Published in the Manila Bulletin on 23 July 2006. It describes the debilitating distortions and bottlenecks holding back development in the Philippines.
MasterCard economist Yuwa Hendrick Wong said it: "Nowhere in Asia can you see this juxtaposition -- the lack of opportunities for talented people due to domestic politics, or the political elite propagatingtheir interests. Hundreds of medical doctors took retraining to work asnurses overseas ... they are prepared to downgrade their skills inorder to work overseas. All these allow the elite to do nothing.”
Despite endless restructurings, we're still the sick man of Asia. Reforms are pursued, but only when the same beneficiaries havepositioned themselves to milk the economy under the restructured structures.Our level of economic development, once compared with Japan, thenMalaysia and Thailand, is now ranked with Vietnam and Cambodia. We may soon be ranked at the bottom together with Burma and Bangladesh.
We need to pay infrastructure obligations we've contracted, so we can continue improving our infrastructure. We need to be able toefficiently move goods around, and ensure that our highly trainedprofessionals don't spend half the day stuck in traffic.
Nothing kills an economy's productivity, and depresses wages, more than bottlenecks. And when wages for the most highly skilled become lowerthan the wages for menial work overseas, people will leave.
We need to stop subsidizing what should not be subsidized, and stop borrowing to fund deficits incurred by inefficiently run white elephants. Consumers pay for it anyway: That artificially low pricemeans a deficit which drives up inflation, making everyone worse off.
We need to deny favored groups the protection of automatic exchangerate adjustments, and the privilege of charging consumers for inefficiencies, while ensuring that the small economic players—smalltraders, small transport operators, and neighborhood businesses—are assured their right to a fair economic return.
We have the second highest power rates in Asia, next to Japan. Our power generation and distribution system is inefficient, with systems losses in the double digits.
Also, since I don't know of any other businesses, or any wages, that are indexed to the exchange rate, I wonder why utilities are allowed topass on foreign exchange risk to poor consumers.
We have among the highest fees for Internet access in the world, andthe terms are onerous: Mandatory two-year contracts, mandatory bundled services for things we don't need, unreasonable deposits, and more.
The government's push for Voice over IP is a great idea. VoIP is how the world communicates. Unfortunately, you can't get the Internet you need for VoIP without getting the bundled phone line that it replaces.
The NTC needs to put its foot down: Broadband should be available onits own, without mandatory bundling. NO service contract should require a commitment of more than a year, and there should be a three monthopt-out period. In the world of broadband Internet, telcos regularly advertisefantastic speeds: 2,000, 4,000, 8,000 kbps and charge accordingly.
Delivered speed is a different matter. My own connection maxes out at800kbps, less than half of what I've been promised.
And I'm not the only one complaining: The Internet is full of websites dedicated to customer complaints about poor (and overpriced) Internetaccess in the Philippines.
In major cities worldwide: San Francisco, Sydney, Singapore, Taipei,and many others, one can just open a wireless equipped laptop and be connected, oftentimes for free. Chairman Bayani F., has a great idea for Metro-wide Wireless Internet, but he'll need to speak with the NTC first to dismantle the restrictions that prevent us from helping build a wireless city: We're prohibited from doing so by our provider contracts.
By law, telcos in the US can't put those restrictions on commercial contracts. If you have a commercial line, you can share, resell, and distribute your connection. That's why even small towns have Wireless Internet provided by the community. In Africa, towns are being connected to the Internet and the Phonesystem using commonplace wireless technologies such as HSPDA (cellularwireless) and Wi-Max (long range wireless). More importantly, these are being done by small town businesses: National Franchise notrequired.
Yet, while we endure structures that guarantee returns for big players,our policies down-regulate the income of small players. We pretend the oil crisis doesn't exist by keeping transport fares low, much to the chagrin of the taxi and jeepney operators who have families to feed. Low transport fares may seem good on the surface, but it comes at a price: An inefficient and uncomfortable transport system that encourages the use of private cars.
We can't even pay the creditors for the EDSA MRT because the faresbeing charged are too low, which means no one is going to finance the other MRTs that we need. And because the system can't afford newturnstiles, our professionals spend an hour each day queueing to enter the system. So, those who can afford to use their cars, still do so; and the rationale for the MRT—to keep cars off the road, doesn't happen.
When the DOTC, for the Nth time announced yet another Pasig River ferry system, it realized it had a problem: Because MRT fares are so low, there was no way they could price river ferry fares competitively with the MRT for the river system to be viable.
Depressing Public Utility vehicle fares also create their own problems:The vehicles are ill-maintained and uncomfortable, once again, encouraging the use of private cars. Low fares don't matter much if you're a professional and can't get around. Artificially low fares also mean the drivers have very little disposable income to spend, depressing the economies of the neighborhoods they live in. Low fares also encourage trip cutting, “kontrata,” and other shenanigans to get an extra buck to feed their families.
Economists talk of the multiplier effect: Spending in one area leads to greater spending in another area, and then to the economy as a whole. This is a valid concept, except it doesn't work here: the multiplier is absorbed by inflated utility prices, and neutered by the economic repression of the small players.
About the only ones benefitting from the low fares are the outsourcers,who think nothing of hiring people from 100 km away. They're the oneslaughing their way to the bank, paying a tenth of what they would payoverseas. If transport fares weren't so repressed, do you think the outsourcers would be locating in the large business centers? Of course not, they would be nearer the residential areas of cities and towns, acting as catalysts for a more balanced pattern of economic development instead of contributing to the congestion of the cities.
Healthy neighborhood economies are the best way to save precious oil.
And since the game would change--with higher value added outsourcing remaining in the city, and lower value added outsourcing moving nearer the neighborhood--the outsourcers would be encouraged to explore other value added services. As Filipino Silicon Valley Entrepreneur Dado Banatao said: “We shouldn't be training software engineers to be telephone operators.”
Let's end this endless process of RE-Structuring--the lie has been exposed. What we need is a DE-structuring of the economy.
We need it so that we can distribute economic opportunity, we need it so we can have lowerprices through greater efficiency, we need it so we can have productivity driven wage increases.
In the 1990s, we celebrated as foreign investors upped our countryallocations—the amount of investible funds we were alloted out of any given portfolio. At it's peak, that was 8%. Today, it is around 2%.
Yuwa Hendrick Wong may be the only one to say it publicly, but other economists are saying the same things in private, otherwise they'd be on a plane rushing to invest in the Philippines.
=======================
I received some feedback via eMail from friends in the International Investment Community.
"Powerful Stuff!" - Telecom and Structured Finance Head of a major European bank
"You are so correct!" - Director of a global business restructuring practice.
"Brilliant and incisive!" - UK based fund manager covering Asia.
