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Good news: A new book on emerging economies exults but omits to show how the Philippines is finally poised to break out of its age-old stagnation, but thanks only to the raw hope generated by unspecified reforms only promised by Noynoy Aquino.
The bad news is that the book mistakes Noynoy as promising to destroy the biggest Filipino conglomerates. I won't mention their names because they advertise but you will swiftly get to whom the author is alluding. One of them is Manny Pangilinan of PLDT, Lucio Tan of Philippine Airlines, Ramon Ang of San Miguel - and now of Philippine Airlines.
The book is called, Breakout Nations: In Pursuit of the Next Economic Miracles by Ruchir Sharma. It is a wonderfully well-written account, a little jazzy but that is the work of editors who know a good treatment when they see one, but also awkward writing. Sharma acknowledges the help of experienced editors with an ear for facile expression. How I wish all political economists surrendered their writings to editorial revision.
On every so-called emerging economy - Brazil, Russia, India and China, as well as on Fourth World nations like Vietnam touted as in the same category - Sharma gives convincingly sober, concretely detailed and trenchant analysis of the fundamental weaknesses in the seeming strength of these emerging economies and their largely puffed prospects for real not to say sustained growth. The conclusion: South Korea and the United States, along with Japan, remain as ever way on top of the heap.
Sharma also mentions Turkey which has experienced a boom that seems sustainable; but the Turks will pay for it with their new found freedom. Indonesia which shows promise of strong progress because of democracy. Shamar does not dismiss Vietnam as hollow sham; he shows it, and exposes the pure hype that suckered a major American corporation into buying into the hype to the tune of over a billion dollars that it will never see again. He is devastating about Mexico and goes on to mention in passing the similarity to the Philippines until the advent of Noynoy Aquino who has done nothing since he became president.
"Mexico is not the only emerging market dominated," says Sharma, whose economy is crippled by oligopoly, "but in the Philippines I can see a roadmap for change with the arrival of a president bent on reform."
Nobody else has seen this roadmap, least of all the president he speaks of. I wish he would share it, not least with the president he extols. The Philippines, Sharma adds, "will have an easier time of it because its per capita income is only 1/4th that of Mexico." Why that is a plus is beyond me unless he means that, because we are so poor, just getting a little less poor will feel like leaping into prosperity. And yet he warns us to be wary of seeming progress in economies are actually just stirring into life, most famously Vietnam.
But feelings do not prove facts. Starvation feels good after a couple of days without food either because whatever you get to eat, however little, seems like a delicious bounty. Either that or, if you starve longer, you lose all appetite to eat or for that matter to go on living. Your stomach shrinks, your appetite shrivels, your body stops hungering for what it hasn't gotten for such a long time, and you are too numb to notice you are dying. It is nature's way of easing us out of a painful condition into death.
Indeed, Sharma does not seriously consider the Philippines getting rich, not only because he doesn't explain it, but also because he imposes some pretty tough preconditions for the Philippines to break out into a new economy.
But it is imperative to mention this book now, so its exhilarating but vacuous message of hope is not used to mislead us about our real prospects and our real condition, say in the forthcoming SONA.
And because Sharma mistakenly thinks Noynoy's reforms are economic when they are only political (and highly partisan and disturbing at that.) Noynoy destroyed the separation of powers and an institution that is key to a progressive economy.
Trained - as opposed Shamar - political economists, Acemoglu and Robinson, argue in a more famous book, Why Nations Fail, that real and sustainable economic progress demands accountable and limited government - above all a fiercely independent Supreme Court. It was the refusal of the US Congress to pack the US Supreme Court that explains the continued vibrancy of American capitalism, all things considered.
Noynoy destroyed the very idea, actually myth, of judicial power and independence by demonstrating its in-built weakness when his government ignored a Supreme Court restraining order and jailed its subject. Alexander Bickel famously called a supreme court, The Least Dangerous Branch of government because it can only decide actual as opposed to speculative controversies, and it cannot enforce its decision without help of the executive branch.
Noynoy followed his defiance of a Supreme Court order with the removal of the Chief Justice who had little to do with it on constitutionally unjustified and factually unproved grounds of impeachment.
Our Supreme Court is now like Argentina's, which is changed with every new president, and is a handmaid rather than a check on the executive which regularly buys off the legislative branch.
Thomas Friedman, in a Herald Tribune piece, lauds Erdogan for Turkey's remarkable economic turnaround and swift advance to emerging economy status. But damns him for destroying the independence of the judiciary and the complete suppression of dissent by closing off the judicial avenue for constitutional challenges to authoritarian rule.
Fortunately we don't have that problem because Noynoy cannot harbor dynastic ambitions, he remains single; though he is young enough to think he might stick around for a decade or two more while he presides over essentially nothing economically progressive to speak of.
Sharma's idea of economic reforms that open wide the road to sustained and significant progress are those that disperse those concentrations of wealth which, and this is my metaphor, may be likened to giant masses of economic power that generate political gravity fields so strong as to distort straightforward and sustainable economic development.
His clearest example is Mexico where multibillionaires like Carlos Slim are able to make the price of a bottle of Coke several times more south than north of the Rio Grande a mile away. One of the current reforms of the new Mexican government was to bill Carlos Slim $1 billion for the damage he cost the Mexican economy in lost opportunity. I think Slim's is into telecommunications.
Such giants must be broken up, Sharma says; its owners must be taken down several notches from the top of Fortune lists of richest. If not, the economies they dominate are doomed to remain in stagnation because they have no interest in investing in improved productivity or new products. Apparently there is surer money to be made - though only for a few - in stagnant economies.
Sharma believes in Schumpeter's creative destruction as the best recipe for economic growth. It is necessary to push aside what seemed so necessary but has already outlived its maximum usefulness. This to make room for the next more efficient economic innovation which, when it succeeds, will seem like an obstructive necessity too. And so on and so forth.
Except that, unlike in a command economy (which works only in the short term and which oligopolies somewhat resemble), an economy will not rearrange itself. It needs to be rearranged by government fiat.
This doesn't happen, however, because government is regularly captured by the current economic arrangement to ensure its perpetuity. This is called regularity capture.
The reform that counts is not political but economic, Sharma argues. Break the big and you break its stranglehold on politics, which keeps them big and able to stop or delay creative destruction.
Now this sounds great except we see no connection to Philippine economic reality, which is littered with the corpses of once famous companies and tycoons who seemed to be calling all the shots but were just shouting into the wind. Unlike in Mexico, the Filipino rich buy politicians, not to get big or stay big but to keep away from them and to keep politics out of economics. Sharma does not know that. He also does not know how supine Philippine business is, readily bowing to whatever economic policy change the current government dictates as when Philippine industry and banking dismantled with the advent of trade and financial liberalization, opening the way to the same but stronger banks and the retention of old businesses but under foreign ownership, such as cement.
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