Extra-judicial killings gone mainstream?

HAVE extrajudicial killings gone “mainstream” as a tool used by the bad guys to silence those who passionately care for this country?

We hope not, but Sunday’s killing of Audie Auchangco, a member of the National Anti-Environmental Crime Task Force (Naectaf) that enforces environmental laws in this country, seems to indicate so. It is worse enough that killers-for-hire have been blasting to pieces activists and mediamen with impunity. Now, it seems that the destroyers of the environment are using the same method to stop people who protect it.

It’s a sad fact of our national life that needs to be addressed with haste, for this matter has severe implications on the Philippine economy. Especially when one recalls that this is not the first time an extraordinarily brave and no-nonsense forest ranger was killed. Past DENR officials a few years ago had called attention to the fact that nearly a dozen such environmental stewards had been killed in line of duty in just a short time.

According to sources from environmental NGOs, Auchangco was shot by gunmen riding a motorcycle in broad daylight in Lucena City on the same day that the world was celebrating Earth Day. He sustained 11 gunshot wounds in the head and body, killing him instantly. We have yet to see the results of the police investigation but there are indications that his death may have something to do with his efforts to curb illegal logging in Sierra Madre.

Sources from the NGO movement say Auchangco was part of the team that implemented “Oplan Baykuran” that led to the confiscation of illegally cut logs from Quezon province and the Rizal portion of the Southern Sierra Madre. He had been working to stop illegal logging operations in Agusan provinces, Cebu and Mindanao during the time of his murder.

That he was murdered right during Earth Day in broad daylight shows just how these criminal elements have become so brazen—the same point that human-rights groups have been raising, to those who’d care to listen, i.e., that it’s not the numbers of victims per se that have become alarming, but the impunity with which they were exterminated.

These criminals seem to be taunting law enforcers that they can do their worst anytime and nothing can be done about it. The government, therefore, should mobilize adequate resources to track down the killers and bring them to justice.

Authorities should look at this latest murder as something that already treads on the fragile state of the economy, and our capability to bring development to people living in the hinterlands. The killing certainly wrought a chilling effect on law enforcers, employees and staff government agencies, as well as civil-society organizations working for the conservation and preservation of the forests, rivers, and mountains. Should this go unchecked, the destruction of the country’s remaining forests will accelerate, thus aggravating the economic and environmental woes.

Certainly, this problem will have an immediate economic impact, especially on the lives of the poor. On a quarterly basis, agriculture, fishery and forestry contributes 16 percent to 19 percent of the country’s gross domestic product and employs 35 percent of the country’s labor force. And because of the farm and forestry sector’s strong links with the rest of the economy, stronger growth rates generated by agriculture, fishery and forestry normally boosts both the industry and services sector as well.

But what few people appreciate is that a significant part of the farm sector’s output relies on the state of health of ecosystems that start up right there in the mountains covered by vegetation. Once this forest cover is removed by means like illegal logging and slash-burn farming, there won’t be much water left for the irrigation systems that nurture the rice fields, corn fields and orchards.

For a long time now, we have been exporting a lot of nature- and farm-based products like bananas, pineapples, rattan products, asparagus, fruits and vegetables. We have been earning billions of dollars from tourists who come to see nature’s bounty in the Philippines. These are economic activities that support the livelihood of millions of poor people.

Once the mountains and forests are destroyed simply because the government couldn’t deal with illegal loggers and other rapists of nature, we would eventually have to kiss these industries goodbye. Once the forests in the Sierra Madre Mountains, as well as other critical ecosystems like La Mesa, are gone, residents of Metro Manila will go thirsty.

Of course, most cities in the country are very much dependent on river and forest systems for drinking water, irrigation, for its factories and offices. A collapse of the country’s ecosystems would have a severe economic impact on towns and cities. That sounds like an apocalyptic warning, but even these days there are indications that many urban water sources are getting less productive due to environmental destruction. And that’s, as Al Gore puts it, the inconvenient truth.

It’s high time the government starts bringing fear to the hearts of elements that are not only murdering and maiming people but also destroying the environment, the prospects of the Philippine economy, and our children’s future. Few crimes could be as heinous. (Note: prepared as editorial for BusinessMirror, 24 2007)

Another RP ‘record’ (sigh)

DO you know why the annual 5-percent to 6-percent growth of the Philippine economy in the last four years is not generating enough jobs or touching people’s lives? Do you know why, despite all the gains the country has achieved through fiscal reforms, more and more people are saying they are poorer than ever?

Part of the answer to these questions probably lies in the recent survey done by the UPS Asia Business Monitor, saying that the small and medium enterprises (SMEs) in the Philippines are the “least competitive” in Asia. Least competitive is actually a polite word for “laggards.” The survey did not mention the reason for SMEs’ lack of competitiveness vis-à-vis its counterparts in Asia, but we could hazard an educated guess.

First, companies, especially SMEs, can only thrive in an atmosphere of growth. Of all the countries in Asia, the country’s “decent growth” of 5 percent to 6 percent is actually just a recent phenomenon that started in 2003, owing to the recent surge in remittances, the recovery of electronics and the rise in outsourcing.

More people, losing faith in the economy’s capability to fulfill their dreams for a better life, are leaving and sending more money home. Depressed wages for office workers have attracted foreigners to set up call centers. Voila!—the economy grew sans government direction. The government, all these years, has largely been so preoccupied with addressing the budget deficit that it completely ignored growth-oriented measures.

Second, the nature of the country’s recent growth, while encouraging from a job-creation point of view, simply highlights the entrepôt nature of the country’s economy.

The classic example here is the electronics and semiconductors industry, which depend highly on imported raw materials. Don’t get us wrong, we are all happy with the way the electronics industry is growing and hiring hundreds of thousands of workers, and therefore supporting the growth of certain ancillary support services industry like logistics. What we are saying is that electronics and semiconductors are not the type of industries that nurture local manufacturing SMEs through forward and backward linkages.

The third reason has something to do with the globalization of the Philippine labor market. Again, we are saying that giving workers all the options to work anywhere they want is a very good policy. We have been doing that the last 30 years now.

But it bears noting that if there are companies that are hit the hardest from the continuing diaspora of talents in the Asia-Pacific region, these are the SMEs. Since most of them could probably not pay higher-salary rates for skilled workers compared to their counterparts in big business, they are the ones who are likely to be abandoned by their skilled staff in favor of jobs among multinationals here or abroad.

That trend is fine really, if only the schools are producing enough knowledge workers. Given the current circumstances, SMEs are the ones that are finding it hard to find talents or retain them.

And fourth, SMEs are the most vulnerable to government neglect and stupid government policy. They are the ones whose costs easily bloat when roads are not passable or when raw materials are protected by high tariff walls; or worse, when red tape and extortion stand in the way of efficient transactions with the government.

They usually have limited working capital and, hence, have limited options when the banks find them “not bankable” enough. They are the ones who lose money when the market ignores their products for lack of granular knowledge of their markets and the latest lifestyle trends, simply because the government has not supported their research and development efforts. They are the ones who suffer and lose contracts when bureaucrats demand bribes or make their business difficult simply because most of them do not have political clout.

All these constraints are unfortunate considering that, according to oft-cited estimates, close to 90 percent of the country’s work force are employed in SMEs. If the government is serious about addressing poverty, the SMEs hold the key. Most of them are using labor-intensive operations and giving them the much-needed boost would surely go a long way in addressing joblessness.

Given all these constraints, is there really anything that the government could do to improve their competitiveness? A lot, actually.

First, the government has to get on with progrowth strategies and it would help a lot if politics in the country is stable. Remember that “super-regions” initiative that the government promised in the last State of the Nation Address? A lot of the projects mentioned in that strategy dealt with infrastructure development that should help SMEs. But so far, the government has nothing to show for that initiative.

In the first two months of the year, the government expenditure on infrastructure rose only by 2 percent, according to newspaper reports this week. If one considers inflation trends, that figure suggests that government expenditure on infrastructure is actually lower than last year’s figure.

We don’t deny the fact that some government agencies do have projects for SMEs. A press release this week from the Department of Industry said that the department and the Development Bank of the Philippines have just signed a memorandum of agreement for a P15-billion loan facility for SMEs.

But all these initiatives would really not be effective if the government cannot provide a good environment for business, in general. How many loan programs in the past came to naught because of unfavorable policy environment? There are just too many to mention them here. Ultimately, enhancing the growth of SMEs really depends on the overall economic and political context in the country.

In fact, direct government actions sometimes simply falter because they are often done with political considerations in mind. For instance, that press release about the P15-billion SME loan program came on election season, inviting suspicion of the timing and observations that the government is trying to do so little and so late.
One hopes this just isn’t the case. (Note: prepared as an editorial piece for the BusinessMirror, 19 April 2007)

President Arroyo may not be serious about her growth target

IS the government really serious about its objective of attaining a higher (read 6-percent to 7-percent) growth rate or not?

In the last several months, no less than the President herself said that her government is gunning for 7 percent to 9 percent in the next three years, encouraged by the statement from the private sector that they are willing to support such an initiative. The only way the government could achieve that fairly quickly is by raising public expenditure on infrastructure.

Several months after, the government still has nothing to show for it. In fact, Monday’s report by this paper’s reporter, Jun Vallecera, showed that even in the first two months this year, a few months prior to the mid-term election, government expenditure on infrastructure development has remained stagnant. What’s happening?

In the last several years, the Philippine economy has shown itself capable of growing more than 5 percent to 6 percent, buoyed largely by high personal consumption expenditure financed largely by OFW remittances and the fast-growing services sector. This growth performance, however decent, couldn’t soak up joblessness owing to two major factors.

First, the activities generated by the services sector are generally urban-based, implying that the rural sector, or even those who are in the urban fringes, are not benefited.

Second, the kinds of jobs generated in the services sector these days are primarily technology-driven, requiring workers who are highly skilled and educated, thus leaving unskilled ones to rot in the slums and the hopelessness of the underground economy.

And third, the government has been remiss in its role in terms of providing adequate infrastructure investments, especially those that provide links between and among the major economic centers, thus restricting the country’s overall growth potentials.

Hence, if the government wants to kick off higher growth, then quick, higher government investments in infrastructure development is the key, assuming it has undergone honest-to-goodness and transparent project planning. Higher infrastructure spending immediately translates to higher purchases of construction materials like cement, steel products, sand and gravel, and wood products. In turn, greater activities in these sectors translate to more jobs and higher purchasing power for food, beverage, and other wage goods.

The multiplier effects of these industries are very high as the private sector—seeing that the government is pouring money into roads, bridges and other vital economic infrastructure—is going to have the confidence to pursue with their own investment plans.

In the last three years, private investments in the country have been lackluster owing to the business managers’ wait-and-see attitude. This is clearly manifested in the low importation of capital equipment, as well as flat growth in the economy’s capital formation.

This means that the private sector is waiting for a signal from the government; a trigger. And what better way for the government to unleash this optimism for job-creating decisions than by opening up the spigots for higher public sector investments on infrastructure?

In the last five years, robust foreign markets, because of the emergence of China and India, and the continuing strength of the American economy, have been underpinning the growth of the Philippine economy. That explains the continuing expansion of the country’s exports of electronics and garments.

But the country’s export sector can’t do it alone for the entire Philippine economy, not only because of the rising peso, but because of poor infrastructure. With poor roads and bridges, as well as an inefficient transport system, exporters are likely to import raw materials rather than buy them from local farmers and rural producers. That’s the reason why we can’t just produce enough economic activities in the countryside. That also means factories are likely to be located close to urban centers and bypass the countryside where labor is supposedly abundant and wages low.

Or they will bypass the entire country in favor of the cheaper location like Vietnam or China. Compared to its Asian neighbors, the Philippines now has among the highest wage rates and that problem is related to the country’s poor infrastructure.

When the cost of producing and transporting food stuff is high, workers are likely to agitate for higher wages to cover for the rising cost of living standards. That is one of the major reasons why despite higher joblessness, wages in this country are rising. So if we want to improve our global competitiveness, we better move faster on infrastructure investments.

Of course, higher investments in infrastructure are crucial in improving the livability of our cities and the quality of our lives. Right now, the country’s urban-driven growth trajectory is accelerating urban primacy and aggravating the polarization between the countryside and the cities. With stagnant productivity in the country, rural-urban migration is accelerating, the main reason why we can’t seem to address the shortages of shelters, traffic congestion, and urban pollution.

The question right now is this: why can’t government move faster on this? Is it plain incompetence? Is it plain inertia after years of spending nothing in pursuit of “fiscal consolidation?” Has the party in power exhausted all its energies?

Or maybe the reason is more basic—that despite all the talk about fiscal consolidation, there is really no money to spend in the first place because it has been earmarked for some election-related purposes. The government had better come up with credible explanations, for what’s at stake is public confidence and the country’s future. And soon! (Originally prepared as Editorial for BusinessMirror, 17 April 2007)

Rising food import bill need not be a problem

ON Monday, Genuine Opposition senatorial candidate Aquilino Pimentel III deplored the country’s rising import bills, stressing that the statistics signal agricultural production woes, and called for a review of the country’s tariff liberalization program.

“Clearly, we must reexamine our tariff policy on agricultural products,” he said. “We must provide our farmers with the same protection that the US, Europe and Japan provide their own farmers. We should prioritize local food production so that we will be less dependent on imports.”

First, Pimentel must be commended for bringing up the matter for public discussion. So far he is the only one who has broached such a very important issue in the campaign.

This is important because, on the same day he spoke, the Food and Agricultural Organization (FAO) released a report putting the Philippines on a list of 33 countries supposedly needing “external assistance.” FAO has put the Philippines on the same list as Iraq—of countries that supposedly run the risk of facing “an exceptional shortfall in the aggregate food production/supplies as a result of crop failure, natural disasters, interruption of imports, disruption of distribution, excessive postharvest losses, and other supply bottlenecks.”

For all its good intentions, the report is phrased in a way that the Philippines ends up looking like part of a dark continent that is regularly plagued by perpetual warfare and drought, and not in the Asia-Pacific, a region enjoying relative stability and frenetic economic growth.

Nevertheless, Pimentel’s concern about the rising import bill is a valid concern that needs to be examined, especially in light of the continuing government failure to invest in rural infrastructure.

The relevant questions here are the following: First, is the rising food import bill necessarily bad? Second, is raising tariff protection for agricultural products the key to food security? Third, are we actually capable of producing all our food requirements within the country’s borders? And fourth, given the reality in the countryside, what are the best ways to ensure food security?

On the first, a rising food import bill is not necessarily bad. Rising imports of certain food items like cereals, meat, fruits and dairy products could actually suggest welfare gains for ordinary people. It means that increasingly, people have access to a variety of cheaper—but quality—food choices that could be good for their health. It used to be that only the rich could afford grapes, oranges and apples. And we eat them on top of our usual fare of mango, bananas and pineapples. Now, most everyone can afford them.

Given the fact that more than half of ordinary people’s expenditures are on food and beverage products, those food-import numbers may suggest that cheaper food items act as a brake on the erosion of people’s purchasing power, thus giving them extra cash for other needs like medicine, recreation and education-related expenditures. And mind you, the country’s food import bill actually accounts for only 5 percent of the country’s total imports.

Is tariff protection the key to food security? The answer to this would depend on our own policy objectives. If we would like to produce all, if not most, of our food items within the country’s borders at all cost, then tariff protection is probably important.

But that means that we have to bear with very expensive food items, probably double the price in the international market. Given the fact that 60 percent of the country’s population is in urban towns and cities, a policy environment that encourages high food prices could trigger social unrest. Besides, once local prices go up significantly higher than world market prices, high tariff protection could easily trigger massive smuggling of the same products enjoying high tariff protection. If there’s one “sector” that’s going to benefit, that would be the smugglers and corrupt bureaucrats at the Bureau of Customs.

Supposing we decide to stop food imports, can we actually produce all our food items, especially rice? No. One major constraint is geography and climate.

Compared to neighbors like Vietnam and Thailand, rainfall patterns and distribution here do not allow for a massive expansion of irrigated areas for rice. Compared to Vietnam and Thailand, the Philippines does not have great river systems from which to draw water for massive irrigation networks.

Given this limitation, we are bound to producing the bulk of our food requirements while importing some of them. That is happening right now and the absolute figures are rising because of several factors like population growth and changes in lifestyle and tastes among Filipinos.

What we are saying here is that the Philippines’s optimal crop mix is probably different from those of our neighbors. While we are going to continue producing cereals like rice and corn in strategic areas that are highly competitive against imports, much of our export competitiveness probably lies in the production and export of high-value crops (e.g. asparagus, bananas, pineapple, ornamentals, cutflowers, mango, durian, papaya, fruits, among others), cattle fattening, and other niche products that do not require massive networks of irrigation systems.

We could produce them in greater quantities either for local consumption and export using water-efficient systems including drip irrigation. Under a liberalized trading environment, exporting these products to China and the rest of the Asia-Pacific region should be a lot easier.

The point here is that it doesn’t matter whether or not you have a $2-billion food import bill for as long as you have an equally robust revenue stream from selling these high-value crops to the rest of the world. If we achieve that, purchasing the foodstuff that the country needs is not much of a problem. That’s the best way we could ensure our own “food security.”

Here lies the real problem because despite the growing opportunities for agricultural exports under a liberalized trading environment, the Philippines remains a net food importer. The problem is not in trade liberalization per se, but in the continuing failure of the government to invest in rural infrastructure, research and development, and farm support services.

Following the formation of the World Trade Organization, Congress drafted the Agriculture and Fisheries Modernization Act as a way to deal with a liberalized trading environment. Nothing has been heard about it since the last five years. The irony is that whatever money we had in the past for “agricultural modernization” was lost in scams, the most notorious being the unresolved fertilizer scam.

Having clarified the issues, we think Pimentel should continue his advocacy for the betterment of the agricultural sector. It would be more productive if he could zero in on the government’s continuing failure to provide the promised “competitiveness-enhancement measures,” as well as the continuing inefficiencies in the interisland shipping sector brought about by stupid government policies (e.g., one-port, one-operator rule). If he or his party could really push this matter into the forefront of the debate in the midterm elections, he will be doing the country a great service. (Originally prepared as editorial for the BusinessMirror, April 11, 2007).

How to attract investments? Let me count the ways

THE Philippines, the World Bank says in its latest report, continues to lag behind its neighbors in the Asia-Pacific region in terms of attracting foreign direct investments.

Of course, that’s hardly new. We have been suffering that trend in the last decade or so. But can we really reverse it? Can the Philippines, given the current economic and political realities, devise a strategy to address the problem?

We say yes, assuming the present dispensation still has energy left for a three-year push until 2010. Below are a few ideas.

Before coming to that, though, we should welcome two important pieces of news that should help us generate more investments in the next few years.

First, the Bangko Sentral ng Pilipinas (BSP) recently released its Business Expectations Survey (BES) report indicating the continuing rise in business confidence since the last quarter of 2005. In the first quarter of 2007, the BES traces the optimism to these factors: greater business opportunities in the run-up to the May election; improvement in the macroeconomic fundamentals (low inflation, stronger peso, low interest rate and improved fiscal position); increase in consumer demand; and rollback in oil and petroleum prices. Business optimism, BES says, is broad-based and an increasing number of firms are expecting to embark on expansion programs.

The second piece of encouraging news is the report indicating that the country’s savings rate has now reached more than 30 percent, or on a par with our neighbors. The government admits that this higher savings rate is largely due to the higher remittances sent home by overseas workers. It’s quite clear that families of overseas Filipinos are saving their money in the bank, contrary to earlier notions about remittance dollars being squandered on conspicuous consumption.

Both factors—improved and sustained business confidence as well as higher savings rate—should boost the country’s chances of generating investments, both locally generated and foreign direct investments (FDIs). How?

According to the United Nations Development Program (UNDP), three major factors explain the inflows of FDIs, namely economic, government policy and strategy by transnational corporations.

Economic factors would depend on variables like the size of the market, the level of urbanization, access to regional and global markets, among others. They would also depend on labor availability, cost, skills availability, infrastructure, level of technological development and the presence of strong financial markets.

Certainly, the rising flows of remittances from overseas workers boost the size of the local market through higher domestic demand that should make the Philippines more attractive to FDIs. The continuing high unemployment and underemployment rates suggest the continuing availability of skills and labor. Also, the continuing diaspora of skilled professionals, while a negative trend, could also be read as an indicator that the Philippines is actually producing a surplus of talents. That means that in terms of the first determinant (economic factors), all the government could do is to complement these positive aspects by focusing its resources on infrastructure development.

Perhaps, what the Neda could do to inspire confidence is to come up with a detailed list of these infrastructure projects and related information like funding sources and timetables, so that the public can help ensure that these investments are really put in areas where economic and social returns are high.

Government policies, the second most important FDI determinant, are crucial. Among the most important variables are the soundness of macroeconomic policy, promotion of private ownership and participation, relaxed rules on entry and exit, greater integration with the rest of the world through trade, and transparent and predictable rules, among many others.

Certainly, the government has gained so much headway in terms of lowering inflation and interest rates, and improving the fiscal indicators. The government therefore should now focus its energies on delivering a strong signal for a transparent and predictable set of rules in government investments.

There are many ways to do it but initiatives like simplified business-registration procedures, transparent bidding rules and the passage of the Freedom of Information Act should give the public access to important contracts.

And better still, the current administration and its allies in Congress should once and for all drop all its intentions for a Charter change to take away the notion that the government is going to change the rules of the game once the dust settles after the May elections. If there’s one thing that’s really putting a lot of uncertainty in the economic horizon, it’s the Charter-change initiative which has been raising the specter of wholesale and unpredictable reverses in economic and social policies that were enshrined in the Constitution after the 1986 Edsa Revolution.

The third most important determinant is the TNC strategy. Multinationals make decisions to invest in a country based on two things: their perception of risk and rewards and political stability, as well as their own strategies on location, sourcing of inputs and services, and technology transfer, among others. They will invest if they think the country has what it takes to handle the complexities of their global operations in the most cost-effective manner. And they would do so if they could divine the trajectory of local politics and are assured that they are not putting the lives of their executives in harm’s way.

Of course, much of those perceptions about the Philippines are just that—perceptions. But perceptions are important inputs in investment decisions and it would help the country a lot if those already doing business here are confident about the country’s prospects. That is why the recent BES report is a very important piece of information. Again, the government could complement this trend by committing to clean, credible and orderly elections in May. That’s the least the party in power now could do to improve investors’ perception of the Philippines as an investment destination. (Originally prepared as an editorial piece for the BusinessMirror, April 10, 2007)

American jobs data in March is good news to the Philippines

Americans were lately surprised to learn that the American economy, or at least the non-farm sector, has created an additional 180,000 jobs, a statistics that is supposedly beyond some analysts’ earlier expectations.

That’s good news to the Philippines as well. America accounts for about 17 percent of the Philippines’ merchandize exports. A buoyant American economy could translate to a rising Philippine exports, greater economic activities, and more jobs within our borders. The American economy has long been a major driver of global economic growth and progress. Should that trend continues, we will have a buoyant global economy for which we could anchor our hopes for higher and job-creating GDP. I’m crossing my fingers.

Solving the "Mindanao problem"

IT is good to hear that the Japanese International Cooperation Agency (Jica) is preparing an “islandwide” development plan for Mindanao. The aim is supposedly to “narrow the gap between the Philippine baseline indicators and those areas affected by the decades-long conflict in Mindanao.”

That is good because for far too long, many provinces in Mindanao have been suffering from the absence of basic social infrastructure like drinking water, health and sanitation, education, good roads and bridges. If the supposed plan could really achieve its objective, it would make a lot of difference.

But if we are interested in long-term solutions to the “Mindanao problem,” Jica and the government should go beyond filling the gaps in economic indicators. It should move toward ensuring connectivity with the rest of the world. By connectivity here, we mean two things—physical and economic, as well as social.

By physical and economic connectivity, we mean the functional integration of Mindanao with the mainstream Philippine economy and the rest of the world. We often hear people from Mindanao complain of “imperial Manila” and policymakers based here in the metropolis simply view it with amusement. But these complaints about “internal colonialism” do have some historical and empirical basis.

If one stays long enough in Mindanao, one could easily notice that the cities or centers of economic activity on the island don’t seem to be linked functionally with each other.

For instance, there seems to be less economic interaction between General Santos and Davao City, or Davao City with Butuan, or Butuan with Cagayan de Oro or Cagayan de Oro with Zamboanga City.

Instead, these cities—all of them port cities—have ports where raw materials (rubber, gold, copper, tuna, seaweeds, pineapples, asparagus, timber, milkfish, rattan, among many others) are shipped away via Cebu toward Manila from which they are either processed or shipped to Japan, Europe and America. A classic colonial setup.

This problem arises from three factors. First, there are no world-class or decent road infrastructure between and among Mindanao cities and regions, thus discouraging intraregional trade and commerce. Second, road infrastructure within Mindanao cities and regions are themselves miserable, thus discouraging productivity. And third, government policy that tends to encourage monopoly and oligopoly in port operations and interisland shipping have been penalizing the Mindanao economy, thus preventing it from economically levelling up with the national economy.

The solution, therefore, is obvious: connectivity, connectivity, connectivity. The government actually tried to address it by coming with the Mindanao 2000 Framework Plan and had started implementing this earnestly with some funding from different donors like the United States Agency for International Development. Implementation of this plan, however, immediately bogged down when hostilities between government forces and the members of the Moro Islamic Liberation Front erupted. The firefights lasted for months, displacing more than a million “internally displaced persons” or refugees.

The government scrambled to rehabilitate the towns and provinces (specifically North Cotabato, Lanao del Sur, Lanao del Sur and Maguindanao) affected by these hostilities. But in 2003, the military’s efforts to take Buliok Complex (the new MILF headquarters after the fall of Camp Abubakar in 2000) again disrupted the fragile peace. All these events simply highlight the need for a social connectivity that should complement economic solutions.

By social connectivity here we mean the need to build what social scientist Robert Putnam calls “social capital” or that aspect of our sociopolitical lives that promotes trusts, reciprocity and social cohesion.

According to the World Bank, social capital refers “to the institutions, relationships, and norms that shape the quality and quantity of a society’s social interactions. Social capital is not just the sum of the institutions which underpin a society—it is the glue that holds them together.”

Building social capital should be done at two levels. First, there is a need to build greater trust and understanding across the different ethnicities in Mindanao. Obviously, the century-long conflict may have bred hatred and biases among groups, ethnicities and cultures. This problem can only be addressed through greater dialogue and tangible reforms, including what Jica is contemplating.

And second, there is also a need to build “vertical social capital” of the relationship between the Mindanao communities and cultures and the State. Somehow, the government may have to address the Mindanaoan’s perception of being neglected. Mindanao accounts for 40 percent of the country’s total food trade and yet receives a small share of the government budget.

About 60 percent of the country’s indigenous peoples are in Mindanao. Hence, any long-term solution should include an effective or credible implementation of the Indigenous People’s Rights Act that aims to restore indigenous people’s control over their ancestral domains. The government may really have to engage communities through participatory planning, ensuring that economic or infrastructure projects being implemented are not disruptive or have the risk of creating more displacement and alienation.

Doing all these things would require greater investments from both the government and the international community. But it’s an investment worth doing because planners could never isolate Mindanao from the larger context of development.

The Philippines has a very good human and natural resources, strategic location, and excellent telecommunications infrastructure. And yet we wonder why we are not getting all those investments that are flowing into the economies of our neighbors.

The reason here is Mindanao. Unless we come up with a long-term solution, the troubles that continuously brew and occasionally erupt on the island would always paint the entire Philippines as a politically unstable country. It’s so easy to dismiss this as a perception problem but it’s exactly this perception problem that weighs us down every time we attempt an economic takeoff.

The Jica project is great but we should broaden our ambition to include a long-term solution to the “Mindanao problem.” (Originally written as editorial for the BusinessMirror, April 5-7, 2007).

McDonalds versus Jollibee: globalization is two-way street

The bellyachers in our midst often look at globalization as cultural invasion. It's understandable given the proliferation of Starbucks, McDonalds, Victoria's Secrets in our midst. Generally, Filipinos love Starbucks and McDonalds but some fear these foreign cultural icons are destroying local culture. Right?

Wrong. It’s because interactions among cultures are dynamic. It’s often a two-way street. Consider Joel Stein’s observations in Time online:

"The stuff you [the Americans] invented—in this culinary case, fast-food hamburgers, fried chicken, pizza and doughnuts—gets sent out into the world, is replicated by other countries and then comes back to you all crazied up, like a giant game of telephone. And if you hold that piece of Filipino fried chicken up to your ear and are really quiet, you can hear what the rest of the world thinks about us."

His observations about the entry of Jollibee in the US market smacks of a cultural shock:

"Jollibee, with more than 1,400 stores in the Philippines and 11 branches in California, makes McDonald's look like a funeral parlor. Its mascot is a jolly bee, and the restaurants are blindingly happy, all giant, shiny yellow blocks, as if they were designed by an architect from Legoland. Even if you gave Walt Disney all the ecstasy in the world, he would not have come up with this. America, according to Jollibee, is clearly a place of childlike optimism. Jollibee's two most popular items are called the Yumburger and the Chickenjoy. The Yumburger has a weird, plasticky dollop of French dressing in the middle. The crisped-up French fries are dry inside and taste as if they weren't just double fried but dunked in oil four or five times. The fried chicken is halfway decent, but the inflated, happy fakeness of Jollibee makes you feel that the only American its Filipino owners have ever seen is Pamela Anderson."

But overall Stein seems to look at the entry of “foreign American” fastfood in America in a positive light, something that goes beyond the culinary:

"All this foreign American food seems campy fun—bright, sweet, smiley and likable. Even in a world where so many hate and fear us, they still want to be like us. To them, it seems, we're a happy, efficient, fun bunch of guys, even if we act like total jerks when it suits us. They've figured it out: we're frat boys. And we like to eat like them."

The Philippines at a crossroads

THE Philippines is at the crossroads.

What will determine whether or not we are going to catch up with our fast-growing neighbors in the next decade would hinge much on how credible the mid-term election in May would be. That’s how important this political exercise is. If we bungle this one, it would be doubly hard to recover the respect that we have started to gain as a result of our initial success in global outsourcing and electronics exports.

We say we are at the crossroads because it seems that the Philippines actually has what it takes to move forward a little faster. The recent Grant Thornton survey seems to confirm that. It says that currently the Philippines is ranked No. 8 among 32 countries for having “super-growth companies,” a rare honor that we currently share with the United States, Armenia, Ireland, United Kingdom, South Africa, Sweden, Canada, Singapore and Germany. Super-growth companies are those which enjoy more than average growth both in terms of turnover and job creation.

Our current ranking is actually 15 notches above our previous ranking, an indicator that—despite a lot of stupid things happening around like that ridiculous Ducat hostage-taking that made us the laughing stock of the world, continuing failure of the government to invest in strategic economic and social infrastructure, and the lack of depth in the campaigns for the mid-term elections—the Philippines still has some strengths that it can put to work so the country could move forward.

And what are these strengths? The Grant Thorton survey doesn’t say much but it seems that the latest report by Jetro is the best gauge.

The country’s edge is not about labor cost, Jetro says, for the Philippines currently has among the highest wages in the Asia Pacific region. It’s not telecommunications, for we have among the highest charges in the Asia-Pacific neighborhood. It’s not power, for we remain among places with the most expensive electricity rates. And its not taxes, for our regressive system still has among the highest rates in similarly situated countries.

Having enumerated all these factors of production (negative against us), it’s fair to presume that the real plus factor lies with the Philippine human resource—its people, many of whom are going abroad to take difficult jobs, and its entrepreneurs.

The Grant Thornton report points to the continuing transition of the Philippine economy from manufacturing to services as one major factor that pushed us to the top 10 ranking, but it’s certain its really about having the best talents around. It’s the same reason why even the Japanese have been recently exploring the possibility of outsourcing some of its operations to the Philippines, a trend currently being done largely by American and European companies.

That’s good news; it means that the country could see a more diverse market for its cyberservices industry that has been growing more than 50 percent in the last five years.

Having made that optimistic note, it’s crucial to stress, though, that there’s only so much that this sector could do to move the economy forward. We are already seeing its limits in terms of not being able to generate jobs that could soak up the jobless off the streets.

Leaders in the cyberservices industry are saying that the industry is supposed to accumulate close to a million jobs (about 900,000) by 2010, but it appears that such target is getting difficult to achieve by the day. In 2007, the total employment in the cyberservices industry is probably close to 300,000 and it’s simply mission impossible to generate 600,000 more fresh jobs in the next three more years.

Of course, most of the cyberservices firms are trying to go up the value chain by engaging in knowledge process outsourcing. That’s one smart way of maximizing the country’s gains in outsourcing. But this option by itself is getting dicey with the raging war for talents globally. Because of the rapid expansion of the knowledge economy at a global scale, human-resource officers worldwide are increasingly looking at expatriates as a source of supply of skilled labor.

These days, it’s so easy for talent-search agencies to pirate local engineers, accountants, mathematicians, information technology experts, aircraft mechanics, pilots, and medical professionals, and send them to Dubai, Bahrain, Singapore, London, Bahamas, New York and Australia. In fact, the Thornton survey has identified this trend as a major concern.

Meanwhile, it seems other sources of growth are showing signs of weakening. Telecommunications has been enjoying frenetic growth but it seems the market is showing signs of saturation. Telecom companies are now putting their bets on third-generation technology to carry on the mantle for growth but it appears that the uptake remains slow and some people see a plateau effect in the horizon.

The point is that we need to complement these strengths if only to meet the modest 5-percent to 6-percent growth rate we have achieved in the last three years. We need more foreign direct investments at a scale that has been achieved by our neighbors in the region, say $3 to $5 billion a year, or three to five times the highest we’ve attained so far.

We need more activities in the farms, the construction sites and the factories to boost the economy. But how do we do that?

First, we need to achieve political stability in the next three years that should usher in an orderly 2010 presidential election. We can only do that by holding a really clean and credible mid-term election in May. Certainly, the ball is in the hands of President Arroyo. If she wants to leave a good legacy and a graceful exit, this is her last chance to do so by ensuring that she won’t use her immense power and machinery to rig the elections.

A clean and orderly mid-term election would mean that parties and factions are likely to contest the 2010 presidential derby sans the baggage and bitterness of Edsa Dos and Tres. That should usher in political stability that we badly need for a high and sustained growth. (Prepared as Editorial for BusinessMirror, 3 April 2007)

Rising anti-science attitude in the West?

With the rise of China and India, it’s fashionable among analysts to “predict” the downfall of the West (read America and Europe). But this “prediction” may actually come true if one takes Alvin Toffler’s recent observations in new book “Revolutionary Wealth.”

Among the waves of the future according to Toffler are biotechnology and genetic engineering but scientific efforts in the West towards these ends are being constrained by the growing anti-science attitudes in these countries. These anti-science attitudes, according to Toffler, are manifested in the shrill and sensationalistic media coverage of anti-GMO or anti-GE mass actions, the rise of “new wave” theories, and increasing clout of NGOs under the mantle of environmentalism. All these trends are happening against the backdrop of the declining enrolment in science and technology, engineering and mathematics, as well as the increasing reluctance of politicians to fund GE and biotech research.

Anti-GE groups usually invoke precautionary principle to oppose biotech, meaning that if there’s a perceived “risks” involve in new and emerging technologies, governments and companies should stop doing it. This is funny really and hypocritical. If we are supposed to ban technologies for having perceived risks, we might end up banning probably 99 percent of technologies in our midst. Cigarettes and cars are certainly harmful and confirmed killers but why is it that so-called environmentalists are not campaigning against them?

Of course, Asian countries like India and China are happy this development. These countries are aggressively spending billions of dollars in science and engineering, and are among the most enthusiastic adopters of GE and biotechnology. In fact, many of the breakthroughs in rice research in China are now being replicated in the Philippines.

While the West is increasingly becoming superstitious, Asia is embracing science and technology. I wouldn’t really be surprised one day if the world wakes up to find out that the center of excellence in science and technology has shifted to Asia, read China. In fact, research and development laboratories are spreading fast in the Asia-Pacific Region in what is now known as “innovation outsourcing”. The trend is largely caused by American hi-tech companies transferring to Asia to take advantage of the region’s superb and but cheap sci-tech talents. It would be safe to assume that restrictions put on research in the West are among the major factors that are driving them to Asia.

Hmm, globalization is happening in really surprising ways.

From outsourcing to "innovation offshoring": is there a win-win formula for Asia and America?

Outsourcing, offshoring—we often hear these words these days. We see their manifestations in call centers, back office operations, software engineering, engineering design, and animation companies mushrooming in our midst. But “innovation offshoring”? Yeah, that’s the new trend these days.

Innovation offshoring refers to the spread of research, development, and engineering jobs through “global innovation networks” all over the Asia-Pacific Region, most notably India and China. Major players in this phenomenon are American companies that are trying to cope with increasing complexity and multi-disciplinary nature of scientific research. Apparently, these companies are attracted by the availability of cheap talent in the region.

The same trend however is creating fears among Americans that the supposed “hollowing-out” of American economy is extending into the high-tech and R&D. There are now fears about Americans eventually losing its competitiveness to Asians. There are also fears among Asians that such a trend may create a backlash in the form of “technological protectionism.” These are valid fears for both America and the region.

So what’s the real deal? Is innovation offshoring really hurting America and benefiting Asia? Or is there a win-win solution to this issue for both Asia and America? Or is it benefitting both parties. What are innovation’s offshoring’s promises and pitfalls?

The Jefferson Fellowship will answer these questions soon. And I’m happy I’m one of those who were given the opportunity to participate. The sessions will conducted in Hawaii and San Jose CA in the US, Beijing and Shanghai in China, and Bangalore and Chennai in India. The fellowship will start April 29 until May 26.

So keep visiting this blog for updates. A happy weekend to all!

The looming talent crunch for knowledge process outsourcing

ASK the executives from the country’s leading knowledge process outsourcing (KPO) companies and they will tell you the Philippines will soon suffer a serious talent crunch.

Give it three or four years, said one KPO executive, and we will feel the pain of that talent scarcity, unless the universities, educational system, industry and the government could sit down together and develop a modus vivendi to address the challenge.

Too bad because KPO is where the future of the country’s fast-growing business process outsourcing (BPO) lies. And its continuing growth would determine the extent to which the country could hold on to its talents, many of whom are being pirated for jobs in Singapore, the United States, London, the Bahamas, and even the Gulf states.

KPO is Integreon Managed Solutions—owned by the Ayala family—doing market research, risk analysis, business plans for global investment companies, legal firms and investment houses. KPO is Thomsom Philippines doing bond and equity research, perception studies, loans and project finance and facilitating investment deals and providing financial analysis to Fortune 500 companies. And it’s about Deutsche Knowledge Services providing high-end accounting and financial services for Deutsche Bank Group Worldwide.

It is a high value-added form of outsourcing that employs high-end skills, expertise and judgment. We are talking here about hot-shot MBAs, software engineers, accountants, management engineering experts and mathematicians doing a lot of think work.

This is in contrast to most BPOs where workers simply follow detailed processes and procedures determined by firms and companies in the United States.

Right now industry sources say there are probably around 5,000 people engaged in KPO. But this number is rising. Thomson Philippines’s staff, for instance, is expected to grow by 10 percent this year. Integreon is set to open a 250-seat KPO in Makati. And there’s another KPO that is hiring people at the rate of 50 talents a month.

Many more are hiring. The problem is that talents these days are getting scarce. It’s a roadblock the country should remove if KPO is to attain its full potential. The scarcity of talents is due to several reasons.

First, there is an ongoing war for talent these days. The country’s labor market has totally globalized such that it’s a lot easier for other countries to lure talents off the Philippine soil. These days, an accountant with four years experience and good knowledge of SAP, one of the leading business software that competes with Oracle, could command as much as a seven-digit salary. The Singaporeans, however, are willing to pay double that amount.

What makes it hard to keep them here is that such talents are being sought by headhunters for the big accounting firms like Deloitte Touche Tohmatsu, Ersnt and Young, KPMG and Price Waterhouse. These four are willing to pay top dollar including family relocation to places like New York, London, the Bahamas and other financial centers of the world. And it’s so easy for local talents to leave because they are usually just in their mid-twenties, many of whom are unmarried and therefore excited by the high adventure of working in the world’s financial centers and global cities.

Second, the country’s educational institutions are increasingly lagging behind the requirements of the business community. For instance, KPOs are in dire need of people with specific skills in enterprise resource planning, process mapping engineering, financial markets, process control, international financial reporting system, Oracle, SAP, and the Sarbanes-Oxley financial and accounting disclosure system.

Yet most accounting graduates are simply taught the generic accounting principles and skills that are increasingly becoming obsolete. The same is true in many other technical professions like engineering.

And the third reason is that some educational institutions are resisting change and innovation being proposed by the industry. They are just too risk-averse to invest in new curricula, facilities and equipment.

One KPO executive, for instance, noted that the state schools like the University of the Philippines are suspicious of the industry’s efforts to introduce reforms in the curriculum, as its Board of Regents feel such changes would constitute “violation of academic freedom.”

In fact, many schools, even until now, think that the problem of KPOs as well as BPOs in general are the private sector’s problem and not of the university system, whose mission is to provide “holistic” and general education to the young.

Of course, universities like Ateneo and La Salle are supposedly responding to the industry’s needs, but these two universities alone cannot redress the talent scarcity. The entire educational system must pull in weight if only to maximize the economy’s gains and spread the benefits of job opportunities fostered by outsourcing.

It’s no exaggeration to say that the future of this country is at stake in the timely redressing of this problem. As it is, we’ve missed so many boats and we can’t afford to miss the opportunity to be a major KPO player in the world.

We missed the opportunity in agrarian revolution by dilly-dallying with the implementation of the agrarian reform law that created uncertainties, thus driving away potential investments in farms. We missed an export-led revolution in the ’80s and the ’90s, catalyzed by flows of Japanese and Taiwanese investments, by shielding the manufacturing sector with dirigiste policies.

And now, we could miss the services revolution if we dilly-dally with our response to the growing opportunities offered by outsourcing.

We always think India whenever we hear the word “outsourcing.” The truth is that Ireland pioneered in outsourcing and sophisticated financial services long before India did, and is now among the countries with the highest per capita incomes ($48,604), next only to Luxembourg ($80,000), Norway ($64,000), Iceland ($52,000), and Switzerland ($50,000).

Some economists are smirking about a services-driven growth, but India followed the same path and has grown at 7 percent to 10 percent a year in the last decade.

Now, the Philippines has a crack at a similar chance and one wonders why policymakers and the educational system are not moving heaven and earth to ensure that our initial success in outsourcing is sustained.

Of course, we don’t have to abandon our farms and factories; we just have to put in place certain initiatives like upgrading the education system to make the services sector competitive. These same policies can actually enhance the global competitiveness of the rest of the economy.

Right now, policymakers in both public and private sectors are content to say the BPO and KPO sectors are growing at 50 percent a year. Had we taken care of the problems in the educational system, these sectors, according to industry experts, could have been growing by 100 percent to 200 percent, thus cutting the rate of joblessness. (An earlier version of this was prepared as editorial for BusinessMirror, 27 March 2007)

Jun Gapud, Clausewitz and Toffler: Globalization reunites friends across borders

Tonight I got another email from an old friend who is now based in America. His email really touched my mind and heart.

Dave: Greetings from Jun Gapud. I stumbled into your blog having no clue that it was from a person I knew a long time ago in my days at APRAAP. But when I found myself agreeing strongly with all your views (globalists think alike, I guess), I decided to click on your profile and behold, it was a blast from the past. I distinctly remember our conversations about Von Clausewitz and Toffler. Thomas Friedman was not in the picture then but now its almost required reading, of course, for those who wish to grasp the inevitability of Globalization. That is my approach on explaining our "interesting times", with much frustration, to people I know both here in America and back home in the Philippines. I don’t even argue its merits and dislocations. Globalization is as inevitable as Global Warming (climate change) and it will drastically change our lives, agree with it or not. Preparation is the key and the ironic thing is that the Filipino culture -- a unique fusion of East and West -- gives us a competitve edge to embrace and exploit all these changes. Filipinos don't know what strength they have. Or is it that the fear of change is as universal as the love for cellphones and Starbucks?I see that you are now a prominent writer [how I wish!] and I congratulate you on your success. Your post on meeting Marge again was a classic.---Jun

What can I say? The world is indeed getting smaller by the day and I’m just too happy to know that friends could still remember me and our discussions back then. Yeah, globalization really brings people together as borders become meaningless.

A winter of discontent for our weathermen and what can we do about it

FIRST, it was doctors becoming nurses to take jobs abroad. Then, pilots, geologists, mining engineers and information technology professionals seeking greener pastures beyond the borders. Now, weather forecasters are also leaving the country in search of a better—pardon the pun—climate.

Now, this one should really hurt because weather forecasters provide a very essential—nay strategic—public good: that of providing weather data and forecasts. A lot of life-and-death decisions are made both by the private and the public sector based on these data and forecasts. Information about typhoons, storms and floods save thousands of lives.

They also help producers, government planners and private business minimize the negative impact of natural disasters. Weather and climate data help soldiers and cops in the fight against terrorists and communists. They help exporters, importers, logistics firms and shipping companies plan the movement of goods and services. And of course, these services are getting important by the day as we suffer, with the rest of the world, the effects of climate change.

The literature on global warming says that increasingly, weather and climate all over the world will be less predictable. That spells danger for the country, and only a good weather-forecasting capability can help us cope with these changes.

But since our weather forecasters are being lured by talent poachers abroad, it’s crucial to confront this problem squarely now. The solution is simple but the country’s policymakers, both from the public and private sectors, need to have a change in mindset, a paradigm shift.

At the outset, it’s clear that our weather forecasters need more material rewards for their skills and we may have to give it to them. Since this country pretends to be a democracy where individual pursuit of happiness is paramount, no one should even think about physically preventing them from leaving. That is their right. But before anyone in our midst accuses them of greed, “materialism” and “lack of patriotism,” let’s put this problem in broader context.

The problem of weather forecasters leaving the country simply reflects Philippine society’s lack of appreciation of scientific talent and science in general. Many scientists work in government agencies providing services and promoting national development. Strategic activities like defense, weather forecasting, research and development, crop protection, plant breeding, biotechnology are only among the few examples. They are a special people who push the frontiers of knowledge.

They are special because they are among the brightest in our midst; people who spend long hours in laboratories and workshops to generate information, knowledge, and technologies that are vital to development and progress; and their supply is normally scarce. They are virtual gems, treasured in many countries in the world.

Not in the Philippines. For long, policymakers have been treating scientists like ordinary people with ordinary needs. Take note how the salary-standardization program has prevented them from getting wages substantially higher than those of janitors and security guards. Most agencies they are working for are poorly funded.

The budget of the Department of Science and Technology, for instance, has practically stayed the same in the last several years. That is why we find many scientists in these agencies doing excruciatingly demoralizing administrative and armchair “research.”

No wonder, most of them dream of moving abroad, temporarily or permanently, so they can really do what they love: honest-to-goodness scientific research and some dignity of being a “scientist.” It is sad to note that in just one DOST agency, at least 40 of its scientists and researches have gone abroad or have joined private companies last year.

But can a poor country like the Philippines really match the offers abroad? Where can it get the money?

Local decision makers keep raising this issue, but they entirely miss the concept of “purchasing-power parity.” A dollar can actually buy more goods and services here than it could in places like Singapore and the US because of differences in living standards.

So if government policymakers want to raise the weather forecasters’ pay, they don’t really have to match the offers abroad dollar-for-dollar. All they have to do is to figure out that parity or the minimum levels by which our weather forecasters and scientists could feel some dignity while serving their country well.

That means, they can spend long hours in the laboratory without fretting over a leaking roof at home, the next tuition installment for their children or the health insurance of their family. Or about having to catch the MRT because, for all the long years of service, they can’t even afford a second-hand car.

For meteorologists, for instance, we should immediately put together a training program, or even a scholarship program, for aspiring scientists. This can be done pretty easily—granted policymakers take immediate action—since we could actually train forecasters from many applied science disciplines. Many forecasters actually came from engineering. This training program should be a continuing process so those who leave for greener pastures can easily be replaced.

Let’s face it; we are in the age of globalization, where national borders are meaningless. There’s an ongoing war for talent all over the world, particularly in the Asia-Pacific Region, and scientists are rational beings who respond to economic incentives. That’s a fact of life in a world that is—to use Thomas Friedman’s term—getting flatter by the day.

Certainly, the question of where to get the money is a valid, albeit a minor question. The more relevant question is: Do we badly need them? If the answer is yes, then we have already solved the problem. If we think we really need them here, we will mobilize resources for them. We will put our money where our heart is. There are actually lots of unproductive expenditures in the government from where to draw those resources.

On a broader front, there is really a need for a greater appreciation of our scientists. These people are globally mobile, often interacting with peers worldwide through seminars and fellowships. Hence, many of them know how miserable their standards of living are compared to their counterparts in, say the Asia-Pacific Region. Thus, they are the most vulnerable to recruitment by foreign companies that not only offer generous pay but also access to topnotch research facilities, tools and working environment.

If we can attend well to our scientists’ needs, we will send market signals to our bright students in science high schools that hard sciences actually pay materially. Then we can attract more of them to the science profession and ease the scarcity of scientists and technical people. If young kids see that science is cool, we will stop hearing complaints about “brain drain” and skills shortage. Right now, many of these science high-school graduates are taking nursing, mostly egged on by families looking to get dollars abroad. But this need not go on forever. (Note: The original version of this piece was written as editorial for BusinessMirror, 23 March 2007)

Gloria Arroyo is no Margaret Thatcher

Economics are the method; the object is to change the soul.—Margaret Thatcher, British prime minister, 1979-1990

IS President Arroyo a Margaret Thatcher? That’s what she hopes she’s turning out to be, as she herself stated in an interview with Bloomberg published in this paper Wednesday. “She [Thatcher] was an icon, the Iron Lady, very strong, very focused, and fasten-your-seatbelts-and-never-mind-the-air-pockets. I’m very similar to that as far as my focus on the economy is concerned,” she said.

If her fight to raise the VAT from 10 percent to 12 percent is the only gauge, then her resolute decision to go all the way despite strong opposition until it was passed was certainly Thatcherite. In her disdain for direct income taxes, Thatcher indeed raised the VAT to 15 percent and had to summon her iron will to battle popular opposition.

But the comparison ends there. For most of her reign so far, the President’s actions have really been pure Arroyoite, a mishmash of survivalist politics and flip-flopping economic policy management.

In short, President Arroyo is no Prime Minister Thatcher, although one actually hopes she is so she could push for crucial reforms that the country needs to move forward.

Thatcher came to power in Britain in the late ’70s in a world that thought the best ways to solve society’s problems was government intervention. Does society need better schools, improved health care, greater farm productivity and dynamic factories? The answer is simple: impose higher taxes, increase government spending and allocate more public money for state-owned corporations.

Thatcher and her economic advisers thought that approach was bankrupt. So she imposed drastic measures that reduced the role of government in the economy through privatization of losing and inefficient state-owned enterprises, market-oriented policies to enhance the efficiency and competitiveness of the British economy, and the promotion of entrepreneurship, to promote what she calls a “moral society.”

“We want a society where people are free to make choices, to make mistakes, to be generous and compassionate. This is what we mean by a moral society; not a society where the state is responsible for everything, and no one is responsible for the state,” Thatcher said.

And the reforms she doggedly implemented, many of them quite successfully, incurred the ire of vested interests in British society that resisted change, including labor unions, local government executives, bureaucrats, fat cats in state-owned enterprises. Thatcher persevered until 1990, when, realizing she no longer had broad support in the parliament after committing the mistakes of isolating her very own support base, resigned.

Nevertheless, the British economy these days has firmer foundations, courtesy of her legacy that is being pursued by future prime ministers, including Tony Blair who belongs to the Labor Party.

In contrast, President Arroyo came to power in 2001 at a time of increasing acceptance of market-oriented policies. Many of those policies were well in place since the time of President Corazon Aquino and were strengthened during the Ramos and Estrada administrations. When President Arroyo came to power, the issue therefore was how to sustain the momentum of reforms.

And—surprise! surprise!—Arroyo actually reversed some of these essentially Thatcherite policies.

Of course, one should grant her achievement in terms of raising the VAT rates that supposedly explains the improvement in government finances. But, on second thought, that itself is not necessarily Thatcherite. Thatcher reduced income and corporate income taxes to stimulate entrepreneurship and recovered revenue collections lost by raising the VAT.

In contrast, Arroyo raised the VAT while at the same time raising corporate income taxes to 35 percent, thus making the Philippines a country with the highest corporate income tax rates in Asia. This high corporate income tax could be one of the reasons we can’t seem to attract foreign direct investments as much as our neighbors in the Asia-Pacific.

A few months ago, President Arroyo issued Executive Order 558 allowing government nonfinancial institutions and government-owned and -controlled corporations to once again engage in direct lending. After the Edsa Revolution, the government economic policymakers did away with this credit policy, and the new policy was institutionalized during the Estrada administration. Before this, government bureaucrats didn’t know anything about credit provision, hence, most of the money for this purpose ended up lost to graft and corruption. Some of those who got the loans simply collected the money without paying their loans.

Private organizations, including the Makati Business Club, the Management Association of the Philippines and the Rural Bankers Association of the Philippines called EO 558 a “setback of monumental proportions” but Malacañang simply ignored them, thus raising fears about the government using public money for the coming mid-term elections.

On January 27, the government issued Executive Order 500-A restricting the operations of budget airlines from the rest of Asia, thus constraining the growth potentials of the Diosdado Macapagal International Airport. The government apparently caved in to pressure from some local airlines experiencing competitive pressures from these budget airlines.

And soon, those who will build houses and repair their homes will be hit by higher prices of steel products as the government has committed to raise the tariff of steel products from 3 percent to 7 percent as a way to protect the National Steel Corp.

And of course, the entire Philippine economy continues to suffer from a lack of competitiveness as the government continues to hold on to the one-port, one-operator rule, thus ensuring the continuing monopolies in port operations and shipping industries. Now, the government is bent on privatizing North Harbor and it seems the Philippine Ports Authority is bent on giving it away to a monopoly.

Of course, it was the President herself who turned her back on the fiscal rationalization bill that should have reformed the grant of fiscal incentives in the Philippines. Each year, the country loses P300 billion in forgone revenues, but Malacañang has simply lost its resolve to plug the huge hole that’s draining government coffers.

The list of policy flip-flops is endless and we fear that we might yet wake up one day realizing that the policy reforms achieved after the 1986 Edsa Revolution are gone. The irony is that we are losing these gains under a president who claims to idolize Margaret Thatcher. (Note: I wrote this piece yesterday as editorial for BusinessMirror, 22 March 2007).

Blogging is "prosuming": a review of Alvin Toffler's Revolutionary Wealth"

Do you sometimes feel that institutions (education, the courts, labor unions, Church, politics, marriage, and the economy) in our midst are unraveling and can’t seem to cope with society’s emerging problems? Do you wonder whether or not power relationships among people and within organizations are changing? Do you increasingly feel stressed out by the bewildering speed of change in the workplace and in society as a whole? Do you increasingly feel that uncertain about the economic prospects of your country?

If many are asking these questions, it’s because—according to futurist Alvin Toffler in his book Revolutionary Wealth: How it will be created and it will change our lives—our relationship to “deep fundamentals” like time, space, and knowledge are rapidly transforming, thanks to the accelerating revolution in information technology. And while there are emerging challenges, the same transformation under way are actually ushering a new way of creating wealth that could potentially alter our lives for the better.

Because of the information revolution, economic transactions are getting faster and some are desynchronizing. For instance, new financial instruments are emerging to the consternation of bureaucrats who discover that existing laws are inadequate as basis for regulations. Textbooks are increasingly becoming obsolete with the emergence of new knowledge and information that are published daily in the Internet. The spatial dimensions of economic activities are also changing with wealth creation increasingly shifting towards the Asia-Pacific Region. Because of breakthroughs in digitalization, it’s easier to shift economic activities to low-cost locations and that’s creating lots of insecurities in the West. Wealth itself is increasingly determined by knowledge and innovation but knowledge itself and tools to generate it are transforming fast.

This sounds unsettling for people who long for stability and progress. But Toffler says mankind’s march to prosperity is set to continue and accelerate through the phenomenon he calls “prosuming.” Increasingly, people are creating their own products and consuming them.

Examples of presuming include parenting, blogging, designing open source software, caring for the sick for free, volunteering for worthy causes, among others, and a lot other activities that are currently not reflected in the money economy. Prosuming is set to explode to generate “revolutionary wealth,” especially as presuming enters the money economy. To those who are skeptical comes his reminder that the billions created by Napster, YouTube and Google started as hobbies by kids who were just trying to enjoy themselves.

This book could sometimes be a difficult read especially because one needs to recall certain ideas he introduced in his earlier works. It is necessarily difficult to present ideas that are supposed to usher us towards the future. Thus Toffler tends to cite so many examples and keep on repeating the outline of the book and keep us on track with the flow of his ideas. But overall, I recommend this book for anyone who wants to divine the future. I feel I’m a totally different person after reading it. You will see trends and events differently after reading this one.

The death of the Philippine political party system

ARE political parties still relevant? Do they represent the “interest” of the people? What do Filipinos think of turncoats?

Last week, Konrad Adenauer Stiftung, the Center for Asia-Pacific Studies and the Ateneo School of Government released a study answering this question. The results simply confirmed what has been a common observation—that majority of Filipinos think that political parties have nothing to do with their lives.

This is unfortunate because if we want to put stability in the country’s political process—one that should ultimately result in a predictable and investment-friendly political economy—strengthening the party system in the Philippines is the only route.

The survey says that 67 percent of Filipinos think “no political party truly promotes [the people’s] welfare.” Only one-third of the respondents say they will join or stay within the party if there is opportunity to learn more about politics. Asked to name politicians when specific parties were mentioned, 75 percent of the respondents didn’t know any.

Thirty-one percent say parties have “no noble leaders,” 28 percent say no party does things that benefit citizens, 29 percent believe none has realistic party platform, 31 percent say no party recruits candidates who are truly qualified.

The list of complaints is endless. In fact, about half of the respondents don’t give a damn about turncoats. That feeling is understandable given the fact that most people think political parties are irrelevant anyway.

But why are people so critical of political parties these days? The usual explanation points to their elitist origins. Since the dawn of political parties in the Philippines, the electoral system has always been elite-based, with factions from the same ruling class alternating in holding power without any improvement in the lives of ordinary people. Sounds valid, but two major factors also account for the destruction of the party system.

First is the declaration of martial law in 1972 that abolished the elite-based two-party system (Liberal versus Nacionalista) and replaced it with the “dominant-party system” composed of one big ruling party (Kilusang Bagong Lipunan) and a small patch of opposition groups whose leaders were brutalized and killed to prevent them from emerging as real competitors to the dominant party.

Opposition groups in the days of Marcos’s “constitutional authoritarianism” were allowed, but the State made sure they didn’t have the slightest chance of capturing power. Since the late ’70s, alternative power centers like mass movements emerged. However, since these groups were not organized for electoral struggles but for direct seizure of power through mass and insurrectionary actions, the leaders who emerged from its ranks didn’t have the savvy and mindset for electoral politics. That really deprived the Philippines of credible politicians after the Edsa Revolution, thus weakening even more the people’s perception of electoral politics.

The second factor is the major error committed by the post-Edsa Revolution reformers. President Corazon Aquino has always stressed that in her time she “restored democratic institutions.” But whether she recognizes it or not, the view of many analysts is that she actually helped destroy the party system: by ignoring the system for nomination of candidates in the Laban ng Demokratikong Pilipino, when she anointed General Fidel Ramos, who formed his own party of convenience, Lakas ng Tao.

Aquino’s action was simply a culmination of a campaign by Edsa 1 reformers against the trapo, or traditional politicians. Traditional politicians were vilified as ugly, graying and corrupt—almost like dirty old men and women—who gain and maintain power through patronage, bribery and electoral fraud.

The problem was the same movement, contemptuous of party politics, failed to define what the alternative to the trapo was. Thus, when Aquino discarded Ramon Mitra—a man whose trademark gray beard and bush jackets gave him both the aura of an haciendero and an old patriarch, the usual suspect in the Philippine political zarzuela—the alternative to the trapo meant anybody who doesn’t come from the parties of yore.

Unwittingly, that perception about trapo applied to political stalwarts like Jovito Salonga, Teofisto Guingona Jr. and Aquilino Pimentel Jr. who could have been great statesmen. The party system went downhill since then, especially since insurrectionary action and direct seizure of power through coup d’état got enshrined in our consciousness as an “alternative mode” of changing government.

The concept of “traditional politicians” was faulty from the very start. In reality, all politics, especially electoral politics, are traditional. A reformer or visionary may either use “issue-oriented” or personality-oriented campaign strategy, but in the end that person may have to capture power in order to implement whatever agenda she/he has. Once in power, the same person must hold on to that power through a political machinery which is either a party or a mass movement. The post-Edsa reformers missed out on this aspect of politics and we are suffering politically because of that.

With the discrediting of the party system, which in the popular consciousness is associated with the traditional politics, naturally people looked for “nontraditional leaders.” Certainly, Joseph Estrada, forming his own Partido ng Masang Pilipino, was a “nontraditional” leader whose stature and popularity sprang from his good-guy roles in films.

When Estrada got into problems, the middle class poured out into the streets and took a “nontraditional” political action, an insurrection backed by some top brass in the military, to oust him—and we’ve never stopped paying for the seemingly small, but fundamental legal omissions, of those who played a part in Edsa 2. They put into power then-Vice President Gloria Macapagal-Arroyo, who by any measure, was also a “nontraditional” politician, having risen from government bureaucracy.

Mrs. Arroyo, who abandoned her father’s party, the Liberals, when she ran for her first Senate seat, later set up her own party Kampi—a curious situation downplayed in the current senatorial campaign where the administration party is called “Team Unity.”

Is there a way out of this trend? The survey says that a third of Filipinos will either join or stay with a party so they could learn about politics. That’s more than 10 million voters willing to join parties—a good recruitment base for parties willing to reestablish links with the grassroots. Of course, they may have to tailor their message well to capture the people’s imagination.

The medium, they say, is the message; that means parties themselves must formulate their ideology clearly, discipline their ranks (by not recruiting scoundrels and criminals, for instance), and maintain vigilance on the issues that emerge each day. They must reinvent themselves to get reconnected with the people.

But do parties have the motivation to do all these? If not, then we have a tragedy in our midst playing day in and day out without any hope of ending. (Written as editorial for BusinessMirror, 20 March 2007)

No free lunch? Think again

Sometimes people could just get lucky. I went to lunch with a former boss, Ping Galang (now editor of Entrepreneur magazine) last Friday expecting the usual chat about the latest issues and stuff about business and economic journalism. He is richer so normally he finds it his honor to pay the bill. [Hahah!] But this time, the lunch came with a gift, a book entitled “Why economies grow: the forces that shape prosperity and how to get them working again” written by Jeff Madrick, former editor of BusinessWeek and now a columnist for New York Times.

No such thing as a free lunch? Not always true. haha!

Interesting book this is. It’s all about what really drives economic growth and prosperity and what policies are necessary to kick it off especially after the world’s earlier disappointment with the dot.com bubble and “new economy.” Sounds boring, isn’t it? But I was surprised to find it’s actually very readable. Well, it’s written by a journalist who knows how to deliver the message without compromising depth of content.

Just finished reading James Lee Burke’s “The Last Car to Elysian Fields,” a fiction. It means I’ll have this new book for my non-fiction stuff this week.

Life is beautiful and sometimes beauty comes free! Thank you, sir!

Want to address corruption? Cut that sleazy nexus!

IS the Philippines really the most corrupt country in Asia? The PERC says so based on the perception of more than 1,400 expatriates doing business in the country. Perceptions are not necessarily accurate, but foreign investors base their investment decisions on that, so the issue can’t be ignored.

Can we really address corruption? Yes, with the right diagnoses. There are many explanations (e.g., lack of visionary leaders, lack of patriotism, the failure of institutions like the church and educational system to instill the right values), but the most credible explanations seem linked to the high cost of running for public office. Someone eyeing the presidency or even a seat in Congress needs billions to run a credible campaign.

Where would a politician get that kind of money? An incumbent faces temptations to steal from public coffers or squeeze the private sector to build up that cash. Those out of power would naturally solicit funds from those willing—as an investment—to place their bets on a probable winner. Once in power, the winners will repay the “investors”—with monopoly privileges, “fiscal incentives,” special safeguard duties for industries threatened by competing imports, and sweetheart deals.

Campaign finance reform and similar measures should address this problem. But it begs the question why, despite the high financial barriers to public office, many are still willing to kill and be killed just to get elected. It’s because the prize is even higher. There are overwhelming economic incentives for capturing public office. That is why it attracts criminals, thieves, robbers, murderers and all those dark creatures who sold their souls to the devil.

If we don’t address this deeper problem (of public office being so materially tantalizing because avenues for graft are many and easy), campaign finance reform alone won’t improve the situation—because then, simply lowering the cost of political campaigns is like giving even more scoundrels cheap tickets to a lucrative office.

At the heart of the corruption problem is the way wealth is created here. There are two major ways of creating wealth. The first is through “profit seeking,” where an entrepreneur or investor engages in the production and delivery of goods and services, and derives profits from the business in an environment of competition and fair play. Profits are made through innovation, foresight and application of knowledge while one contributes to society’s progress.

The second, the dominant mode in the Philippines, is rent-seeking which, according to political economist Anne Krueger, means deriving uncompensated value from society through the manipulation of the economic environment either through influencing government policies, rules and regulations, or just plain graft and corruption.

Rent-seekers in this context are those who accumulate wealth simply through access to political power, manipulating it to yield “infant industry” protection, high tariff walls against competitors, monopoly privileges, special import privileges, fiscal incentives (tax holidays), and access to government budget allocation for public procurement activities. Elected politicians and bureaucrats at all levels get their share of the booty simply by facilitating those sleazy transactions.

While these people get rich, the economy suffers as the kind of business and economic transactions that they perform, while squeezing value from society through extra-economic means, contribute nothing productive to its development. Instead of spending money on research and development, innovative technologies, and the training of manpower, they would rather buy the bureaucracy to get things done.

So we have in our midst an alliance of groups profiting from the nexus between wealth creation and the political system. Since the Spanish times, the powers that be designed the State and its related institutions to strengthen this rotten nexus. In turn, it has been attracting all sorts of rogues.

Consider the so-called fiscal rationalization law. Until now, Congress has failed to pass that owing to strong opposition from vested interests, politicians and bureaucrats. Why? It’s because the public actually foregoes the collection of at least P300 billion in taxes from favored companies. Will bureaucrats give away that kind of money without getting something in return?

It’s in this context why, despite all the criticisms, those in power would rather keep that tangle of regulations. Imagine having to secure 11 signatures just to get a business permit? Yes, those regulations are exactly intended to extract “rents,” or uncompensated value from society.

What are the solutions? First, maximize whatever resource we have to speed up growth. With an expanding pie, people don’t have to fight like stray dogs thrown a few scraps of meat. Remember Harvard economist Benjamin Friedman: There are positive moral consequences to economic growth; people tend to get virtuous as the economic pie expands.

But corruption per se could be a limiting factor to growth; hence, the real need to cut that sleazy nexus between wealth creation and the political process.

A first step could be putting in place a Freedom of Information Act (FOIA) so everyone has access to documents that government men forge with private contractors and service providers. We don’t have such a law; that is why even Neda, according to its former chief Cielito Habito, has no access to important contracts, even though the Neda Board’s Investment Coordination Committee theoretically has first pass over big, crucial projects.

If we had a FOIA in place, Neda, or whatever relevant agency, could have scrutinized more thoroughly those notorious IPP contracts in the Ramos administration.

Another reform: simplify business registration procedures (some states in the US require only one signature) and take away from Congress the power to grant franchises and transfer this to a transparent body. The idea is to maintain an open economy by lessening barriers to entry and exit as much as possible.

Meanwhile, maintaining low and neutral tariff rates across commodities will spare importers from having to “negotiate” with people at Customs for a favorable tariff line.

Another option: replace fiscal incentives with a low corporate tax, say 15 percent to 20 percent (as Hong Kong and Ireland did). That way, several state agencies can be collapsed into one investments promotion body, saving billions in salaries and wages.
Right now, with the high corporate tax of 35 percent, companies are tempted to “negotiate” with the Board of Investments for fiscal incentives and the Bureau of Internal Revenue for allowing them to “cook” the books.

There are many ways to cut this nexus. The idea behind these reforms is to remove the “economic motive” in people’s decision to run for public office. When there is no money to be captured in politics, the Devil’s acolytes will lose interest in public service—which then becomes attractive only to people with the heart and skills for true public service. (Wrote this as Editorial for the BusinessMirror, March 15, 2007)