technology, learning from everybody, while, at the same time, investing in its own people, in its universities, in research and development, and in innovative technologies.

It is constantly watching the world for new ideas, new things, new processes and new opportunities and is calibrating its domestic policies promptly. It is sending its young to America and Europe in droves to master the sciences while providing incentives to those who have “marinated” for decades in the world’s centers of innovation to come home and share their talents to the Chinese nation.

And yes, the Chinese are learning the English language en masse like crazy—in schools and stadiums!

But at the end of the day, are the Chinese being seen as being less nationalistic than their neighbors? Definitely not. They simply seem to have stumbled on the realization early enough that one does not need to fear venturing into a globalized world. One can ride it, embrace it, and come out stronger and more self-assured after having drawn the best from such exposure.

Filipinos, now the third-largest labor-exporting country in the world, have every opportunity to do the same because having about a third of the labor force exposed to the global economy is the best stimulus for a strategic, deliberate engagement that’s meant to win for them what the Chinese have known all this time.

If only a stultified concept of “nationalism” didn’t get in the way.

Note: I wrote this piece as Editorial for BusinessMirror, 14 June 2007.

Tuesday, June 12, 2007

The world loves globalization but Filipinos have mixed feelings

For all those dramatic protests by “civil society groups,” the world, it seems, favors globalization or integration of the world’s economies. That’s the conclusion of the recent survey conducted by the World Public

“Majorities around the world believe economic globalization and international trade benefit national economies, companies, and consumers. But many think trade harms the environment and threatens jobs and want to mitigate these effects with environmental and labor standards,” says the report.

As usual among the latest fervent supporters are export-oriented countries. Says the report:

“The highest levels of support are found in countries with export-oriented economies: China (87%), South Korea (86%) and Israel (82%). Positive answers fall below 50 percent in only three countries, though such responses outweigh negative replies by wide margins. The greatest skepticism about globalization is found in Mexico (41% good, 22% bad), Russia (41% good, 24% bad) and the Philippines (49% good, 32% bad). In the United States, 60 percent think globalization is mostly good and 35 percent call it mostly bad.”

The result on the Philippines is surprising because the Philippine economy has been benefiting from outsourcing, electronics exports and overseas work. In fact, more than 60 percent of the Philippine GDP, some people say, is accounted for by the globalized sectors of the economy. That’s a huge puzzle for me.

Is it possible that more Filipinos are seeing that the globalized sectors of the economy are benefiting only the urban centers and the educated classes? Probably. After all, only people who have skills are able to work in outsourcing. Also, it’s probable that most of those who leave for better-paying overseas work are from lower middle class and the people who are already better off.

Moral lesson? Labor migration and the OFW phenomenon, while they offer choices to individuals and made many families richer, is no panacea when seen from the national perspective. We still have to have more things going on in here in the local economy to really solve our domestic problem re jobs and poverty.

Monday, June 11, 2007

Addressing the skills-jobs mismatch in the Philippines

ONE of the main reasons why we can’t seem to make a dent on joblessness, according to Socioeconomic Planning Secretary Romulo Neri, is that “many students are taking courses that will not land them jobs needed by industries.”

He added that students who are entering college “should no longer take courses in political science, education and law since there is already a significant surplus” in these fields. Industries supposedly need more graduates in engineering, mining and information technology.

We can’t help but agree. If we want this country to move a lot faster, we need a critical mass of engineers, mathematicians, software developers, physicists, and other fields in the sciences like biotechnology. These courses are the ones that really bring in the money and progress, as shown by countries that invested heavily in uplifting their school systems capability in mathematics and the sciences. We are talking here of places like Israel, Taiwan, China, Vietnam and India.

But if indeed these courses do give high economic returns for graduates, why is it that only a few students are taking up these subjects? There are several reasons.

First is that there is probably no market signal for students to take these courses, essentially because parents and students are not really aware of economic opportunities in these disciplines. If this is true, one reason is that there is no labor-market information system that could help students in making career decisions.

In the United States, the government provides this kind of information by releasing a regular 10-year forecast on potential labor demand vis-à-vis different careers in almost all areas of specialization from teachers, engineers, journalists and doctors. The report, updated each year and posted on the Internet, even provides estimates of the annual income that graduates would get if they take a certain discipline.

Why couldn’t we do the same? In the Philippine context, the government could do it in collaboration with the private sector. Most business organizations in the country are members of chambers of commerce and associations. Managers and HR officers in these companies could expedite this job-market information system by regularly submitting their staff requirements from which their organizations could collate, analyze and disseminate through media.
Second is that some schools are probably not providing the right sets of skills to students. Many schools providing tertiary education are privately owned whose profit imperative may come in the way of providing quality education.

There essentially is nothing wrong with a tertiary educational system dominated by the private sector. The United States has that kind of system and all the world is flocking to American shores to study. It works there because students and their parents have access to information regarding the quality of educational services being offered by schools through a ranking system that economically penalizes those that don’t have the right faculty, facilities and the learning environment.

We should have the same system in the Philippines. If schools and universities here are ranked based on quality of services provided by course or disciplines by university, parents would only enroll their children where they could get quality education in return for their hard-earned money. That way, schools and universities would have the economic incentive to provide the best facilities, qualified faculty members and the best learning environment for students.
Quality schools, of course, would have the tendency to charge high tuition, but this concern could be addressed partially through competition by opening foreign direct investments in schools and universities. Besides, who says quality education is cheap?

Financing education is really a major problem in the Philippines. Many private universities want to invest in laboratories and faculty development. Yet they can only do that through expensive tuition, an option that is constrained by low purchasing power.

The only way to address this is by setting up some kind of a student loan program where students could pay the State later once they are able. Australia has that kind of system and Britain is learning from it. We could probably have the same here.

The private sector could probably help. If society looks at education as an “investment” with very high rates of return, why are banks not giving education loans to students who want to study “profitable” courses like engineering and the sciences? In India for instance, banks lend money to engineering students and MBA students, knowing that these kids would soon earn huge sums once they start working in high-tech industries in Bangalore, Chennai, New Delhi and Hyderabad.

The third factor: there are simply fewer people who can endure the rigors of science and engineering courses. If this is true, then the problem goes back to the poor quality of basic education. The solution, therefore, is reforming the elementary-schools system.

One possible solution is by strengthening subjects that really matter: mathematics, science, English and Filipino with laboratories on said subjects. Longer school hours can be assigned to these subjects so the students could have more time to learn new science or math concepts.
At the same time, there is an urgent need to train teachers in science, math and English. It is common knowledge that for lack of science and math teachers, many current teachers in these subjects had backgrounds in social studies, or even physical education. The government should also send these teachers to scholarships for higher learning.

Reforming the elementary-school system would take some time. But we can also take a few shortcuts by investing in science high schools. The local government units and the national government could do this through a counterparting arrangement. With more science high schools in cities and the big municipalities, we could probably increase the number of students who will eventually take science courses.

Definitely, the government will have to strengthen higher education as well. This can be done by streamlining state colleges and universities—for instance, by closing some of them and consolidating others to focus on science and technology and leaving the teaching of social sciences to private universities. The Indians are doing this through their seven institutes of technologies and research institutions where only the cream of the crop is taken as students. That explains their strength in the sciences, engineering and information technology.

Note: Drafted as editorial for BusinessMirror, 12 June 2007

Thursday, June 07, 2007

From brain drain to brain circulation

"Forget the brain drain—today’s highly skilled migrants circulate between the US and developing countries, creating technology businesses and spreading prosperity along the way".—AnnaLee Saxenian, dean and professor of the University of California School of Information

ON Wednesday, an executive from a leading company providing software solutions to semiconductor companies worldwide urged the country’s leaders to tap the Filipino professional class in the United States to boost the local electronics company.

“You should bring home Filipino engineers working in the United States. There are hundreds of them out there,” G. Ravichandran—sales account manager for South Asia of the Singapore-based Cadence Design Systems providing electronic design software solutions worldwide—told the local electronics industry leaders at a symposium, stressing that the same approach has worked wonders for economic powerhouses China and India.

That proposal makes sense.

The Philippines is currently deep into assembly, test and manufacturing of electronics and semiconductors, shipping out more than $30 billion of such products for original equipment manufacturers worldwide.

Industry experts say there is a need, though, for the Philippines to go up the value chain, including integrated circuits design and research and development. All this, for the country to remain competitive vis-à-vis new players like Vietnam.

Going up the value chain, however, means hiring more skilled engineers. That’s where the problem lies. Our education system is producing only hundreds of engineers while the industry probably needs thousands of them. They need experience in chip design but there are only a dozen companies doing this. There are several start-ups and small design houses close to Ateneo and the University of the Philippines campuses, but most of these firms have weak financial muscle to make it big.

That’s the reason we need to tap into the skills and networks that are probably available in the United States, especially the Silicon Valley. Sounds ambitious, some people would probably say, but it might just work.

Well, it actually worked in another context. Ever wondered why economies like Israel and Taiwan developed so fast economically and technologically since the ’80s? It’s because they sent their young minds to study in Stanford, Santa Clara University, Carnegie Mellon and the University of California in the ’70s to study and learn mathematics, computer science, engineering, and business management.

Thinking then that they had nothing to do back home, many of those students stayed and worked in the Silicon Valley, as well as in other major cities for years.

But after working for several years in the US, many of these bright guys started their own companies and eventually started operations in their homelands. Many of them went straight home, bringing with them their fresh technologies and business savvy while retaining their links in Silicon Valley.

That explains why both countries are currently world beaters in electronics, with the Israelis emerging as the world’s leading player in cryptology, defense electronics and cybersecurity.
Do you know why China and India is rising as economic powerhouses? Because they are also doing what the Taiwanese and Israelis did.

Through the networks that the Indian and Chinese students forged in Silicon Valley, these returnees—called “sea turtles” in China and “NRI” or nonresident Indians in India—they set up operations in their home countries doing chip design, software development and manufacturing after working for about a decade among technology companies in America.

Having the experience, technological savvy and linkages in the Silicon Valley, these returning Indians and Chinese didn’t have to worry about start-up capital since venture capitalists in the Valley are just too eager to finance their new projects.

In China, it really helped that the State, so eager to leapfrog the development ladder, attracted them through financial incentives, as well as the establishment of technology parks, where they can do research in collaboration with their friends and colleagues in the Silicon Valley.

AnnaLee Saxenian, dean and professor of the University of California School of Information, calls these skilled migrants who crisscrossed continents to form companies in the US and their home countries the “new Argonauts,” a reference to Greek mythology where Jason and his band sailed the high seas in search of wealth and adventure. Because of these new Argonauts, brain drain—Saxenian stresses—has become more like “brain circulation,” that is, benefiting both developed and developing countries.

The case of the electronics industry in Taiwan and the mainland illustrates how these new Argonauts are transforming regional economies. Many of these engineers and tech guys start out to establish companies designing systems and chip architecture in Silicon Valley. Then they do value-added IC design and advanced manufacturing in Taiwan while they do regional distribution and low-cost manufacturing in China.

Do they need capital? No problem; the same guys could tap venture capitalists in Silicon Valley. Do they need managerial supervision or better business models? No problem; venture capitalists who infuse money actually provide mentoring. After a few years, the venture capitalists get their money 10 times the original amount they have invested through exit strategies that include acquisition or initial public offering. Everybody is happy.

Moral lesson? The Philippines should look at the possibility of mobilizing our own Pinoy Argonauts, not just in the electronics and industry but also in other spheres of the Philippine economy. We have close to 10 million overseas Filipinos abroad, and many of them are working as medical professionals doing research in life sciences and biotechnology. They could complement the country’s strength in biotechnology.

The Department of Science and Technology has its “Balik-Scientists” program, which encourages Filipino scientists already based abroad to render services to the country in their expertise in science, and thereby help in the country’s development. The government could broaden this program by including professionals in other fields.

There are also several Filipinos doing venture-capital work in Silicon Valley; they could probably help in assisting local technology start-ups. There are lots of possibilities that the county’s movers and shakers in the business community should explore. In fact, the country’s leaders both in the private and the public sector should make it part of the country’s economic strategy for development.

(Drafted as editorial for BusinessMirror, 8 June 2007)

Wednesday, June 06, 2007

Philippines should tap diaspora professionals to boost its electronics industry

THE Philippines should tap into its diaspora professional class in the United States for talents to boost its budding integrated circuits (IC) design industry and move up the value chain in the global electronics industry, a leading software design company executive urged local industry leaders Wednesday.

“You should bring home Filipino engineers working in the United States. There are hundreds of them out there,” G. Ravichandran—sales account manager for South Asia of the Singapore-based Cadence Design Systems providing electronic design software solutions worldwide—told the local electronics industry leaders at a symposium, stressing that the same approach has worked wonders for economic powerhouses China and India.

The Philippines is currently deep into assembly, test and manufacturing of electronics and semiconductors, shipping out more than $30 billion of such products for original equipment manufacturers worldwide. Industry experts say there is a need for the Philippines to go up the value chain including integrated circuits design, chip design, and research and development for the country to remain competitive vis-à-vis new players like Vietnam.

Ravichandran said the Philippines currently has about 10 companies, mostly foreign-owned, engaged in IC design but the industry is constrained by the limited number of engineers with practical experience in the business.

“Current electrical and electronic engineering graduates need more practical experience in IC design,” he said, explaining that the country right now has only about 2,000 engineers and only about 30 percent of them have relevant skills and experience in the design of integrated circuits.
“The country has limited IC design start-up companies because of the high investment cost,” said Ravichandran. “The government needs to support local IC design start- ups as well as attract more MNCs.”

Among the companies engaged in IC design are Intel, Lexmark, Canon, Rohm, Sanyo, BitMicro and Tsukiden—all multinationals. A few local companies, however, have started to gain inroads into the business. Among them is the Symphony Consulting based in the UP-Ayala Technopark in Diliman, doing digital design, analog design mixed-signal circuit simulation.

According to Domingo Bagaporo, director of the electronics division of the Board of Investments (BOI), the Philippines is currently engaging the help of the Taiwanese to boost the local IC design capability.

“Taiwan has a shortage of 2,000-3,000 IC design engineers per year,” said Bagaporo. “In view of this and the Philippines’ expressed desire to build its own capability in IC design, Taiwan has conveyed support to the Philippine government in training our engineers for IC design. This includes training of Philippine faculty and industry practitioners in Taiwan and the Philippines.”
Sources from academe said the engineering departments of several universities including the University of the Philippines, Ateneo de Manila University, De LaSalle University, and the University of San Carlos have started training programs and internships with several Taiwanese universities.

“The industry and the government recognize that we need to make dramatic changes as soon as possible to ensure the industry’s continued viability and increase its share in the global semiconductor manufacturing services,” said Bagaporo. “The industry plans to contribute $50-billion export revenue and one million jobs to the Philippine economy by 2010.”

Monday, June 04, 2007

Philippines should master the English language or perish

EXPECT the debate on the use of the English language as a medium of instruction to flourish now that the school system has opened for the school year 2007-2008.

There are those in our midst who are saying we should stick to “Filipino” as the medium of instruction in the schools and deemphasize English. We are among the increasing number of organizations and people who are saying we should, in fact, master English in the schools and the workplace as part of our drive for global competitiveness. We should give it due primacy in all educational levels as well as our official communications.

Why the need to master the English language? Because everybody else is trying to do the same.
Right now, there are probably close to 400 million native English speakers, making English the third largest language next to Mandarin Chinese and Spanish.

Experts say, however, that when combined with nonnative speakers like us Filipinos, English is probably the most commonly used language in the world. And certainly, the number of English speakers is growing as it is now the commonly taught language in Europe, Mainland China, Japan, South Korea and Taiwan.

Yes, the Chinese, the Koreans, Japanese and the Taiwanese are trying to learn English—and fast—because they know the future lies there. English has emerged as the global language that is widely used in information technology, international trade, aerial and maritime communications, the sciences, global sports, as well as in international bodies like the United Nations. About 95 percent of the articles published in Science Citation Index, where breakthroughs in science and technology are published, are written in English.

Of course, critics of the English language have been saying that these countries are not good English speakers yet they are able to industrialize and develop their economies. That is certainly true, but the fact is that these countries right now are sending their sons and daughters to all the corners of the English-speaking world to learn the language. They know they are not secure in their economic perches; they need a hedge and an extra edge in their continuing search for innovation and competitiveness.

Why? Because the shelf life of most economic strategies these days are shorter than, say, a hundred years ago when economic powers had to undergo the Industrial Revolution.
Remember the story of “newly industrializing countries” whose strength came from hosting global production networks by multinational corporations? Singapore is a classic story of that. For 40 years, Singapore rode on the waves of massive doses of foreign direct investments in electronics and semiconductors, thinking the good thing may last forever.

Then the MNCs realized it’s actually more effective to locate the factories in low-cost locations like China, the Philippines and Vietnam, and suddenly the electronics industry that buttressed the “Singapore dream” vanished completely in 2006.

The Singaporeans were rattled, but the tiny island state continues to grow fast (i.e. 6 percent in the first quarter of 2007) on the strength of its services and trading sectors because it has maintained its global competitiveness. Why? Because its people speak the global language on top of its major attraction as a place where the rule of law, transparency and public sector efficiency prevail.

Now, it is trying to leverage these competitive advantages to develop niches in the fast-growing global production and trade in digital media, thus making the Singaporeans a potential threat to the Philippine animation industry.

Japan has been priding itself for its rare virtue of clinging to its language and maintaining its insularity. But these days, many corporate executives are questioning this attitude in the face of increasing competition from Western MNCs that are achieving efficiencies derived from outsourcing, something that Japanese firms couldn’t do because of language barriers.
No wonder, the Japanese are now scrambling to learn English, a fact not lost on the South Koreans—their bitter rivals in the global marketplace for high-end electronics—who are currently sending their people to the US, Britain, Australia and the Philippines to beat them to the draw.

Even Indians these days are shaking their school systems to improve their English proficiency. If there’s one country that has earned billions of dollars for its people because of its language and science skills, it’s India. Its $20-billion-a-year IT and IT-enabled services provide more than a million jobs to its young population.

But right now, the urgency of improving its population’s English-language skills is not lost on its leaders who are pushing for more English-language skills-upgrading programs in schools.
Of course, some “nationalists” in India are fighting back and are agitating for the primacy of Indian national languages in schools and institutions. However, the joke there is that most of those politicians, while agitating for institutionalizing Indian languages in India’s school system, are sending their sons and daughters to Harvard, Yale and Stanford in the United States so they could master the sciences and tame the English language.

“Do you know why English-language newspapers in India—especially in cities like Bangalore, Chennai and Delhi—are rising? It’s because people, especially the growing middle class, are buying newspapers to improve their English proficiency,” said one editor lately, underscoring an example that bucks the tide of declining newspaper circulations elsewhere. He said that for an increasing number of Indian families, English has become an investment for the future. They know because the new middle class in their midst that are going in and out of the posh campuses of Infosys and Wipro in their brand-new cars speak good English.

The moral lesson? We should not dilly-dally on embracing policies that would restore the importance of English in Philippine society. Actually, we have no choice. Some sources in the business community say more than 60 percent of the country’s GDP are accounted for by the “globalized” sectors of economy (e.g. remittances, merchandize exports and outsourcing, among others). These are economic activities that are conducted, processed and concluded through the English language. Given the structure of the Philippine economy, there’s no doubt where our national interest lies. (Drafted as editorial for the BusinessMirror, 5 June 2007).