Saturday, July 4, 2009

It's that simple

While summing up the thesis of World Bank economist Alessandro Magnoli Bocchi in “Rising Growth, Declining Investment: The Puzzle of the Philippines,” Cocoy has tried to explain the puzzle in his own words:
The answer according to the same policy paper (of Bocchi) is that while foreign direct investment has fallen since the 1990s, the local market has not picked up the slack. Big Business has refused to reinvest substantially. The World Bank blames the lack of reinvestment on lack of incentives to do so. Businesses are profiting now, so why go out of the way to reinvest capital more than necessary? The rot sets in.

BenignO has been quick to respond, quoting himself:
We pester the elite of our society with calls for acts of heroism when the burden of extra hard work in reality falls on the shoulders of the poor masses.

We Filipinos have been imbued with the idea that our hopes for prosperity lie squarely on the shoulders of the elite, the “haves,” a handful of leaders and/or a few “extraordinary” individuals. Our society has come to (or, more appropriately never matured beyond) a penchant for giving heroic labels to these “messiahs,” as if the Philippines is constantly waiting for a hero to rescue her from her dysfunction. We expect heroic efforts from the few and continued mediocrity from the majority. We expect the low product of the majority to be SUBSIDISED by the exceptional output of the minority.

When it comes to offering solutions to the Philippine puzzle, I proceed from a standpoint quite opposite to Benigno’s. Let me also quote myself to explain my point based on established historical facts:
There are historical patterns that if we care to seriously reflect on would inform us of certain repeated forces known to have driven great events, among which is this: That history is often made by people and institutions in power and by how their power is employed by them to produce goods and services for society through the development and use of science and technology or otherwise dominate other peoples and grow more power.

Great historical events are also made when people and institutions in power, perceived to have failed society, have been overthrown, thereby allowing new institutions and ideas to be developed and instituted by the succeeding power.

Powers of ordinary men, like you and me, (not to speak of the shirtless, shoeless and toothless) are often circumscribed. For example, we would like to believe that we have purposeful ideas and intentions for the Philippines, but we can only carry our purposes as far as our relative position in the hierarchy of powers can take us, unless of course we succeed in creating movements to match the strength of the powers that be.

So, in the Philippines, there are men and women, being in command of powerful institutions of modern society, whose decisions and non-decisions have immense consequences to our society. We do know that these special people own the financial establishments, control major corporations and organizations and for the most part “capture” the machinery of the state or, at the very least, have the ready ear of those who occupy positions of direct power.

There are thus dreadful consequences if our economic elites, the taipans or the old oligarchs for example, are risk averse, content as they seem with operating public utilities with captured markets, or mega malls and real estate ventures sustained by OWF remittances. Their lack of vigorous entrepreneurship translates into our economic engines not being propelled to create greater wealth and employment opportunities to provide decent incomes for a growing population of ordinary or less than ordinary people.

The above postulations comport with the “power elite theory” which, according to H. T. Reynolds, “perceives a pyramid of power” and where 1) the most important decisions for everyone below the pyramid is made at the top by a tiny elite; 2) a relatively small middle level consists of individuals that one normally would have in mind when talking about government, e.g., senators, representatives, mayors, governors, judges, lobbyists, and party leaders, and 3) the masses, the average men and women who are powerless to hold the top level accountable, occupy the bottom.

The power elite model of C. Wright Mills, the most renowned among power-elite theorists, as restated by H.T. Reynolds goes this way: “that single elite, not a multiplicity of competing groups, decides the life-and-death issues for the nation as a whole, leaving relatively minor matters for the middle level and almost nothing for the common person.”

Thus when “Big Business has refused to reinvest substantially” or, as Bocchi puts it, when politically-connected economic elites and corporate conglomerates in the Philippines find it convenient to not invest or invest only a portion of its revenues in-country, while sending considerable portions offshore, the consequence is slower economic growth in the country and less inclusive than it could potentially be.

I think I have had another occasion to reflect on the Philippine puzzle in a fairly recent response to a comment in FV in this fashion:
. . . why some nations have fared better than others in developing the institutions of capitalism, the late American political scientist Samuel P. Huntington . . . has pointed, among other things, to the “lack of national unity and the failure of dominant immigrant minorities (e.g., the Chinese Diaspora in the Philippines) to assimilate” and in the absence of such unity and assimilation, “there generally is no development of a legally, economically and politically empowered civil society concerned with the welfare of the entire nation and all its people.”

Citing liberal economist Jeffrey Sachs, Huntington also referred to “obstructive elites” whose interests are “vested in traditional conditions,” and “resist institutionalization of rule of law legal systems, norms of social mobility, and capitalist markets – all of which threaten their elite status.”

These insights are interesting if juxtaposed with benignO’s lavish adulation of the market dominant Filipino-Chinese community which he seems to characterize, quite naively, as homogeneous.

But here’s what Clinton Palanca, an Oxford postgraduate tsinoy, wrote on this score:

“The ideal of the ethnic Chinese who is integrated and thinks of himself or herself as Filipino while retaining Chinese cultural identity does exist, but so does the bigot who sees Filipinos as inferior and adopts a ‘sojourner’ mentality and an instrumental attitude toward the Philippine economy. These two figures form the endpoints of a spectrum along which the Chinese in the Philippines are ranged.”

Palanca however excluded the First Filipinos from his “range” (Rizal, Aguinaldo, Mabini, Bonifacio, etc who were of Chinese ancestry and the next generation, such as Osmena, Lopez, Roxas, Laurel and even Marcos not to speak of Cojuangco, Puyat, Ongpin, and the still monosyllabic Lims and Tans). The Villafuertes and Robredos of Bicol in the regional scene are descendants of more recent Chinese Diaspora but also outside of Palanca’s range.

The “Chinese” economic elites in the Philippines who own about sixty percent of market capitalization, in particular those rentier taipans with sojourner mentalities, are ultimately recipes for a lackluster national economic progress.

In another post I also pointed out that the “Chinese” in the Philippines were Hispanicized during the Friar regime and then Anglo-Americanized during Uncle Sam’s rule.

Now this again from Palanca about the chameleonic aspect of Chinese identity triggered this time by the awakened dragon or the “emergence of China as a dominant force in the Asian economy”:

“The descendants of the older Chinese mestizo classes, who had previously downplayed their Chinese ethnicity, are now suddenly rediscovering the Chinese aspect of their ethnicity. The generation of Chinese-Filipinos who had emigrated in the first half of the century in the years leading up to the communist takeover of China and their descendants are now held in higher regard. But what has the potential to become respect can easily swing the other way to distrust if the power of the Chinese-Filipinos is seen to be too dominant — or, more to the point, if they are seen not as Filipinos, but as an ethnic minority group who has gained an incommensurate degree of influence.”

I was likewise thinking of the market-dominant and oligopolistic minority when a couple of years ago I blogged about what it would really entail for the Philippines to position itself for “economic takeoff”:
Many parts of the country still retain the basic features of the so-called traditional society. A traditional society is one whose structure has limited production functions because of its incapacity to manipulate the environment through science and technology. To break from the conditions of a traditional society that put a ceiling on its attainable output, new types of enterprising men willing to take risks in pursuit of profit or modernization must come forward. The risk-taking must happen in conjunction with the appearance of institutions for mobilizing capital like banks, the investment in transport, communications, and in raw materials in which other societies may have an economic interest, and the setting up of manufacturing enterprises using modern methods. xxx

Takeoff however may not occur if the transition is proceeding at a limited stride in an economy still primarily typified by “traditional low-productivity methods,” by dated societal institutions and values, and by parochial political institutions.

The key to economic progress is somehow attitudinal too and this happens when economic men and political animals judge such progress to be good not only for the material comfort it brings forth for their pioneering spirit but also for national identity and dignity, the welfare of the next generation and the common good.

Historically, the decisive ingredient during the transition is the building of an “effective centralized national state” imbued with a “new nationalism” x x x. When growth becomes steady and normal and institutionalized into habits and social structure and dominates the society, takeoff is said to occur.

To economist Walt W. Rostow (his two seminal books are: The process of Economic Growth [1952] and The Stages of Economic Growth [1960]), from whose insights the above ideas are mainly culled, the takeoff is spurred not only by the investment in “social overhead capital” (such as in railways, ports, roads and education) and the expansion of technological development in industry and agriculture, but also by the rise to political power of a group dedicated to the proposition that the modernization of the economy is a national goal of paramount order (underscoring not in the original).

I therefore believe that the Philippines will attain “First World” status not by the action of the “ordinary schmoe” of the tingi variety (to borrow some of BenignO’s unflattering labels) but by men and women who are in command of powerful institutions of modern society. This is so, as I said in another comment, because -
. . . a nation like the Philippines attempting to modernize must first create economic surplus. This surplus will be long in coming if we follow BenigO’s formula of “culture change” first.

My route is economic take off first, then use the economic surplus created to promote and develop quality education, the ultimate telos being “democracy of the educated” to dispense with the need for “moral and intellectual aristocracy.”

I don’t see economic take off happening with “Juan Tama” or “Ako mismo” routes, because to me these are all diversion – much like the perpetual blaming of the government, the politicians, and the supposedly culturally damaged Juan Tamad – away from holding accountable those with the wherewithal to create wealth by vigorous entrepreneurship and a great sense of country.

Now, despite the retreat of BenignO’s heroes or their less “exceptional output,” why does the Philippine economy, while not taking off, manage to chug along somehow? Well, it is because of the extra hard work of non-elites or “the poor masses.”

Or, according to economist Bocchi in his research paper -
Because its least protected sectors - the informal labor market and the non-capital-intensive activities - stimulate demand and drive supply.

- On the demand-side, work-seekers – denied entry into the formal labor market migrate massively to industrialized economies, attracted by better remuneration; the resulting remittances and transfers (which, combined, account for over 13 percent of GDP) fuel consumption-led-growth (i.e. Filipinos abroad send money to their families in country, and these spend it).

- On the supply-side, the innovative service sector and a few non-capital-intensive manufactures, still free from regulations that favor the local élite, boost exports.

To Montesquieu, what is required of a republican government to thrive is virtue which he defines as “the love of the laws and of our country.”

Virtue is taken for granted when rent seeking elites bend the laws for private gains or would rather invest offshore than in-country.

Bocchi is also blunt about it in economic terms: “To accelerate economic growth, increase employment generation, and generate public resources for social programs, rent seeking by the élites that exercise political and economic power - or 'élite capture' - must be addressed.”

It is that simple.


roundstone said...

Following your arguments that domestic investors are mostly rent seeking [some I would even say VCs or vulture capitalists], would you say that domestic investors have been given TOO MUCH TIME and we should now look at being more foreign investor friendly (and update our laws towards this)?

Is it, therefore, an argumentative fallacy to say that amending the economic provisions of our constitution should be a priority?

I am not talking about ConAss (what a naughty acronym) or ConCon, those are only the avenues and might be an issue only because of the people's mistrust of and notional anger against the current regime. I am talking about constitutional amendment to the economic provisions per se, among others.

I would also point out that despite the too often bad connotations on the chinese ethnic group, they have become a potent economic force in their countries of domiciles - the Philippines included. That is something spanish ethnicity cannot substantially claim.

How did the chinese group been able to swing this? Is it because they went into entrepreneurship and they were not ashamed to start as magtatahos while ethnic Juan dela Cruz would not want to be seen na naglalako? OMG, Juan dela Cruz would say!

So, other than accumulating economic surpluses which could be a chicken-or-egg issue, would it not be of shorter time and should we not empower the masses through appropriate education curricula? That is, should our schools enhance their curricula to teach entrepreneurship instead of teaching Filipinos how to become employees, ergo servants living on minimum wage? How many Filipinos even understand purchasing power parity?

Dean Jorge Bocobo said...

Honestly, I cudna make head or tail of this post. It's complete gibberish.

Abe N. Margallo said...

Dean, you did something to your “expandable summary post” feature which messed up the sequence of the article. I guess I was able to fix it now. Should you care to read the piece again, it would help if you access the links provided for a better grasp of the message.


Dean Jorge Bocobo said...

Okay, let me try reading it again.