BWorld 100, Multinationals in the PH, what do they want?

* This is my article in BWorldEconomicForum, December 14, 2016.

CAPITAL AND INVESTMENTS are like water — they go where they are welcome and accommodated. Small water tributaries merge with others to become a big river, a lake, or drain into the seas. In the same way, capital congregates in areas where they are protected and allowed entry and exit with the minimum restrictions and prohibitions.

  

That is how some small countries and territories with fewer populations become wealthy and prosperous financial centers such as Singapore and Hong Kong.

The subject of multinational corporations in the Philippines was among the subjects discussed during the BusinessWorld-PAL ASEAN Regional Forum last Nov. 24 at Conrad Hotel at SM MOA Complex. Session 4 was “Investing in the Philippines: Insights from Multinational Companies” and there were five speakers: Rajiv Dhand, regional vice-president & general manager for operations of TELUS International Phils.; Laurence Cua, UBER country manager; Henry Schumacher, European Chamber of Commerce senior adviser; Jericho Go, Megaworld senior vice-president; and Alexander Cabrera, PwC Philippines chairman & senior partner.

Almost all speakers talked about their respective companies and their contributions to the country’s economic growth and job creation, among others. Mr. Schumacher, being the most experienced foreign businessman among them, provided the most direct answers to the theme. He said that what the foreign investors are looking for, among others, are (1) safe and secure investment locations like PEZA and other ecozones, (2) business-friendly local government units (LGUs), partnership between LGUs and businesses.

The turn off for businesses he said, are (1) corruption and unethical business practices, (2) no peace and order, and (3) changing rules and policies.

The World Economic Forum (WEF) produces an annual Global Competitiveness Report (GCR) where it measures 12 pillars of competitiveness of countries and economies worldwide. The pillars are grouped into three major subindices — basic requirements (pillars 1-4), efficiency enhancers (pillars 5-10), and innovation and sophistication factors (pillars 11-12). From these three subindices, the global competitiveness index (GCI) is computed and countries are ranked from highest to lowest.

Of these 12 pillars, the Philippines ranked badly in four measures: (1) institutions, (2) infrastructure, (6) goods market efficiency, and (7) labor market efficiency.

Institutions include property rights protection, corruption and bribery in government, judicial independence, wastefulness in public spending, burden of regulations, business costs of crime and violence, strength of investor protection, etc.

Infrastructure include the quality of roads, ports, railways, air transportation, electricity supply and telephone subscriptions.

Goods market efficiency cover intensity of local competition, anti-monopoly policy, business taxation, procedures and time to start a business, tariff and non-tariff barriers, prevalence of foreign ownership, customs procedures, etc.

Labor market efficiency includes flexibility of wage determination, hiring and firing practices, taxation on incentives to work, reliance on professional management, country capacity to attract and retain talent, female participation in labor force, etc.

Results are shown below for the two GCR reports 2014 and 2016.

Multinational corporations in the Philippines: What do they want?

These numbers show the following:

One, Singapore, Japan, and Hong Kong are in the top 10 most competitive economies in the world, with very high scores and ranking in infrastructure.

Two, the Philippines needs to improve efficiency and competitiveness in these four pillars because they have pulled down the country’s overall ranking. There was even a decline in overall ranking from 52nd in 2014 to 57th in 2016.

Three, there are lessons to learn from neighbors Malaysia, Thailand  and Indonesia which have higher rankings than the Philippines. Vietnam and Cambodia’s overall ranks are improving and Vietnam may soon overtake the Philippines.

In the WEF’s Executive Opinion Survey 2016, these six factors are the most problematic: inefficient government bureaucracy, inadequate supply of infrastructure, corruption, tax rates, tax regulations, and Policy instability.

In short, government is mainly the problem.

There are three possible solutions here. One is to institute huge, large-scale professionalism in government, both elected and appointed bureaucracies, in both national and local government agencies.

Two, shrink the size and burden of government bureaucracies, regulations and taxation.

And three is to do both, improve the professionalism while shrinking the size of bureaucracies so that they can focus more on enforcing the rule of law and have little time and space for creating new regulations and taxation that tend to complicate if not contradict previous ones.

--------------

See also: 
BWorld 97, Direction of trade of Asian economies, December 21, 2016
BWorld 98, Asian stock markets and the Duterte administration, December 30, 2016 
BWorld 99, China insecurity and belligerence, December 30, 2016

Fat Free Econ 54: WEF and East Asia Growth Story

* This is my article yesterday in interaksyon.com.
-----------

MANILA - The World Economic Forum (WEF) is among the unique inventions in promoting global economic and social dialogue among many sectors of different countries around the world.

While the United Nations and its many affiliate organizations (WHO, ILO, IMO, WMO, FCCC, etc.), WB, IMF, WTO, OECD, APEC and other multilateral institutions are all government clubs, or composed of governments only, WEF and similar international fora are private sector-initiated, invite participants from governments, multilaterals, corporations, civil society and academe, and are able to attract many high-profile participants from these sectors even if they have to pay hefty registration fees.

The WEF on East Asia forum 2014 will be held this week in Manila. Several heads of state, cabinet officials, CEOs of big corporations (national and multinational), heads of civil society and other organizations are attending.

Since high and sustainable economic growth – which expands businesses and material wealth, creates jobs, lifts many people from poverty – is often the key concern of WEF and other international fora, the best region to hold it is in East Asia. Growth here is generally much faster and has been sustained for decades more than in other regions.

I dug up the IMF World Economic Outlook Database, April 2014 for GDP size of the biggest economies in the world for the past two decades. I used data for 1993, 2003 and 2013, particularly the purchasing power parity (PPP) valuation of GDP as it has a more comparable pricing of goods and services produced in the economy.

A decade after 1993, there have been some changes like China replaced Japan in the #2 spot, India jumped from #9 to #5 (see tables 1 and 2 below).

Table 1. Top 40 economies in 1993, GDP based on PPP, in billion US dollars

Table 2. Top 40 Economies in 2003, GDP based on PPP, in billion US dollars

The World Trade Organization (WTO) was created in 1995 and it heralded the start of fast growth in many economies, especially some emerging markets like China, India and Indonesia. This is because protectionism limits a country’s growth through (a) limited size of consumers and (b) limited source of raw materials, intermediate products and capital goods that can further expand the economy’s productive capacity. Free trade, or even reduced protectionism allows private enterprises to address these two limitations somehow.

After another decade – and despite the various international financial turmoil (housing bubble burst in the US 2008-2009, European debt upheavals 2010-2012, among others), many economies in Asia were able to withstand the uncertainties. Early this decade, three of the four biggest economies in the world were in Asia. And two Asian economies that were outside the top 40 in the last two decades – Singapore and Vietnam -- were able to barge in.

Other emerging economies which joined the top 40 were Nigeria, Venezuela and Peru. And a number of European economies were dislodged from the top 40, like Austria, Greece, Ukraine, Portugal and Norway (see table 3 below).

Table 3. Top 40 Economies in 2013, GDP based on PPP, in billion US dollars

That is what increasing globalization and mobility of people, their products and services, technology and capital, can do. To reallocate resources to areas where they are needed more, or priced better. Notice also that many of the top 40 economies are also countries with big populations. People are the planet’s most important resource.

Let’s analyze some Asian economies closer. Many of them were able to expand their economies by four times or more in just two decades. That’s a short period of time compared to a century or more for the industrial countries during an earlier period.

Ironically too, two socialist economies -- China and Vietnam -- were able to optimize the opportunities of global capitalism and the generally free trade policy that dominate globalization. The Philippines was among the modest benefactors of globalization (see table 4 below).

Table 4. Biggest economies in East and South Asia, GDP based on PPP, in billion US dollars

In comparison, not a single economy from North America and Europe was able to grow three times their size two decades ago. Germany and Italy failed even to double their GDP size within that period.

Of course, these economies can brag that they were already on a high base, so that incremental growth was not fast anymore. This may not be a good explanation because of their ageing populations, tens of millions of their people need to be supported by more economic activities, especially in healthcare.

Table 5. Biggest economies in America, Europe and Australia, GDP based on PPP, in billion US dollars

The WEF is roosting on the region which has proven to be among the important engines of global growth. And it’s a region that will sustain the growth momentum and pace the rest of the world. This region has the world’s biggest populations, meaning the biggest number of entrepreneurs and workers, of producers and consumers.

Asia needs to learn from Europe and North America. That heavy welfarism and bureaucratism are anathema to more growth and prosperity. Business and entrepreneurship is most dynamic when it is left alone to innovate and become more creative, more competitive.

------------

See also: 

Fat Free Econ 50: Growth, Bubbles and the PH Economy, December 19, 2013 

Fat Free Econ 51: Ten Things About the Meralco Rate Hike, December 28, 2013 

Fat Free Econ 52: Optimism in 2014, January 02, 2014

Fat Free Econ 53: WESM, Myths and Realities, January 22, 2014

Are Markets Moral?, January 06, 2014 

Globalization, Mobility and Inequality, February 18, 2014

CSOs and State 2: NGOs and Government Clubs

There are plenty of world forum/meetings by statists and socialist-oriented civil society groups, as well as clubs by governments and international bureaucrats. Among these are:

1. World Social Forum (WSF) – “an annual meeting held by members of the anti-globalization movement to coordinate world campaigns, share and refine organizing strategies”, according to its main website. In the WSF India held in mid-November 2006, it describes it as a forum of “groups and movements of civil society that are opposed to neo- liberalism and to domination of the world by capital and any form of imperialism”. In short, it is the forum of anti-globalization, anti-market, anti-capitalism, anti-free trade, sort of anti-everything NGOs, media people, academics, etc. They mobilize many people in WTO Ministerial meeting, in G8 summit, in annual WB-IMF meeting, in WEF, as well as their own-initiated international meetings.

2. International People’s Forum (IPF) – it “demands for multilateral debt cancellation, transparency and participatory audits of international financial institutions (IFI) lending and policies, and an end to IFI involvement in privatization of public services and environmentally destructive projects”. It was formed in Singapore during the WB-IMF Annual Meeting held in that city-state in September 2006. Many of the IPF members or convenors are also WSF members.

3 World Economic Forum (WEF) – a private international organization that links big businessmen with political leaders around the world, with occasional participation by big NGO leaders. It’s a smaller gathering compared to WSF but more influential economically and politically.

4 WB-IMF Annual Meeting – a gathering of international bureaucrats of these 2 bodies plus finance ministers, central bank governors, other top bureaucrats of member-countries. Selected number of civil society leaders (often among WSF leaders also) are also invited by the WB-IMF guys.

5 G8 Summit – a gathering of the Presidents or Prime Ministers of 8 industrialized countries + big developing countries like China, Brazil, India, etc.

6. Organization for Economic Cooperation and Development (OECD) – a club of governments of 30 industrialized and industrializing countries around the world promoting “democratic government and the market economy”.

7. United Nations (UN) – the mother of all international bureaucracies. Somehow the name “united nations” is a misnomer; a more appropriate term should have been “United Governments”. Though a number of international “public goods” have been addressed by the UN, it has also introduced a number of international “public bads”, like the justification if not promotion of high taxation in many countries to finance more government- and UN-sponsored projects.

While many civil society groups are very critical of multilateral institutions like the WB-IMF, government clubs like the UN, G8, OECD, and private international for a like WEF, those civil society groups actually have more similarities than differences with them. That is, they are mostly statists and forced collectivists. They want the state to have bigger intervention in the citizens’ lives. They want individual’s incomes to be forcibly collectivized, and individual responsibilities be transformed to state and collective responsibilities.

The only difference between those who criticize and those being criticized, is the degree of intervention to be slapped on the citizens; ie, the level of taxation that will be confiscated from the citizens’ pockets, the level of budgetary reallocation, and level of subsidies that will be given to the poor. While the WB-IMF and government clubs can tolerate a certain level of de-governmentization through privatization and economic deregulations, the statist NGOs want socialism-type of income confiscation and welfare distribution.

Free marketers can criticize both groups because they advocate very small income confiscation, small government intervention, and bigger individual freedom and responsibility. Individuals, not just big corporations, comprise markets. Thus, to liberalize markets is to liberalize individuals.
------

Last March 23, 2006, I wrote this:

The Elites and the Statists

A friend, Atty. Ime Deinla, called my attention to a paper entitled "Voices from the Top of the Pile: Elite Perceptions of Poverty and the Poor in the Philippines", authored by Gerard Clarke and Marites Sison. It was in a pdf formal file, 28 pages long, no date of publication or name of paper where it was published. I skimmed through the pages and read the concluding points, and this part is a disappointment to me. The authors wrote,

The Filipino elite feel a sense of responsibility to the poor, but this responsibility is met through the provision of assistance on a patron-client or philantrophic activity, rather than more substantive commitment to redistributive action led by the state, involving for instance, elaborate social safety nets financed by higher taxes.

Ouch! We don't have enough taxes, we need to create more? And our taxes ain't high enough, we need to hike them more? Socialists, statists and interventionists really like this line. Confiscate more income and savings from the rich, from the elite, from the productive sectors of society, and give them to the poor, the downtrodden, the weak. And an elaborate maze of bureaucracies, multiple-layers of politicians, with rah-rah boys from many NGOs and civil societies as middlemen between the two.

I have said it and I will say it again: poverty is very often self-inflicted.
Recipe #1 to be poor: Just be a lazy bum, don't work hard (if at all), drink and party too often; you'd rather drink and discuss with other guys how hard life is, how govt. and the church and the rich and your relatives abandon you, while a piece of land near your house which could have been planted to vegetables or raising farm animals are full of tall cogons, other grasses and vines.

Recipe #2: Be lazy and have plenty of kids, be irresponsible; anyway, government will confiscate rich people's income and savings to educate and feed your kids.

Recipe #3: Work hard and earn big (like working abroad), but also spend hard and save nothing; when the rainy days come, nothing to dig from the pockets.

There are other natural causes (like your house and car and land were gobbled by a volcanic eruption or a big landslide, or cracked to pieces by a strong earthquake) and other people-caused miseries (like your house burned, your car stolen, your land grabbed, your family members beaten and imprisoned for unjustified reasons) to explain poverty. And my favorite, government and its underdevelopmental roles of high and multiple taxes; costly and multiple requirements, permits, licenses, registrations, inspections, accreditations, before one can even start a carinderia or vulcanizing shop, if you do not want to be labelled as "underground" economy and "tax evader".

I would also add that philantrophy should not be dismissed as if it's an insignificant and near useless act, not to be pooh-poohed as encouraging patron-client mentality. Philantrophy and charity signify 2 important things:

(1) It is a voluntary act by an individual or group of individuals in a voluntary organization (club, association, brotherhood, etc.), not mandated by the constitution or by legislation or by an executive order; and
(2) Its funding is from the individuals' savings, from hard work, not from taxes and forced contribution.

Of course, some guys and organizations or foundations use charity for tax-shield purposes. But that's primarily because taxes are high and a plenty, and it's not the taxpayers who determine where the tax money goes, but the politicians and top government bureaucrats.

Ooppss, these kind of remarks would probably alert the authors, Clarke and Sison, to call Oplas "one of the elites". Wrrooonnggg!! Este, riiiigghhhtttt pala!
I'm E-lectrifyingly L-ovable, I-nsiduous, and T-antalizingly E-lectrifying! That's ELITE! hehehe, joke.

The paper is commendable though for gathering a big number of insightful interviewees, from politicians to businessmen to academics and NGO leaders.