Free the Philippines with Hard, Cold Brains

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I play an android game on my Samsung Note. It is called World at Arms. The game is a combination of a “building” game and a war game. You busy yourself gathering income to buy buildings or weaponry, collect oil, pursue quests and battle the enemy players. Gradually, you increase your ability to earn money and buy bigger buildings and weapons. Over the weeks, my base has become a huge income generator and so I invest in nukes and rain them down on people of higher level than me.

I think managing an economy is a lot like that. You have to decide what you want to do first. Build infrastructure and the ability to make money, or spend money on weapons or Social Security. Weapons that may not be used. Social Security that is for the future, not now.

Lots of spending is for good purposes.

But some purposes are more good than others.

Take roads. Roads are important and are indirect contributors to income. But you can’t easily count the pesos they generate. I’ve argued that the popular “farm to market” roads are a very poor investment, even though they do get candidates elected. They simply cost too much. It would be better to pour the concrete in Manila to get that magnificent generator of GDP unplugged.

Schools, same thing. Educated kids ought to be able to do more for the economy than uneducated kids. But somehow, over the years, the Philippines has not been very efficient at converting education into GDP growth. The investment in education gets wasted when a well-schooled child is under-employed doing labor, or goes overseas to realize the fruits of his education.

So I suppose there are two steps to ramping up GDP growth: (1) Build the infrastructure, and (2) use it well.

I look at farms in the Philippines. Politicians lead with their hearts rather than heads. They protect family farms. The warmth we all get from knowing that small farmers are prized and protected is a fine, fuzzy glow, indeed. My mama and papa had a small farm. Love ’em to death.

The only problem is, small farms are horrendously inefficient and often produce poor product. So the Philippines does not compete well in global food production even though her agricultural environment is the best in the world.

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Now the new casinos coming to town, they are “more good”. They are likely to generate gold for the Philippines by conducting highly efficient raids on high roller wallets. First of all, the visitors are likely to fly in on a Philippine airline. They’ll stay at a Philippine hotel. The large new casinos will hire 5,000 workers each, and the visitors will pay for that. Plus, the gamblers will give their statistically-determined 15% to the casino owners, splurge on dining, shows and possibly girls, and do a quick stop at a beach before heading home. Then if they had a great time, they’ll do it again next year.

The money will roll through the economy producing wave upon wave of subordinate jobs and services. Casino workers, after all, will have money to spend. Upper end car services will thrive. And the car dealers and service people. And restaurants. And their suppliers. And farms.

Will there be crime? Drugs? Prostitutes?

Cost of doing business. And it gives the priests something useful to rail at rather than tell women with seven kids what to do with their bodies.

The Philippines is finally starting to wake up to its inefficiencies thanks to international looking glasses like the Global Competitiveness Index. “Break down the red tape, Bubba!” This is now the rallying cry for a nation of red tape, provincial power mongering and skilled bribe extraction. So I’m happy to see that President Aquino has on his agenda improving processing efficiencies and using less tape.

An area I disagree with the President on is foreign ownership. I’d like to see certain industries opened up to foreign ownership. Manufacturing. Construction. Farming, once laws are revised to incent large farms rather than discourage them. Retailing. There are only two reasons the Philippines is not a boat-building empire. Capital and knowledge.

The reticence to accept foreign ownership seems to be that the Philippines would somehow come under control of foreigners. It’s as if Filipinos have zero confidence in Filipinos being able to regulate companies or investments for success of the Philippines. It is a negative, fear-based way to compete. It is an economy run by hobgoblins. It is an economy held back.

Another important point here.

The tendency of the Philippines is to look at the economy as only one stage. Jobs. Don’t put machines into play because you lose first-stage jobs.  If you introduce large farms, you lose first stage jobs at the small family farms.

But what do you gain if you move to machines and computers? Competitiveness and the ability to generate money. And that money rolls into second stage jobs. The packing houses rather than rice fields. The shipping houses rather than trees. The tractor sales and repair shops rather than the cane fields.

So go for the PROFITS, not the first tier jobs. That’s what builds efficiency into the economy. That’s what makes INFRASTRUCTURE work well. Today, the capitalistic mind-set of the Philippines is dead in the water:

  • Innovation is blocked (established firms are protected from competition).
  • Career dedication and productivity is blocked (high-value jobs are filled by friends and favorites rather than high-skill producers).
  • Competitive scale is blocked (love those itty bitty small farms, kiss kiss).
  • Inbound money is blocked (fear that Filipinos can’t regulate foreigners keeps money out: 2 + 2 = poor).

Some of the Philippine red tape is process, yes. But the big, thick red tape is conceptual. Failing to see how productivity works. Worried about trees. Ignoring the forest.

Filipinos are warm-hearted people. Family people.

Business on the front line is cold and cranial.

But business done hard and efficient, wise and competitive, can roll wealth through the Philippines in ways that most here cannot conceive. In ways that could make many families wealthier of opportunity and wallet.

So I raise the cry,

“Free the Philippines!”

Free her capitalistic energies. Free her to compete within, to hire for skill, to be efficient, to have confidence. Release the ties that bind.

Free her to generate wealth. The jobs will flow from that.

30 Responses to “Free the Philippines with Hard, Cold Brains”
  1. The Mouse says:

    I think cooperatives will be the best for “freelance” small farmers. This is how it works in Benguet and I believe, Pangasinan. I think farmers who own and till their land should be encouraged to build cooperatives with other farmers. I think this is a better arrangement than bringing in Chiquita like or Dole.

    I’m hesitant to open up land ownership to foreign corporations(foreign residents, IMO, should own private land properties under reciprocation). I agree however with manufacturing and perhaps service sector. Construction? I have mixed feelings. I surely do not want Chinese construction dominating the Philippines with their substandard materials. Now, if it is only allowable to just open it to Japan, US, EU and South Korean firms, I’d agree. Hehe. Korean and Japanese firms can be invited for rail transit. In one news I read earlier, one Chinese mining firm had been trying to illegally recruit Chinese miners and passing them as tourist. Good thing the BI caught them.

    The Philippines should encourage SMEs even more. I believe non-citizen residents are not able to own sole propriety business without having to apply for investment visa. SMEs, compared to big national and multinational corporations pay to the LGUs than the national government (like many of the big companies). Collectively, SMEs hire a big chunk of the population. Perhaps, a citizenship incentive(reduction from 10 years to five years) could be offered in exchange for investment.

    • Joe America says:

      Yes, others make the same point regarding farming. There is a middle ground, the cooperative, and that is a reasonable improvement over disorganized and poorly done small farms. We need to have a separate discussion on this (heh, after I’ve researched it a little bit). I want to write about California’s farms. They are amazing, and the comparison is as stark as stark can be.

      As for the reservation you express about shoddy Chinese construction, that is exactly my point. Filipino public works inspectors ought to be able to control that. So the reservation is really whether or not Filipino inspectors are up to the task. Chinese wealth producers ought not be banned from the Philippines because Filipino public works inspectors can’t do the job. Rather, public works inspections ought to be geared up so that the wealth can flow freely.

      • The Mouse says:

        The government needs to give the contracts not to the highest bidder but to the best bidders. They should have given the north rail to the Koreans esp that they excel here . Korea has a cheap but very efficient public transportation. Their buses and railways are probably cheaper than jeepney fares. Lol

        The Philippines also need to establish more agricultural schools to be an agriculture powerhouse, and perhaps offer scholarship. There arent many agri schools so many small farmers get stuck in an old inefficient manner

    • The Mouse says:

      On a semi-related post, I wish banana farmers in the Philippines would be able to find a way to prolong the shelf life of the Lacatan. The ones we get here in the US are the almost tasteless Cavendish from Latin America

  2. J says:

    Indeed. Perhaps the only thing that keeps FDIs from pouring in, despite the investment grade ratings, is the country’s stubborn insistence on keeping its xenophobic protectionism intact.

    • Joe America says:

      xen·o·pho·bic [zen-uh-foh-bik, zee-nuh‐] adjective. unreasonably fearful of or hating anyone or anything foreign or strange.

      haha, I had to look it up. Now I’ll use it every other blog.

    • Malakhai says:

      I thought it was oligarch pressure that makes the gov’t keep the foreign ownership at 40%.

      • Joe America says:

        Yes, that is a part of the non-competitive protectionism that exists. The oligarchs operate as royally entitled fat cats rather than having to compete. It blocks modernization and wealth-generation. But there is also a fear factor, and that is irrational.

  3. JosephIvo says:

    I’m a pessimist, “Why Nations Fail” explains clearly that “Inclusive institutions” are key to progress. Inclusion, opposite to exclusion, building entry barriers, get richer by fighting for a bigger share, zero sum thinking, all so typical Filipino. Rule based institutions opposite to clans and dynasties, political as well as economically.

    I’m very hopeful too, 3 years ago my contractor worked with only home mate tools, everything by hand, at this moment he is doing some improvement works and I hear electric drills and grinders, progress is in the air.

    More specialization leads to more wealth, a large farm can have a mechanic to repair, not the farmer does all. The tomato industry in Holland is split in different professions: highly specialized “plant breeders” in super labs, close to universities, improving seeds; “germinators” inducing 100% quality germination; baby plant growers, growing healthy plants up to 10cm; and finally the tomato growers, growing more than 100kg tomatoes per square meter per season in greenhouses on a neutral substrate, each plant fed individually. Here one farmer does all.

    I think that not the size of the farm is important but the specialization, tomatoes growers in Holland are small family affairs, but they are organized in clubs, a little like sport organizations with different levels. The top “sportsmen” driving the progress.

    I’m a pessimist, only 3 Filipino universities left in the Asian top 300. Only 1% with 5% of the population and coming down from 8.

    I’m hopeful too, more than 200 nursing colleges out of the 480 existing (=6 per province!) will be closed.

    • Mariano Renato Pacifico says:

      Jesus Mary Mother of God help us. 3 Filipino universities left in Asian top 300? And these 3 Filipino universities are at the bottom of the pile? Que Horror! Mama Mia! Que Barbaridad!

      The three Filipino universities been cranking up diploma mill for the past 100 years and their graduates are mopping floors at New York Times midnight shift! Jeeez. And one of them is graduate from University of the Philippines!

      Mama Mia! This is unacceptable!

      I am pessismist, too! One goot thing about being pessimist is you are ready for bad things to come because they know it is coming. The optimist only come to realization that the light at the end of the tunnel is actually a train.

    • Joe America says:

      Ah, I’ve just started writing a blog on big ag vs. little ag, and you state one of the points I was going to make. Large agri-businesses specialize, so they have financial people who understand the money, nutritionists who make sure the crops are healthy, operating people to do the growing and maybe packing, and marketing people to get the goods out fast and fresh and for the most money. Mom and Pop Farmer have to do all that alone, and they simply cannot be as knowledgeable or as skilled. Good for the heart, bad for the wallet.

      • JosephIvo says:

        The tomato industry in Holland is an exception. They are (!) Mom and Pop farmers. But there is strong competition, strong organization, strong cooperation with auctions and suppliers. They work together in clubs. To belong to a club you have to share all your information with its members, memberships by invitation only. Belonging to a top club adds a lot of value to your business. (e.g. if a top club shifts suppliers, all others will follow these experts, so suppliers you better serve them with top products at very competitive prices!)The focus is on growing the market for tomatoes together. You have to see to believe. (The Dutch have a tradition of working together, in polders you have to pump together whatever your feelings, drowning is the only alternative.)

        Belgium (neighbors, same history, same climate, soils…) is more traditional, more dictated by the agro-industries, competition for national market share, improvements hold close to ones chest, so nobody will copy, etc… (Belgium had a occupation history as the Philippines, don’t trust anybody except your close family, hide your wealth, try to cheat the occupier…)

        Specialization is the issue, not scale. Scale often helps, but also can hinder, especially in dynamic markets. (A flint in the stone age and a mouse today have the same size and shape, a flint made and used by one person, a mouse made by 1000 specialists from mining to waste management and used by somebody else. Making a flint took days, making a mouse requires minutes in value add time. Specialization creates efficiencies)

      • joy oh says:

        Definitely looking forward to that agri blog joe, esp given that the timeline of the (extended) comprehensive agrarian reform program is running short. Militants involved with hda luisita are in a quandary how to make sure that farmers will not lose out when land is finally distributed ( discussion thread on facebook page of t’bak pilipinas). Ideology and politics they may be well versed but short on the realities of the market and economic dynamics (Or maybe drowned in idealism 😊). Some practical pro farmer models would be educative.

        • Joe America says:

          You may be disappointed, joy oh, because I approach the issue without regard for history or even practicality, I suppose, on matters like the Hacienda. I think the traditional “pro farmer” models are what is failing. It’s rather like the laborers or unions are in charge of the profits, and they aren’t making much. So they can provide the subsistence jobs, but not incent an industry to rise and export and get profitable and provide non-farm jobs. My suggestion to farmers is to go work at the new industrial plant . . . once we have it. And subsist until then.

  4. Mariano Renato Pacifico says:

    It is June 12. Philippine Independence Day. Philippines has not unleashed hard cold brains to free itself. Fitch, S&P are wrong like what I said they were wrong about their ratings. The Philippine peso is tumbling and falling because “Importers chased dollars, while hedge funds sold the Philippine units, traders said. Manila shares lost ground and domestic bonds slid. Oil importers bought dollars on Tuesday, and that “spooked an already jittery market,” said a senior Philippine bank trader in Manila. But some traders saw the peso’s depreciation against the
    dollar this week as excessive, given the Philippines’ strong economic fundamentals.” – Reuters

    News like this from Filipino correspondent to Reuter makes me question. Where did I read in Philippine business daily that the market was “jittery”? None until this very minute. Only now that I read that hedge funds sold the Philippine units. Not yesterday. Not day before that. There never was talk about spooky and casper. ONLY NOW.

    Even with cold hard calculating brain, it takes guts, requires extreme risk perversion that requires a roomful of economic geeks to know if Philippines is worth FDIing but most of them are economic sadomasochist.

    This is one of those many things that I hate about journalists in the Philippines. They just do not know it not until the peso is sliding. Well, it is goot for me. As you know, I am not selfish person.

    • Joe America says:

      I have a good-sized stock portfolio, all American except for one German drug company. Investment in the Philippines is a crap shoot because the majority owners play games. They don’t operate with consistency of performance and result as the goal. Small investors are bound to get screwed somewhere along the way.

  5. Mariano Renato Pacifico says:

    Mama Mia! How can Philippines be free and use their cold hard-headed brain when only Philippine Star carried Vatican Straight Lobby news the rest did not want to anger the Church lobby and the Roman Catholic Christian Filipino that still believe that the earth is flat and the sun revolves around the earth and it is the center of the universe. And I thought the Philippine journalists are graduate from ivy-schools. Mama Mia!

    Peso is now 43.05 to a dollar. It is plunging precipitiously than my wife’s plunging neck line.

    That one-mile stretch at Vermont Ave bounded by 3rd and Santa Monica has 4 major Thai-Chi Grocery store run by Filipinos. They sell exactly the same goods from Thai-land and China. The only pure 100% unadulterated product in these major Thai-Chi Filipino run grocery store is Tubasuk Spice Vinegar (Tuba-Suka) and Pinakurat (another brand of vinegar) the rest are products from Thailand and China.

    The only meaningful export product from the Philippines is nothing but suka (vinegar) that is propping the suka-economy of the Philippines.

    Casino is a bad idea. No one has come out with full pocket from Casino. Once the Filipino patrons lose, as usual, they attack the Philippine coffers. Baaad.

    Why do they go to Casino instead of Manila Stock Exchange? Why don’t they? Because Casino has predictable outcome than Manila Stock Exchange.

    • Joe America says:

      Heh, I used to work at Safeway on Vermont and Third, across from the city college there. I needed a job so crossed the strike picket line. I was the most hated guy in the neighborhood. In the Philippines I would have been dead.

      Your last paragraph is so true. Casinos are not as big a gamble as the stock market.

  6. Mariano Renato Pacifico says:

    It made me wonder whty Philippines is not a boat-building empire when this country consists of 7,100 islands? Aha! Yes, Philippines is a banca-building empire along with suka-industry and slave export Philippines is on the rise of becoming 1st world in their own world.

    • Mariano Renato Pacifico says:

      Why Philippines not hydro-electric savvy when it sits on ring-of-fire? Not boat-building behemoth despite 7,100 islands. Product of ivy-schools are equivalent to the lowest grade community and vocational colleges in America. Philippines is rice-eating country that cannot produce its own rice. It produce inferior babies. Philippine Media promotes prayers and religion more than education. It covers up vatican scandals. These wimp ivy-school journalists and economic graduates working in newspapers cannot offer what invistments to invest in. They cannot even tell me qwhere the foreign “investors” are investing in as if it is a State National Secret. There is top to bottom idiocy in the Philippines a trickle-down idiocy.

      The Philippine Media should be run by Ampatuans. 🙂

      • Joe America says:

        “Trickle down idiocy.” ahahahahaha That’s good. It applies to the Republicans in the US, too, which is fitting since the term originated under Republican in Chief Ronald Reagan. Reagan was a good guy. Today’s crop is mostly nut cases. Some democrats, too. Reid and Pelosi give me the heebie jeebies.

    • Mariano Renato Pacifico says:

      The only Filipinos can think of when it comes to business is Sari-Sari Store. Likely, that Sari-Sari store is owned by returning non-renewed OFW contractor.

  7. edgar lores says:

    1. Filipinos have warm hearts. But we are hotheads.
    2. Warm heart and cold brain sounds like a good formula, a perfect description of Bill Gates, businessman and philanthropist par excellence.
    3. Cool heart and cold brain puts me in mind of Steve Jobs.
    4. Cold heart and cold brain – a bitch?
    5. Cold heart and warm head is the GOP, the Tea Party and Palin.
    6. Cold heart and hot head are the firebrands, the war hawks and Cheney.
    7. Maybe best of all is warm heart and cool brain. These are the quiet revolutionaries, like Gandhi, and the peacemakers, like the Dalai Lama.

    • Joe America says:

      Very good. I particularly like Steve Jobs. Another warm heart and cool brain: Barak Obama. You know who I can’t exactly figure out? Noynoy Aquino.

      • edgar lores says:

        I think he is warm heart plus billards brain. 🙂

        That is, his mind is a gaming mind. He is not a hothead – he does not react instantly – but he is neither cold – he does not cutoff the bishops instantly. But he is not cool either – he approves of the Cybercrime Law and does not exactly trumpet FOI.

        We know there is warmth in his pro-people stance. And we know there is calculation (coldness), but it is a patient and waiting calculation. He has to navigate through the demands of culture — from which he is not entirely free. So it’s a unique blend – of dog-warmth, human ambiguity and cat-stealth!

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