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Back in the 1960s, Ruchir Sharma writes, the Philippines ranked second highest in per capita income behind only Japan but in the 70s South Korea and Taiwan passed it; Malaysia and Thailand followed in the 80s, China in the 90s. Then in 2009 - surprise, surprise - Indonesians became richer than Filipinos which is not to say that they really are rich except by poor comparison.
What surprise? Way before that, Indonesian money bought into the Philippine economy big time. It now controls telecommunications.
And way before that, Robert Wade showed, in Governing the Market, that commodity exports like sugar and minerals made countries, like the Philippines appear rich but only on average. Most of the wealth went to a few people who wasted it on luxuries or wrong investment decisions. Whereas economies like those of Taiwan and Korea had long had strong industrial bases laid by Imperial Japan to take care of consumer items, while Japanese industry devoted itself to weaponry or, as the new word goes, "killingry".
This is why Japan, Taiwan and Korea, not to mention both Germanies, swiftly recovered from the devastation of war to become leading industrial nations in a short time. Commodity exporters like the Philippines were always jokes just waiting for the punch line and the laughter.
In 2010, says Sharma, the Philippines remained mired in chronic incompetence.
And yet this incompetent country survived better or, if you like, suffered less damage to its economy than any other in the region when the Asian crisis of 1997 struck. This, thanks to FVR's bold and real economic reforms, the boycott of the Philippines by foreign investors because of the Cory government's seeming instability, and the unshakeable conservatism of the big Philippine banks who had not forgotten the 1983 Mexican debt crisis that had knocked our financial system on its back. The Philippines was the best or least bad performing economy in the global financial crisis of 2008-2009 because of GMA's harsh fiscal reforms.
Regardless, Sharma says that "little had changed. The contrast to China and India could not be starker." "Had" as though things have already changed when they have not, as even Sharma believes because he posits growth in the future.
And excuse me? India where herds of people but not cows perish on sidewalks in as great numbers as before? India, whose Fabian socialism and now raw oligopolistic industrial capitalism was erected on the cadavers of free market opportunities rejected in its first 50 years of independence?
In the Philippines, Sharma fingers the same handful of family-owned conglomerates who still dominate local markets, running everything from malls and banks, to airlines and breweries, with no new players to be found.
No new players? What do you call ICTSI, the new San Miguel management which has taken over the national airline from Lucio Tan; the gigantic and widely diversified SM group unheard of 20 years ago; and the evergreen Ayala corporation which shuns government? Same old corporate names? Sure, like new wine in old bottles. The Lopezes are gone from Meralco.
It is a pity that such an astute and wide-ranging observer as Sharma should give the Philippine economy the same glancing cliché-ridden treatment as the few who have bothered to look it over. I can't think of any other.
The usual excuse for Philippine stagnation, says Sharma is chronic instability since Marcos fell in '86. Sharma has a fondness for dictators like Erdogan in Turkey today and Park Chung Hee in Korea yesterday, and suggests that the economy tanked after Marcos left.
"Thailand was more unstable," says Sharma "and yet its economy outperformed the Philippines through 1990s. Thailand had 18 coup attempts and 17 new constitutions; the Philippines only six and one constitution."
"The difference," says Sharma, "is that until 2000 Thailand's unstable leaders made better economic choices" from controlling debt - as Cory, FVR, Erap and GMA did - "to restraining crony capitalism making Thailand more attractive to foreign investment." Thaksin was not a crony?
The repeated coup attempts kept foreign investments away from the Philippines despite being the darling of the Free World with the People Power revolution and drew those investments to Thailand instead. But the upside of missing out on foreign investments at the time, CIA and DIA analysts told me, was that no foreign investments fled the Philippines because no foreign investments had come in before the 1997 Asian financial crisis.
In the 2008-2009 global financial crisis, the Philippines did better than or not anywhere near as bad as other countries on earth other than China albeit on our usual small scale.
But now, says Sharma, "the Philippines looks poised to resume" - since the Marcos era, I presume - "a period of strong growth. The new president has just enough support and looks to generate just enough reform momentum to get the job done."
What reforms? What momentum? What job other than hunting down GMA but not her reputed cronies who also contributed heavily to Noynoy's campaign.
Sharma does not know that Noy's reforms are not economic. Noynoy has smartly not touched GMA's reforms nor the giant conglomerates that were spawned in the congenial climate she created; conglomerates that contributed to everybody’s political campaigns including Noynoy's. So Sharma expects him to break them up and clear the road for new economic forces that don’t exist without these conglomerates?
Sharma says that Benigno III "was dismissed as an unimpressive 51-year old bachelor who lived with his mother and never made a mark in a low profile career as a Philippine senator." He got that right.
"But Filipinos saw him as an honest figure who could deliver on the Aquino mandate for change and they were desperate after nine years of drift and decay under the outgoing president." What mandate? He had no discernible campaign platform and if he did, which he did not, no one was listening. And who could hear in the swell of national grief following his sainted mother's passing?
In her nine years in power, GMA relentless taxed and paid down the Philippine debt, beefed up its reserves and thereby strengthened the economy to weather the 2008-2009 global crisis better than any other country in the world except China. Admittedly GMA presided over the biggest creation of concentrated wealth in Philippine history and thereby earned the widest suspicion that she owns a chunk of it. One wonders why these companies have not been sequestered because if they are not partly hers, then what did she steal that wasn't peanuts?
But the question is: Is big bad? Is rich, wretched? Yes, Sharma says, if the same rich stay rich too long. If Sharma had looked at all, he would have seen a peculiarity of Philippine wealth: it hardly ever survives the death of the founder.
Sharma says Noynoy "has plenty of problems ahead of him. He needs to revive investment in the only Asian nation that consumes way too much of its income. Consumption accounts for an outrageous 80% of GDP; 10% higher than the US, 40% more than China," leaving little savings to invest in building the nation’s industrial backbone.
What backbone? The WB-IMF and WTO pressured the Philippines to dismantle its industry for free trade.
And while Sharma is right that the Philippines "still uses as much cement now as 20 years ago" that is only because foreign cement companies bought out the diversified local ownership of local cement, pressured the government to raise duties on imported cement and crack down on cement smuggling so they can charge way too much for cement.
What happens here is that conglomerates stay, and if they have a stifling effect on economic progress, that stays too. The only thing that changes is their ownership from local to foreign, as in the buy-in of Philip Morris into Lucio Tan's tobacco empire.
And what small savings is he talking about? People can barely make ends meet day-to-day. It is only the giant conglomerates which have the savings to invest more money here and abroad than any American or European conglomerate in the aftermath of the 2008-2009 global financial crisis.
Yet Sharma says that Noynoy needs to take on the tycoons who dominate the economy. Although Sharma has nothing but praises the imperious Korean 50-yr old family firms that have dominated the South Korean economy since the end of the Korean War.
Some economists like Sharma believe in economic destruction to make room for economic construction. Schumpeter, we said, called it creative destruction, getting rid of the old to make way for the new. But what if you destroy the old without anything new to replace it?