MAPping the Future

Economic strategy to hasten growth

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It is reassuring to hear nowadays that there are more voices supporting the need for higher GNP growth that will create more rewarding and meaningful jobs in a sustainable manner to wipe out the unemployment and underemployment problem, which stands at 15 million jobs.

The private sector is hopeful that with the new administration’s emphasis on governance and strategic approaches, the above figures can be reduced to less than 5 million jobs in 2016 (a reduction of 80 percent). Then, and only then, can we say that there is real progress being made in our social condition and that inclusive growth will be the norm.

The Arangkada Philippines 2010 proposed by the business sector led by the foreign chambers is about growing the economy twice as fast to raise the living standard of the Filipinos, especially the poor. Their strategy is to focus on the big winners where we have the chance to become a world player—by improving competitiveness in defined areas. The latter factor, competitiveness, needs sustained action/execution by government officials; hence, partnership between public and private sectors in the strategy cycle is essential for success.

As a corollary move, the National Competitiveness Council (NCC) has convinced the Board of Investments (BoI) to prepare 10-year roadmaps for industries/services meeting above requirements jointly with the business sector proponents of Arangkada. Only time will tell if the above two strategies will be synchronized, like two gears engaged with the common function of moving a delicate clock mechanism—achieving metrics on annual, if not quarterly, basis.

Crossroad

At this crossroad of our nation’s development, it is not enough to depend on remittance earnings from our overseas workers, or on injecting financial flows to infrastructure projects, which may not be linked to our economic strategy. Professor Noel de Dios of the UP School of Economics (UPSE), in his latest column, described the growth resulting from these factors as “palliative” because they are only temporary remedies to mitigate the problems brought about by our lack of strategic growth. But these palliatives create more victims than beneficiaries, the latter being the elites and opportunists in business and society in general.

Former Secretary Gerry Sicat, in his “Crossroads” column, mentions that major reformations are indeed called for since only 20 percent of the Philippine economy can be considered world-class, while 80 percent continue to be burdened by high costs.

It was said that when the Europeans set foot on this part of the world in the 16th century, the Philippines was considered to be the one that would most likely reach the developed state status because of its natural and human resources that were relatively more productive than others, with no barriers in costs, custom or religion, with an open society, and positioned in a strategic location in the world.

However, the opposite trend took place and, after five centuries, the Philippines is in the cellar position among the original Asean members, which is perplexing both to our people and friends abroad. Obviously, we failed to put in place relevant strategies and execution measures to develop our resources and to provide the “strengths” that will be beneficial to our people, and to watch out for weaknesses that will prevent us from being as good as we could be.

The high cost of power, for example, is one of our weaknesses. There are only two ways to handle this, either: (a) we should not engage in industries/services that are power intensive, or (b) we take the “bull by the horn” to reduce the costs (“damn the Opec torpedos”) as suggested by NCC earlier.

Alternatively, we should not expect such industries and services to provide sustainable jobs since their outputs cannot compete locally or globally with those from other countries.

Vehicle for creating jobs

Gurus promote the need for economic strategy as a vehicle for creating jobs. World Bank’s chief economist Justin Lim openly supports it to speed up structured changes in developing nation. Mckinsey and Monitor are advising government how to do it right.

Long-term strategy and industrial/services policies were never instituted seriously in the Philippines to improve competitiveness, maximize job creation and eliminate poverty. Successful economies have always relied on government policies with business inputs, applied consistently, that promote growth by hastened structural transformation.

In a joint paper presented to the Makati Business Club General Membership Meeting on 25 March 2009, distinguished UPSE professors Dante Canlas, Ben Diokno and Philip Medalla were rooting for the crafting of an economic roadmap with the twin goals of eliminating poverty and the continuous improvement in living standards. Their strategy is to take quick steps to improve competitiveness on the sectors with potential for the global market.

I was informed that economists, in general, are apprehensive in advocating strategies, polices and plans where the degree and manner of government involvement may bring the country to the brink, as we experienced during the Marcos regime.

Professor Noel de Dios corrected me by pointing out that economists have never written off the setting up of strategies or policies but cautioned that political considerations may place higher priorities on grandiose projects and “image” infrastructures, rather than meeting the defined social and economic objectives.

Therefore, strategic planning must be actively owned by the private sector, perhaps with the NCC (private sector) taking a leading role and guided by the following principles:

First, government must not overreach to the point that it substitutes its own wisdom for those of the private sector.

Second, the challenge is finding ways of meaningfully fostering private institutions without posing a threat to public finances, especially when plans stray outside the defined priorities.

Third, we have to bear in mind that it aims to serve society at large, not the bureaucrats or the businessmen who receive the incentives. Such incentives must be passed on to the consumers in terms of competitive pricing. Incentives have to be open to new entrants, as well as incumbents, in the spirit of transparency and accountability.

Embedded

Now, we have the luxury of talking about strategic directions since we have completed a generation’s work of fixing our external debts and public deficit problems. How to thread the needle of rediscovering industries, agriculture and services while simultaneously preserving macroeconomic stability will be the daunting task of our time. The government officials in the Strategy Team will have to be “embedded” in the private sector, but not in bed with it.

Michael Fairbanks and Stace Lindsay of Harvard Business School describe in their book “Plowing the Sea” a host of examples of developing countries that nurtured their sources of growth, which allowed both government and business leaders to succeed in the global market and to eliminate poverty.

The first challenge that needed to be resolved was the poor relationship between government and the private sector in those countries and the need to jointly identify their hidden opportunities in detail with mutual trust and confidence. While the early successes of the cases consistently belonged to the entrepreneurs and the technical experts, the benefits only emerged once government policies were changed to be more supportive.

Constant changes

But constant changes in the way of conducting their activities were needed in both sectors, due to the broad-based reforms taking place abroad and domestically that can only be handled by their common culture of change. Reviews of such changes were made regularly to determine how to calibrate even more changes. “Change is the only thing constant in life.”

We are fortunate that in this country, there is a relatively smooth relationship between the government and the private sector in the NCC. It may, however, be necessary to place a bit more elbow room behind the private sector representatives, who are probably closer to the market and business developments, better placed to come out with innovative approaches employing science, technology skills, etc.

Letting go of losers

The challenge is that the guiding principles enumerated earlier for the Private-Public Partnership (PPP) are followed so that activities will remain within the strategic objectives, and not swayed by personal hobby-horses from time to time. It will prevent government from choosing winners but, instead, provide it with the ability to let go of the losers.

IBM says, “If you want to succeed, raise your error rate.” A government that makes no mistakes in promoting relevant industry, agriculture, services is one that makes the mistake of not trying hard enough. The trick is to withdraw support once a mistake is recognized before it becomes too costly.”

Maybe, when strategies bloom in the next few years, and the Philippines reaches the NIC status, people will finally stop asking that perplexing question.

(The article reflects the personal opinion of the author and does not reflect the official stand of the Management Association of the Philippines. The author is chairman of CIBI Information Inc. and chairman of the MAP National Competitiveness Committee. Feedback at map@globelines.com.ph. For previous articles, visit <map.org.ph>.)

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  • http://profile.yahoo.com/PBI5I5VSPOLJF7EPB57EZN7NVM Rikki

    The Philippines already achieved NIC status…. Read Wikipedia…. Some foreign economists concur.

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