My good friend Mel Cartera shared a review of the book How Asia Works by Joe Studwell. The book prescribes a three step formula for success based on the experiences of many Asian countries over the last several decades. The book, however, acknowledges that the prescription has failed in both the Philippines and Indonesia.
The 1st step towards progress is land reform. Land reform failed miserably in the Philippines because our hacenderos were (are) also our politicians and we could never muster enough political will to enforce land redistribution.
The 2nd step is export-oriented manufacturing. Our manufacturing sector never quite got out of infancy because our industrialists were cry babies always running to government for protection instead of facing the competitive winds head-on.
The 3rd condition mentioned in the book is a heavily regulated banking system geared towards subsidizing industrial firms. Our banks were/ are indeed owned by the biggest capitalists in the country and did/do support their conglomerates. But for the longest time, government needed to borrow heavily from the banking system to finance its massive budget deficits. This led to crowding the entrepreneurs out of the credit support that could have led the country towards economic diversification and expansion.
And yet, the economy is growing at around 7%. In the midst of a global downturn, we are doggedly catching up with our Asian neighbors. Moody’s has signaled that the Philippines is under review for a credit upgrade. If this transpires all three major international credit agencies would have adjudged the country as certifiably investment grade.
What did we do right?
Our parents had an unshakable faith in education to lift their children out of poverty. The result has been a large educated labor pool. This, in turn, has been the major driver for the burgeoning services sector that has been driving economic growth. It has been a big bonus that multinational companies could communicate with their local workers in the lingua franca of business – English.
Liberalization and privatization
It took me 7 long years to get a phone line from PLDT monopoly. And I had to pay for my own phone cable that run longer than 100 meters! Fortunately, the Ramos Administration had the courage and the vision to liberalize the Telecommunications Industry. That has led to the flourishing industry that exists today and which has allowed the new service firms to be connected to their global network of clients.
As a people, we have a keen eye towards pleasing our customers. This hospitable nature has enabled the phenomenal growth of export of nursing services as well as the inward migration of call center services into the countries BPO hubs, among other things.
With the President’s “Daang Matuwid” (Straight Path), our government institutions have started to regain credibility. This, in turn, has encouraged both local businesses and foreign investors to confidently invest, hire, expand, and take risks. Business confidence is at all-time highs.
Is there anything to gain from Studwell’s 3-step approach? Surely.
The agriculture industry is still a huge component of our economy. We still need land reform. Perhaps not so much land redistribution anymore since this is a complicated legal and political process and is prone to diseconomies of scale. A new partnership model that will allow redistribution of the gains from agricultural production to benefit the farmers more is direly needed. The distribution and trading of agricultural products continues to provide extraordinary profits to unscrupulous middlemen.
Export led manufacturing
Manufacturing is seen as the best avenue to creating inclusive growth, providing employment to the almost 6 million people that cannot find jobs in the BPOs. Manufacturing has started to pick up now that Chinese manufacturing has become relatively more expensive but Filipino entrepreneurs are still few and far between.
Heavily regulated banking system
Dictating to the banks may not be such a good idea after all given the recent experience by the Chinese banks. We do need more efficient capital markets and access by our entrepreneurs to venture capital.
Fortunately for the Philippines, there is more than one way to skin the Asian cat.