HOW Rich Countries Got Rich

I was preparing a lecture on the economy and the task brought me to a continuum in time or to where we have been and to where we are going in achieving our goals as a nation. As teachers or as social development activists we should feel implicated and responsible for the unspeakable poverty that we Filipinos are in.

If we really think deeply and study the past centuries or if we look around with empirical eyes, some of the reasons why some countries are rich and why so many countries are poor are not really a secret. These observations can be likened to immutable laws of science like the law of gravity. This is the thesis of the book I am reading now by Erik S. Reinert which has inspired my piece today.

Yes - we need agriculture for food security but it is not enough. Yes, the agriculture sector complements the industrial and manufacturing sectors. But, rich countries are really into massive production of finished products – the kind that brings increasing returns as well as employment as opposed to the kind that produces raw materials that is bringing us diminishing returns and so much poverty. The world economy has been like this for many centuries and this is becoming relevant again because there is an emerging similarity between poor countries and the rich countries which are in a financial mess now. The similarity is in the variable called production. Just as poor countries are producing much less & in raw materials; the rich countries which are in financial trouble now are not that into basic production like they used to be. The rich countries which are in trouble now have somehow neglected the variable called basic production as they have focused now on finance and trade. This trade is the kind where one trades stocks, bonds, real estate, debentures, financial debts, commodities trading without delivery and the like which is not unlike the pyramid scam that we know so well here in the Philippines. And the financial elite are doing these with ease through “rent seeking behavior”: the kind that is in cahoots with policymakers at the expense of the ordinary taxpayer.

But, never mind the rich countries. How do we attain sustainable development  in the Philippines? Let us start the action by naming & framing the issues. One place to do this is in the academia.. What kind of graduates are we producing? There is a common observation that we have so many unemployed & underemployed professionals. I think one of the reasons is that our society is so enamored with titles as the route to achieving stature in our society. But, if such kind of titles & college degrees do not bring us employment then our parents, students, and our schools must think again.

One of my students said that one solution to unemployment is for schools to be able to produce employers instead of employees. This is another way of saying that we must produce entrepreneurs instead of more graduates who are aspiring to be civil servants or rank & file employees.

Those who have access to these air conditioned malls are a small percentage of the total population. The large majority have excluded themselves from these establishments due to unspeakable poverty. This is an initial observation that we are in for difficult times. And our solution for this is really simple. Both state & market must provide the climate for economic activities for our ordinary citizens so that we all can afford the basic necessities in life. And this is going back to the basic premise of why poor countries are poor. For now, the experts are saying that to increase the gross national product the magic variable is to engage in real production & manufacturing. This clarion call is indicated for both state and market institutions. And hopefully, other sectors like the academe will give a supporting & crucial role in developing our human resources.

But, the more important question would be who and how many will benefit from the national goal of improving our economy. In economic parlance, we have given these many names "redistribution with growth" or "inclusive development" & the like.

The globe is interlinked. There is a brewing twin American & European financial mess. The trend is towards Asia becoming the center of the global economy. Our traditional theories in Economics are not working or are not able to solve the economic problems of the world. We also need to revisit some of these theories because some of these are true. On top of these theories is the one about the world economy divide as well as the socio- economic divide inside nation-states. The divide inside nation states ( read : so much Philippine poverty) is an issue that national economies like the Philippines can continually address even as the world economy is undergoing reconfiguration. 

Wall Street : Money Never Sleeps

Wall Street : Money Never Sleeps




This is the first movie I saw on the big screen this year so I might as well revisit it with you.

As a sequel of the first 1987 Wall Street movie and made relevant with a poetic treatise of the real 2008 financial crisis, this film is worth writing about.

Manhattan is postcard pretty as ever as the financial center of the universe.

The screenplay is made familiar by a show of the state of the art of the financial markets and some of our current concerns such as energy requirements of the future and progressive non profit websites that are tools to change the world for the better for our children and the next generations.

This Oliver Stone ( 1987 Wall Street JFK & Nixon fame ) film opens with Gordon Gekko ( Michael Douglas) being released after eight years in jail for financial fraud, which as the character explains later in the film, is actually a much larger crime than the insider trading crime, the initial transgression that we saw at the end of the first Wall Street film.

After seven years we find Gekko a star again as the author of a best seller book : Is Greed Good?

But, the angst of the life of Gekko is mostly about his estrangement with Winnie ( Carey Mulligan), his daughter who blogs in a non profit website, that started to get 50,000 hits or website visits per day and ultimately got 200,000 hits per day when indications for market corrections were published.

The daughter blames the absentee Gekko in jail for all the tragic events in their dysfunctional post modern family : a brother who died due to drug overdose and a mother who went mad.

The partner of Winnie is Jake Moore ( Shia LaBeouf) an energy investment expert working in Wall Street who thinks that energy fusion using water, through hydrogen fusion, is the next “bubble” that will solve our energy problems for the next generations.

The poetic screenplay ( Allan Loeb & Stephen Schiff ) is actually narrated from the point of view of Jake, a protégé of Lou ( Frank Langella of Nixon fame), who commits suicide after his financial investment bank falls. With the help of Gekko, Jake finds out how and why the company of his mentor went bankrupt.

The next scenes are about the so called “ market corrections” in the financial meltdown that is ailing Wall Street. These corrections largely use the legal and justice system structures.

This film tries to explain in scenes, not unlike the television clips we saw in the real life 2008 financial crisis, what is wrong with our financial markets :people borrowing to the hilt, all of the profits coming from financial services such as trading, leveraging, hedge funding and some of these funds are used to finance industrial military weapons of mass destruction ( WMD) and that only about almost a hundred people in the world control these transactions.

That speculation is the mother of all evil.
Gekko describes the current Ninja generation as the generation with “no income, no job and no assets.” The solutions to all these in the words of Gekko are three words “Buy My Book” as the answers can be found in his best selling book.

Gekko, while introspecting in jail felt that he was the lone sane man inside and everyone and all out of prison were crazy.

The conflict in the movie is the struggle of Jake to make the corrections in the cancerous financial market mess, not unlike the real life 2008 financial mess that as we saw was bailed out by the United States treasury in what was called the billions worth “stimulus package.”

The concept of “ moral hazard” is explained: “someone gets your money and that someone is not responsible for it.”
The villain in Bretton James ( Josh Brolin) is exposed; the wall street crook was found committing securities fraud : trading for his own account and betting against the market he was making.

One of the scenes described by A.O. Scott in the New York Times movie review, that also caught my fancy was the fundraiser soiree event where one finds the beautiful people of Manhattan dressed in designer clothes and the camera of Rodrigo Prieto, director of photography, zoomed in on the bulky & beautiful earrings of the women in gorgeous gowns.

 It was such an ostentatious display of wealth for charity.

The beauty and the beast that is Manhattan & Wall Street as further described
by A.O. Scott is the intersection of “ material excess…. with genuine beauty”
and that “ what went wrong” in the financial center can be explained in two words: “ human nature.”   

The Changing Economic Landscape & the Philippines

The ideas that I am sharing here now are still inspired by the conversations and papers presented at my alumni reunion at the Institute of Development Studies (IDS) at the University of Sussex in Great Britain. One of the big topics tackled is the changing economic landscape and we kept referring to the old world starting the year 1492, because as Tom Lines, an expert on trade & development, who was one of the keynote speakers at the opening of the 2009 IDS Alumni Reunion said in his concluding remarks, “ My final, final thought is about the very widest landscape, and the extent of the hegemony crisis we might be facing. The banking crash of 2008 may well mark as big a turning point in world history as 1492, the year of Columbus’ first voyage to America. This symbolically marked the start of 500 years in which European countries, and their offshoots like the US, dominated the world….”
Should the United States undergo structural adjustment, as we know it, since it is now the biggest debtor nation in the world? Perhaps, the conditions or prescriptions of the U.S. government to huge banks and financial institutions that it bailed –out and the reforms in the education and health sectors are some forms of structural adjustments to cushion the impact of the crisis. In the so called Third World Debt Crisis of 1982, countries in debt like Mexico, the Philippines and the others have had to undergo structural adjustment ( read : import liberalization and shift to an export oriented economy). Obviously, for the Philippines, these prescriptions are not working. On cursory examination, one difference is that the Philippines is a democratic country ( at least in tradition or policy) while the emerging successful markets in East Asia like China, Singapore, South Korea or the tiger economies are more authoritarian nation states or state–controlled economies.
Some economists have labeled the global economic crisis, which started in 2007 in the United States as the “First World Debt Crisis.” Describing vividly our changing landscape, let me quote Tom Lines again,

….” The broader policy conclusion is also opposed to that of the 1980s Debt Crisis: not that free market policies must be pursued but that this crisis demonstrates their failure, so more regulation and a bigger role for government will be needed…. Now the US is the biggest debtor nation. Its capacity for economic hegemony has ended. Of the biggest creditors, only one (Germany) is part of the tradition which grew out of Europe. The others are China, Japan, Brazil, India and Russia (which is only partly European and lies outside that tradition for its own historical reasons). By far the biggest creditor is China: an up-and-coming country, self-sufficient and inward-looking (although hardly young), and unwilling to take on a dominant role at present. One thing is clear: whatever power relations may finally emerge, the previous Core: Periphery arrangement has been upset, probably for ever…. If the US no longer has the economic power to control things, and that power is moving to China or Japan or India, it marks a far bigger cultural shift than that of the 20th Century from one English-speaking, Common Law country (the UK) to another (the US). Power relations are indeed changing, but in view of the horrific events in Europe between 1914 and 1945 it leaves me with some apprehension about where this crisis might lead before a new settlement is reached. “
As we say, the shortest distance to trading with the new emerging economies like China is language, to start with. Mandarin, Fookien, Cantonese will be the new chic languages. We will have to get used to yuan, China’s currency which up to now most of us have not used. It helps that Filipinos, and most everyone in the world, are already into things Chinese. There is a Chinatown in virtually all cities of the world. We just wish that events such as Tiananmen Square protests of 1989 which culminated in the infamous Tiananmen Square massacre and all the human rights violations allegedly associated with it are not part of our future. It is a tribute to Asian human rights defenders under the auspices of our regional organization Forum-Asia that they are crafting a human rights mechanism to parallel the crafting of the Asean human rights mechanisms at the ASEAN. The other important proposed reform is a regional United Nations in this part of the world because the United Nations which was born in the wake of the Second World War was precisely created so that we will never again have to have a repeat of the untold sorrows of world wars.

Dreaming Of A Different Reality

During this season, I have had much time for reflection and much time to myself for as the French would say, “ A life reflected is better than life itself.” I have also been in conversation with all kinds of folks : from our perfumed European guests at my Inn and with ordinary tricycle drivers who frequent our KTV garden hall to celebrate the end of hard day’s work by singing their troubles away. One common topic is the recession or hard times which is so palpably felt by all even if for many of us nothing is changed as we have always been experiencing poverty all this time, anyway. So, I end up regaling my guests with one of my favorite classic tales that I read somewhere & I like to remember when I’m stressed :

A fisherfolk was resting in a hammock under a palm tree and enjoying the
aquamarine view of the ocean & vanilla sky horizon when a Japanese tourist asked
him " WHY dont you catch more fish?
Why? asked the fisherman.
So you can build more boats, said the old Jap
& then what? asked the fisherman?
So you can buy a fleet of fishing boats, answered the Old Jap
& then what? asked the fisherman
So you can go on vacation holiday, like me.
Ah that's what Im doing already, said the fisherman.

A friend of mine has another version of the story: A farmer...taking a siesta under the tree...and world bank consultant comes around..tells him he can work to increase harvest, to earn more, to send children to school, to buy household appliances, to save time, to do the things one wants to do (other than taking a siesta)...

I may be naïve but much of the recession scare is exacerbated by media hype.
One, for example, would immediately connect the Wall Street mayhem to the drop of copra prices in these islands. The drop in copra prices has resulted to cheapened labor as most farm workers get paid in percentage share. So, labor in the rural area is as low as two dollars a day. One need not go to the uplands ( where they are better off because they have subsistence farming) because in our malls, the wage is not enough for roof and board. Needless, to say, many wage earners in malls are women as sales ladies who have to stand the whole day.

What to do in these times? The intuitive answer is to go back to basic production : plant more, produce more ( including producing more new voices from social movements, peoples organizations, organizations with corporate social responsibilities etc. ) Those who can should invest and continue to buy and sell to cushion the slowing down of markets. Development outcomes and social goals have been articulated in many documents such as the Millennium Development Goals and must go hand in hand with good governance and democratic politics. These are big words. So, let me be vernacular about some of my observations of life in these islands. In my island city, there is no decent transportation from the poblacion to the barangays. Transportation is through motorcycles, which according to the Land Transportation Office (LTO), do not conform to the standard specification of a public utility. But, the LTO cannot regulate, accordingly, because the franchising of these motorbikes has been devolved to the local governments. This hazardous transport can also be found not only in Davao City and Samal Island but also in other third world cities like Bangkok. For me, roads and transportations are women’s issues because these are used by all including children and mothers. And, there is something amiss, if only the driver of a motorbike will wear helmets. As we say, if the roads and transport systems are not safe for women and children, then they are not safe at all. One development expert is suggesting that we urge the World Bank to finance gas-powered vehicles to keep our island garden city pristine! Mumbai has very old taxicabs but because they use compact neutral gas (CNG), there is no pollution! Or maybe use electric powered pedicabs? (at least 3 wheeled).

Each of us has a stake in the survival and future of our city. The recession will result in movement of capital from expensive land and labor to cheap land and labor. So, our islands will continue to be the haven of call centers and business processing outsource entities ( BPO ) and retirement communities for expatriates. To the extent that all these will provide jobs are commendable but relocation or displacement and destruction of the environment are potential complications. We have seen how mangroves have been denuded to give way to these kind of development aggression. While sea resorts bring in the almighty dollar, access by the poor to the sea must not be impaired. This is not to say that we should be xenophobic to foreign visitors and residents as we also deploy about 10% of our mature population to almost two hundred countries in the world.