Filipino Voices

I consider myself a lucky guy.

I was a general management consultant back in the funny days of the Dot Com boom and watched bemused as all the Baan, PeopleSoft, Siebel, Ariba, Vignette, and Web consultants, among others, suddenly found themselves on the bench doing “Admin” work (and quite a number of even more unlucky sods, on the streets) as the “New Economy” bubble imploded under the weight of runaway consultingspeak and death-by-powerpoint presentations.

Some bozos, for example, fancied themselves as “content management” specialists who would supposedly go on to corner a “billion dollar market” for “content management consulting”. Today a typical corporate intranet site is run not by these self-described rocket scientists but by the less-Vulcan minds of communication arts professionals. The content management applications themselves (which as it turns out were the only real areas of expertise of these “pioneering” consultants) have since become commodities that can be installed anywhere in the world by a $10,000-a-year code monkey sitting in an industrial park office in Bangalore.

All the while, us consultants and analysts whose respective expertise were grounded on business sense (to which various coming-and-going technologies apply themselves to) remained blissfully billable to large banks, utilities and government agencies with wads of other peoples’ cash to spend. Ironically it was these bricks-and-mortar stalwarts — which “New Economy” schoolboys thumbed their noses at back in the mid- to late- nineties — that were actually poised to turn Nerd Toys into Money for the Big Boys.

My point is this:

Solid investment in tangible and sensible assets make for slow BUT sustainable and no-worries growth.

It is when one struggles to explain an investment strategy,instrument, or position, or even a value proposition in less than five sentences using minimal jargon that the question of how much one understands what he is doing becomes relevant. More specifically it puts into proper perspective the whole discussion of who the victims are when “crises” such as these occur (they do occur ever now and then).

Let’s first re-visit the basics. For me the global correction in the financial markets is a timely reminder to all that the basics remain relevant.

(1) Security lies in self-sufficiency. Producing as much of what you consume as possible puts one in a robust position of negotiation.

(2) Cash is king. For those who have it — specially now — the world is their oyster.

(3) A robust capital base is a nice cushion to fall on. At the end of the day, when the smoke and mirrors are gone and perceptions change, it is those who possess substance that remain standing.

(4) Resilience lies in diversity. Specialisation pays when one gets REALLY good at what one chooses to specialise in. But the risk is having one’s eggs in one basket — specially if it is a rapidly commoditisizing basket.

Now let’s make all of the above relevant in terms of where the Philippines is positioned in this crisis (for that matter whether or not we are in a crisis becomes less relevant when considered along the above points).

Firstly, the Philippines cannot feed itself, cannot create capital indigenously, and therefore is utterly impotent in its efforts to employ its own citizens.

Second, a large chunk of the Philippine economy is propped up by consumption. Have cash WILL spend, or specifically; have OFW cash, will spend on yabangan. The Philippines continues to have among the lowest savings rates in the region — right down at the bottom of the heap with Myanmar and Bangladesh (both world-class basketcases in their own right).

Third, the second best thing to do with cash is to use it to build something that retains, secures, and generates value thus creating equity beyond the book value of its physical assets. In our case, if we were to do a due dilligence on a business proposal to acquire the Philippine nation, where would the bulk of its value lie?

I’d hazard a guess that beyond land and whatever remains of its natural resources, there is no money to be made in the way of brand equity (what does “the Philippines” stand for anyway?) nor intellectual capital (what are we as a people capable of beyond already abundant manual labour?). What does this mean? It means the Philippines from a purely business perspective is only as valuable as its physical assets. You’d buy the business at the book value of its physical assets, fire all its employees, close down the business and sell land, equipment, and buildings for scrap; hopefully making a tidy premium over book value in the process.

Harsh, you say? Well, prove first that the society living off these physical assets is worth the headache of managing as an on-going concern if you lack an emotional stake in it.

Fourth and last point goes out to those who understand the implications of a simple assertion I make: Filipinos utterly lack imagination; which is succinctly illustrated in an observation Ambeth Ocampo made (quoted and further expounded upon in page 42 of my book) of how Romblomites continue to apply their otherwise immensely valuable marble resources:

What did the people in this sleepy town do with their marble? They made them into tombstones, mortar and pestle. As a tourist, I asked myself: How many “lapida” [tomb markers] and “dikdikan” [pestle] do I want? How many lapida and dikdikan do I need? Come to think of it, how many lapida and dikdikan do they sell in a year? Here is a region that has skilled manpower and an almost inexhaustible natural resource, but their products are unimaginative. If culture comes in to introduce new designs and new uses of Romblon marble, that would go a long way in developing the industry and the province.

I go and elaborate further to emphasize the point (also excerpted from my book):

Indeed, one can draw similar analogies in the Filipino entrepreneur’s penchant for following a “me too” approach to getting into business. There is an almost lemminglike behaviour in the way Filipino entrepreneurs get on a business model bandwagon. This behaviour accounts for the lechon manok (roast chicken) and shawarma (Mediterranean wrap) booms in the 80’s and 90’s. The proliferation of jeepneys and tricycles also illustrates how such safe but low-returning (and, in the long run, unsustainable) ventures are among the favourites of individuals with a bit of capital to apply. Lately it is call centres and business process outsourcing (BPO).

It is lemming-like because given Filipinos’ less-than-admirable track record for innovation, a stampede of industrial copycats eventually smothers most of these business fads to death or condemns them to chronic low-returns oblivion. Despite weakening demand because of robust supplies, Filipino producers continue to flood the market with their quaint “crafts” and mediocre services. Today cheap imported toys and knickknacks from China flood the Philippine consumer market. In many shopping malls, one could find rows upon rows of stalls and shops selling much of the same things – mobile phone paraphernalia and third-rate electronic goods. Oversupply and over-distribution of what are basically commoditised goods; a sure recipe for chronic low margins, low added value, and very little retained earnings which all contribute to stifling commercial expansion. This is the same situation that imprisons entrepreneurs like jeepney and tricycle operators, shawarma stalls, the Romblon lapida makers, and thousands of cottage industries that turn out the same quaint but undifferentiated products and services in price-crushing volume.

So there it is.

Some of us gleefully gloat at the woes of the industrialised world during these times of market corrections; which brings up the whole reason why I keep highlighting the word “correction”.

The Crash is a worldwide reminder to get back to basics. For some, like the United States, those basics are that a society worth a few trillion dollars should NOT be playing around with securities and asset valuations worth tens of trillions. Write off the bogus value created by Wall Street and we are still left with a society that is (a) able to produce cutting edge-technology, world class products, and spellbinding entertainment, (b) maintains infrastructure of jaw-dropping scales, and (c) boasts immense natural and man-made beauty across its lands — all TRULY worth that “few trillion dollars” mentioned earlier. Just a correction indeed. A little slap on the wrist delivered by basic economics, if I may.

And then there are some — like the Philippines.

Filipinos posses no cutting edge technologies and robust production capabilities, virtually no leasehold improvements on our land beyond what the Americans left us 50 years ago, and no natural beauty that differentiates our volcanic islands from more interesting Asian destinations.

If we, for example, see a massive repatriation of OFWs laid off as their rich hosts see this correction through, we not only get a 10% contraction in our economy, but also a spike in unemployment as well as collapses among business formerly dependent on remittance-driven consumption — thus setting off the proverbial chain reaction of collapse.

Now one might say that unemployment, bankruptcies, and asset devaluation will happen in both rich and poor countries. Of course it will — and it is already happening. All economies — rich and poor — will to varying degrees, crash back to the basics.

The question is what are these “basics” that the Philippines will crash back to?

To be fair, an already primitive society like the Philippines’ cannot have much far to crash back to. But an economy that cannot feed itself nor create capital indigenously will indeed crash in the real sense of the lowest rung of Maslow’s hierarchy — literally crashing back to the stone age — if all its foreign sources of economic activity dry up.

There are corrections, and there are crashes.

So to answer Ding’s question, “recession” is a relative term. An industrial power with robust basics will recede to the original roots of its prosperity — pragmatism. A primitive society such as ours that lacks prosperity — much less a root for it — and substitutes basics for a vacuous nature will quite simply recede. To what we will recede to exactly is anyone’s guess. Any takers?

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