Tuesday, April 24, 2007

State vs market continues with Kerala Experience

Placeholder has brought up the “Kerala experience” in that Indian state with a population a third of the Philippines that has attained a high degree of human development such as 94 percent literacy and high life expectancy while compromising economic progress.

Juxtaposing the Kerala phenomenon with the Philippine dilemma, Placeholder writes thus:
There is also the very real possibility that our present deadbeat Philippine elite won't be up to the historic task unlike their counterparts in East Asia and India. We may have to bide our time while we let the process of replacing the current elite with a more functional one (from the ranks of the poor and middle class) take place. In the meantime, the welfare of the rest has to be looked after.
So, why not emulate Kerala, he then posits.

If the goal of the good society, to borrow Noam Chomsky’s paraphrase of Bertrand Russell and John Dewey, is to “produce free human beings whose values were not accumulation and domination but rather free association on terms of equality and sharing and cooperation, participating on equal terms to achieve common goals which were democratically conceived” then the Kerala experiment could be a close approximation. But without such unique experience being integrated into the dominant economic order would it be sustainable?

As explained by Nobel Prize economist Amartya Sen, “the concept of cutting yourself out from the world of advanced technology, increasing productivity, and the opportunities that globalisation offers to the world will be a retrograde step.”

Where the Kerala educational and literacy expansion appears to be faltering as pointed out by Sen is “when it comes to developing higher educational potentials in tune with the opportunities offered by its wider network of school education” as well as “when compared to other States, in making the content of education suit the demands of the contemporary age, including in providing a focus on the technical facilities related to the rapidly expanding information economy in the world.”

So after a successful capacity expansion, Kerala, I believe, must take the next sequence - which is opportunity expansion. This is where Kerala, Inc. as in my proposed Philippine, Inc., must be pursued. Without opportunity expansion, the human capital they have produced, just as Philippines’ best and brightest, will emigrate to where there are opportunities.

Fortunately for Kerala, having moved forward already to genuine pluralism and democratic consensus, it is far ahead of the Philippines. The remaining challenge for Kerala it seems is how to transform its decentralized and consensual bureaucracy into “collective entrepreneurship,” which is here also deemed as the marriage of the state concept and the market construct, to compete in the world market. On the other hand, national governments of developing economies must be given enough maneuvering room by the forces of globalization (and therefore must not be hamstrung by Washington Consensus’ structural adjustments and rules of good behavior) to deliver the programs for those they are supposed to serve in the first place, and in order to thrive in the global economy.

(Entrepreneurship in this regard is considered as a social function, a network of conjoint relationships and accumulated knowledge of the community that hosts the individual entrepreneurs; hence, the government, or the bureaucracy in particular, is in a better position to take the initiative. The “entrepreneur” becomes thus as close as Harold Laswell’s political animal deciding “who gets what, when and how”.)

I agree with Placeholder that in the Philippines the deeper problem remains the perpetuation of the lackadaisical and rent preserving economic elites whose core constituencies are the traditional politicians (the trapos), and the “let’s move on” middle class who are themselves conserving their rents in a society of limited opportunities against those occupying the lower rung.

There are indeed no easy paths to growth with equity but the sooner this is discerned, especially by the reformist constituency of the middle class and heterodox politicians, the less are the chances of being entrapped in a pitfall of passing fancy.


Blogger cvj said...

Abe, thanks for your analysis and feedback. You're right to point out the phenomenon of labor emigration (in the absence of employment opportunities from local industry) which is also happening in Kerala as UPn Student pointed out in his comment over at mlq3's. Fortunately for Kerala, the other Indian States have had more success in following the path to industrialization described by Amsden, so they do not have to start from scratch.

April 24, 2007 12:12 PM  
Blogger DJB Rizalist said...

Abe, I don't think there is anything fundamentally wrong with our economic rent-seeking and rent-preserving elites. Ayala Corp., for example, and the family that runs it, is a modern, progressive, tax-paying entity that could easily be a magnificent engine for growth and development. Shoemart and the other taipans are already conquering parts of China! As for the hacendero/warlord class in the countrysides, who are the only truly "lackadaisical" ones, they would easily be swept away in the rising tide of general prosperity and capitalist growth.

What I think really is holding the country back are the POLITICAL rent-seeking elites in the form of the permanent protest culture habitues in media, academe and among the professional demonstrator classes and of course in the twin insurgencies, communist and separatist that exact their own taxes on both the present and the future.

Imagine a Philippines without these and I think the elites and the masses would easily get together to make a great country.

We are easily the equivalent of 500 Hawaiis, so that in tourism alone these political rent seekers have probably deprived the Philippines of its rightful place as Paradise on earth. (Not a workers paradise but a paradise compared to the hell we've made.)

Class struggle is essentially a good thing, unless it becomes some small groups' private enterprise and livelihood project.

April 25, 2007 8:29 AM  
Blogger cvj said...

"Ayala Corp., for example, and the family that runs it, is a modern, progressive, tax-paying entity that could easily be a magnificent engine for growth and development. - djb rizalist"

If they diversify beyond their core business of collecting rents in Makati, hopefully yes.

"Shoemart and the other taipans are already conquering parts of China! - djb rizalist"

I also hope they also diversify beyond collecting rents from their malls and into productive industry.

"As for the hacendero/warlord class in the countrysides, who are the only truly "lackadaisical" ones, they would easily be swept away in the rising tide of general prosperity and capitalist growth. - djb rizalist"

The history of our neighbors has shown that they can only be 'swept away' by land reform which is at the beginning (not at the end) of the development process.

The rest of your piece simply (and wrongly) puts the blame on the messengers.

April 25, 2007 9:23 AM  
Anonymous UpN said...

cvj and Abe... should should decry EXTORTION by the NPA robin-hoods of the Philippines and be less snobbish towards the business of building malls/office-towers buildings and collecting rent.

The office-towers and malls empower -- they do not extort, they empower. Just look at it from this angle. Would a bookstore owner or an empanada-seller be willing to locate their operations inside a Shoemart if they do not make money from this action?

April 25, 2007 12:50 PM  
Blogger cvj said...

UPn, i don't know why you are confusing our proposals for economic development and social equity with condoning the NPA's activities. I expect that from DJB with his neocon blinders, but you should know better than that. As for the Ayala's and the Sy's, i have yet to see a country that powered its way to development via Shopping Malls. At least they're a few notches above the hacenderos, but they are a far cry from their Korean, Taiwanese and Mainland counterparts in terms of deploying capital for industry.

April 25, 2007 2:09 PM  
Blogger Abe N. Margallo said...

DJB, Upn,

In addition to the cogency of cvj's arguments, I believe that in an earlier entry, “Tapping the leadership of the economic elites,” I have already covered your concerns in the following manner:

Given the mediocrity of the Filipino political class, I’m actually looking, at this critical crossroad of our nation, for leadership from the economic elites, somewhere at the level of such ingenious American railroad men and financiers as Jay Gould, Edward Henry Harriman and J. P. Morgan whose shrewdness as well as sense of public responsibilities of wealth helped make America a global power. And greed notwithstanding, these American economic leaders, much like the Japanese zaibatsu, and later, the keiretsu (e.g., Mitsubishi, Sumitumo and Sanwa) and the Korean families who created the famous chaebols, have turned their nations around and triggered the second industrial revolution in America, the economic miracle in Japan or the founding of modern Korea in South Korea; these empire builders considered themselves first and foremost as Americans, Japanese or Koreans, something that should be compared to the hyphenated identities of the Philippine economic elites. xxx

There could arguably be no surer formula for a nation’s development than better education for the citizens, pursuit of technical know-how and bankable institutions. But I’d digress from the expediency of liberalization if only to point out that most successful economies in the world have not been market fundamentalists when they started out. They began as developmental state with strong government involvement. It is therefore not fair to prescribe the strict discipline of the market and liberalization mantra to developing countries and taking those prescriptions like bitter pills before becoming competitive. This is how I look at Senator Mar Roxas’ alternative leadership potentials in my previous piece: he seems willing to challenge the prevailing economic orthodoxy when he threatened to opt out of WTO whereas President Arroyo, supposedly the economist, is willing to swallow hook, line and sinker the Washington Consensus of tight fiscal restraint, liberalization, privatization, and turboglobalization.

What I believe . . .will lift the Philippines from its present state of laggardness is not Charter change or the Pauline conversion of the trapos but: 1) vigorous entrepreneurship on the part of the economic elites; 2) high-level capital investments by the same wealth holders; 3) a well-educated workforce whose skills are up to par to the requirements of modern business; and 4) continuing acquisition and promotion of technical know-how and zeal for innovativeness and creativity to sustain competitiveness.

I’m not passing over the liberalization route but for the contention that the attainment of competitiveness must come first, instead of the cart being put in front of the horse. I have once called this proposition as affirmative action at the level of nations, which means that struggling but willing economies must be given a decent chance to build and accumulate before being let loose to the vagaries of competition. xxx

Whenever I raise concern about the lackadaisical performance of the economic elites or their inability to produce the right goods the right way doing the best with what the Filipinos have, I am addressing my concerns to the relative deprivation of the Filipino middle class and hopefully allowing them to appreciate that no matter how the trapos change the constitution, if the economic elites are not creating wealth, they (the middling Filipinos) will someday find themselves opting out of the social contract, their sense of country notwithstanding, or ultimately leading the masa to try to transform the existing order.

April 25, 2007 6:06 PM  
Anonymous UpN said...

Abe and cvj... Building malls and office-towers is not "rent-seeking".
Rent-Seeking : When a company, organization or individual uses their resources to obtain an economic gain from others without reciprocating any benefits back to society through wealth creation.
An example of rent-seeking is when a company lobbies the government for loan subsidies, grants or tariff protection. These activities don't create any benefit for society, they just redistribute resources from the taxpayers to the special-interest group.
[Investopedia commentary]

April 26, 2007 8:33 AM  
Anonymous upn said...

To rail against rent-seeking is valid and well-worth the effort. But dang... there will be a failure to communicate when you don't have the definitions right!!!

April 26, 2007 8:40 AM  
Anonymous upn said...

Abe and cvj... I have arrived at the conclusion that the following sentence from Abe leads to nowhere : " ultimately leading the masa to try to transform the existing order." This threat is shallow; my sentiment is that the romanticism with EDSA/PeoplePower is a dead duck whose time has long gone.
There are 3 reasons for my sentence : (1) Tianamen square; (2) EDSA-dos; (3) fool me once, shame on me; fool me again??? No way.

Tianamen square has shown the holders-of-power how to stop a mass-protest. Power against a march works. EDSA-dos has proven to the populatin (and serve as reminder to the holders-of-power) (and the masa) that an EDSA-marchh can be orchestrated by a small group. This "manipulation-in-the-background" lends the holders-of-power to threaten a Tianamen (the threat usually enough to stop the EDSA-version-8; and of course, capitulation to an EDSA-orchestrated-by-a-minority is nonsense when a Tianamen-style response is available) with reasoning that "..the marchers do not represent the will of the entire population".
Equally important are the memories of the population (on how their lives have improved with EDSA-version-this or version that). Because EDSA-versions have not done any better than adhering to law and the constitutional processes, and because constitutional processes are more rational and peaceful, the Filipinos know now to do a shade more than ranting and waving and getting fired up into a march; to look for hidden agendas; and to acknowledge that the Philippine setting has NOT been supportive of radical disruptions to political processes.
The battle-cry should be "... I'll see you at the ballot polls"!!!

April 26, 2007 10:37 AM  
Blogger cvj said...

UPn, "When a company, organization or individual uses their resources to obtain an economic gain from others without reciprocating any benefits back to society through wealth creation." aptly describes the political and landed members of the elite who seek to dilute or repeal the land reform law.

You have to redirect your clarification to DJB who misclassified the Ayala's and the Sy's as 'rent-seeking'. (While you're at it, you might as well correct him on his misuse of the term 'political rent-seeking').

Your argument concerning People Power may be correct or incorrect to varying degrees, but what makes you assume that the masa will be content to limit its efforts to People Power as the means to transform the existing order?

April 26, 2007 11:29 AM  
Anonymous Upn said...

cvj... the different ways I can identify to transform an existing order include:
-- constitutional -- orderly in process and timing-- via ballot box;
-- coups like EDSA1, EDSA2;
-- coups like Castro ousting Batista;
-- civil war;
-- outsiders like Bush in Iraq or Japan invading Korea;
-- outsiders partitioning a country as in the creation of Bangladesh;

April 26, 2007 3:42 PM  
Anonymous Upn said...

I missed:
-- constitutional -- orderly in process, disorderly in timing -- impeachment;
-- extraordinary outside events in the magnitude of a World War;

April 26, 2007 4:48 PM  
Blogger Abe N. Margallo said...


Not being a trained economist, I’ve used “rent seeking” not so much in the concept that Gordon Tullock or J Patrick Gunning may have used the term (or in the way you have defined it which is not incorrect) as only in the classical meaning of “buying low and selling high” or where financeers by creating scarcities or speculating, realize windfall gains at the expense of the larger community. In that sense, I am distinguishing rent-seeking merely from the risk-taking by vigorous entrepreneurs in productive investments.

Note that following the Oakwood mutiny in July 2003, Jose Isidro Camacho, then Finance Secretary, charged banks of “profiteering” by taking advantage of persistent coup rumors forcing domestic interest rates to go up and leaving the Bureau of Treasury with no recourse but to reject outright all bids on treasury bills auctioned by the Philippine government and warn banks that the government could afford to continue rejecting their bids if the market insists on making unreasonable bids. Complaining about how these banks were undermining the supposed improvements in the country’s economic fundamentals, Camacho said: “We are constantly dealing with complaints and criticisms that the government is not doing its job and yet look who is taking advantage of the situation.”

On the other hand, I have also used rents in the foregoing entry as something more in accord with the meaning of vested interest, that is, a special interest in protecting or supporting something (as in the maintenance of the status quo) for the purpose of self-gain. Some in the middling class may then align themselves (or conspire silently) with the elites lest their own rents in existing opportunities may be gobbled up by the masa.

Also, when I’ve mentioned about the “relative deprivation” of the Filipino middle class, I was alluding to Tocqueville’s reference to a social change that might take place not when a group of people (like the middle class) are oppressed to a point but when they (or the reformist constituency of the middle class) continue too see other group of people (the underprivileged) being forever oppressed to a breaking point.

Needless to state, the principle of the “last say” and right of revolution underlie the Philippine Constitution. But what is important to remember is that the line was not crossed during the two EDSA uprisings and the Filipinos having proved that ultimate power belongs to them, have also shown their strong commitment to peaceful transformation by giving the elites more opportunities to do something about the dilemma the nation is in. After the first EDSA, that power permanently hangs there as a sword of Damocles.

April 27, 2007 12:00 AM  
Anonymous Upn said...

Abe.. Camacho was obfuscating (he fooled any and all who believed him) when he said that banks were "..taking advantage of the situation" when the banks asked for a higher interest rate during periods of coup rumors.
It is no different than you getting a bit extra if you were to be assigned for 6 months to work in Afghanistan --- combat pay premium. MONEY wants a pay premium for higher risk.
And speculating is not a dirty word. Speculating is that thing that allows a farmer to sell now what he will harvest a year from now (so he can buy the fertilizer that he today needs for the harvest he will harvest a year from now). [Now because speculating is not well-received by the media writers, finance uses the word "hedging".]

April 27, 2007 10:37 AM  
Anonymous Upn said...

I am beginning to see more and more a source of your distaste for the world of business.

April 27, 2007 10:38 AM  
Blogger Abe N. Margallo said...

Hedging could be bad business (or bad for business), NBC News anchor Brian Williams suggests at last night's Democratic presidential debate. Please check my new entry here.

April 28, 2007 12:07 AM  
Anonymous Upn said...

That's what Mahathir said --- you're a bad bad man --- to hedger/speculator George Soros.

April 28, 2007 9:36 AM  

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