Why the Philippines is poor – a retake

It’s been almost exactly a year since I posted on this subject.  That post was among the most-hit in this blog, so it must be a “burning” issue out there.  But it’s time for some rethinking.

The question is not why we are poor.  It is why a few are rich but the overwhelming majority is poor.  So, I will try to address this version of the question below.

Can we re-think the question?

But first let me review the year-ago post, where I suggested four answers.  Do they still make sense?  If not, how should we rethink?

One answer was glib.  We are poor because we are poor.  A bit like Gertrude’s “A rose is a rose is a rose.”  Papa Hemingway parodied this last with “A stone is a stein is a rock is a boulder is a pebble.”  I can perhaps say today that we are poor because poverty is something we inherit, and of course it’s not the end of the world.  We can start out rich, become poor, and become rich again.  So, we were poor, we almost became rich sometime in the 1950s, we became poor again, and we have a chance of making a comeback.

I said a year ago that we are poor because in effect “we have no budget.”  We lack the resources to make ourselves rich.  This is not a new idea.  It is behind the “take-off growth economics” fashionable after WW II.  We can’t get rich unless we build roads, bridges, airports, etc., and unless we educate ourselves.  This requires resources which we must generate from savings (but how can a poor man save?) or borrow (but that is the reason why the country has a large external debt burden).  Of course, if we borrowed and put the funds to good use, we could have risen above poverty.  We have more or less given up on borrowing (the government borrows mostly to repay old debt) but we are left with attracting foreign investment or tourists.  Not so easy if we have corruption, or if we can’t get our act together to make the country more tourist-friendly.

So, I suppose, this first answer can be restated.  We are poor because we’ve messed up, because we have allowed corruption to become institutionalized (to the point where every Tom, Dick, and Harry seeking election says he is against corruption), because we have a deteriorating educational system, and because we’ve had economic managers who didn’t know, for example, how to manage our transportation and hotel offerings to make it easy for tourists to visit.  Lately some things have improved.  We are getting more airports; even NAIA 3 is working, though imperfectly.  There has been a fair amount of road building.  Maybe we can find a silver bullet against corruption, but that’s a different story.  On education, it is not just a matter of raising teacher salaries.  I believe this one requires a “culture change.”  By now, I see many teachers pretending to teach, and students pretending to study.  So many pretend that “they know,” yet their skills are barely adequate for the modern global economy.

A bit of an aside is in order. It is a crying shame to see celebrities doing “read-along” events for PR.  I say it’s a crying shame because I fail to see what that does to improve literacy skills.  I learned to read because my father used chalk on bare cement to teach me “ba be bi bo bu;” and when I asked why “some” was pronounced “sahm” and not “so-me”, he simply said Americans were crazy.  The point is that we can’t fix the problems of education with CSR.  I believe the job of Education Secretary is one of the hardest but most crucial to the economy.

My second answer a year ago was to debunk the conventional wisdom that “we are not ‘smart’ — we have high transactions costs and we do not know how to industrialize.”  I now feel more strongly that this conventional wisdom is wrong.

Transactions costs are those of searching for counterparty and bargaining.  We are good at finding connections, and I’m sure we all know how to bargain.  As to whether we ought to industrialize, I’ve come to the view that industry is not our comparative advantage.  We do not have the knowledge base and networks in science and engineering that the United States, Japan, or Germany have.  And unlike China, we don’t seem good at importing  technology, except perhaps for using high-tech consumer gadgets.  I am bemused that there is a social cachet in this country to having a P40,000 cell phone, which would have bought the labor for one year of the so-called poor.  I gave a glib comment in my post that industrialization is Marxian economics; I didn’t mean to demean industry or Marx.  All I wanted to say was that Marx wrote at a time when manufacturing was a big deal, and he thought the laborers who didn’t own capital ought to unite.

I’ve also come to the view that the average Filipino is quite smart.  He knows by now that if he is young and able his best strategy is to link up with the modern global economy.  Many will go OFW.  Others will work in the BPO industry.  Yet others will work in tourism.  Last October I visited a desert state, Arizona, for a month.  I kept asking what keeps its economy humming.  The answers I got were:  the military (because there was a large military base) and services.  And what were these services?  Well, they included tourism and the “snow bird” phenomenon.  In the West Coast, retirees maintain two homes – one in the northern section where it gets cold in the winter, but they seasonally decamp to a second home in the dry Arizona desert.  All this suggests to those who know how pretty, really pretty, a Philippine island or mountain can be, that we can rival Hawaii.  That is why tourism is the next frontier.

However, not to be simply negative, I would add to the second answer something along the following lines.  We are poor because we have allowed our culture to foster a certain “entitlement” mind set, as in the case of our labor laws and land reform laws.  The same entitlement mentality applies to discounts for senior citizens.

The poor, it seems, are entitled to certain redresses of past wrongs; or that our seniors are entitled to a kindler gentler economy that gives them discounts.  And we try to engineer this through legislation that backfires.  For example, under the labor laws, it pays for an employer to limit the number of his permanent employees, which results in a high unemployment rate.  For another example, the land reform laws end up making the land redistribution a lottery:  those lucky enough to be the descendants of some long-ago oppressed tenant are entitled to a piece of land that has great commercial potential.  Why give that up?  But in the meantime, there is no incentive for either landlord or tenant to improve the technology of agriculture, and landholding is “frozen” instead of being put to its most productive use.  As to senior-citizen benefits, the economics of the matter suggests that retailers will simply shift the burden of paying for these discounts to the younger customers.  Perhaps that’s fair; perhaps not.

I realize that this expanded second answer is a variant of F. Sionil Jose’s answer that we are poor because it’s our fault.  I leave it to the reader to do some thinking on this.  But if I’m right, a trick to curing poverty is to repeal all sorts of legislation that has hobbled the economy for decades.  There is something after all to self-respect.

My third answer was to debunk the “ningas cogon” answer that we are doomed because we can’t carry a major piece of work to completion.  Ningas cogon supposedly arises because what we have is, according to PIDS researchers, “lack of social cohesion, spotty entrepreneurship, and the inability to establish a credible and selfless political leadership.”  I stand by my answer that this is bunk.  There is social cohesion, perhaps of the wrong kind, when we see a huge audience for the Wowowee TV program.  I am sure the Filipino-Chinese, as well as Filipinos who abide by similar business ethics, would rail against the idea that our entrepreneurship is spotty.  If anything, our entrepreneurship is so pervasive that it can mix corrupt deals with normal business.  As to incredible and selfish political leadership, perhaps we have a flawed democracy (one of my teachers calls it “democrazy”), but that is a collective fault of the “sovereign” people.  We deserve a government that we vote for.  Some will work the politics in a noisy way.  Others can do it quietly.  But certainly we can try.

My fourth answer was that we took well-meaning but bad advice from the IMF and the World Bank.  Perhaps they have reformed.  Or their influence on us has waned.  So perhaps this does not matter much anymore.

What we ought to do now

Let me recap the revised answers to why many are poor.  First, we have allowed the economy to be mismanaged.  This includes a legacy of a severe external debt problem, an institutionalization of corruption, a self-inflicted deterioration of the educational system, and a political and social order that allows the incompetent and/or devious to be  “in charge.”  Second, we are poor despite the fact that we are basically smart and certainly not because we lack an industrial base. Third, we are poor because we have laws that we don’t believe in, such as labor and land reform laws, and this contributes to economic mismanagement.  Fourth, we are poor not because of “ningas cogon,” but because we have allowed our political leaders to run a flawed democracy.  Fifth, we are poor because we took money from the IMF and World Bank, and other foreign financiers, but we have little to show for what we did with that money.

With these revised answers we know what to do to turn things around and my best guess is that these things can be done within a generation.  Many will simply have to flee the country and return when things are better, bringing back skills and financial resources (this explains much of the economic success of countries like China and Ireland).  Others will have to quietly work to change the political and social system, including disabling the “entitlement” mind-sets of the so-called poor, old, or disadvantaged (these groups need help, but not in the ways we have so far devised).

Why are the rich so?

Let me get back to the rephrased question:  Why are a few rich?  Why are the rest poor?

First, some of the rich were lucky.  Under the succession laws, some are rich because their ancestors were.  Luck is not bad.  It is a badge of the old rich and those who win lotteries.

Second, some of the rich are corrupt.  Some of the corruption is likely to be rooted in arrangements that restrict competition in a given market to only a favored few.  Corruption even exists in the private sector, as when a consumer gets bad service from folks who are neither brilliant nor efficient.  Possibly, these folks have jobs because of “connections,” and not because they know what they do. (We’re getting close to Holy Week, but of course it is not for us to forgive those who know not what they do.)

Third, some of the rich have talent, as does Michael Jordan.  In a market economy, including one where there is monopolistic competition or contestable monopoly/oligopoly, talent gets a reward.  Jose Rizal had talent but he didn’t live in a modern market economy, and it is likely he would have declined the material favors.

Fourth, “rich” is in the eyes of the beholder.  Many who would be called rich because of their material wealth seem to work so hard to get more.  Are they really rich?

Fifth, as to why the rest are poor, the answers are the same as my revised answers to the question of why the country is poor.