ReInventing Philippines Inc.,

Its not often that I get to be close to presidents, therefore being part of the Japan Business Delegation last September was a chance to observe and form impressions on our government leaders, and  the presidents administration.
President Aquino went on a business visit to Japan, and he brought along with him a handful of his cabinet secretaries – Secretary Domingo of DTI, Secretary Purisima of finance, Secretary Almendras of Energy, Secretary Romulo of Foreign Affairs,   Secretary Roxas of Transportation and Communication, BSP Governor Tetangco, PEZA Director General Lilia de Lima and others.  Along with him were also approximately 140 business people – including many of the top Business leaders,  like Enrique Razon, Teresita Sy Coson,  Alfred Ty, Fernando Ayala de Zobel, Ramon Ang, Tony Tan Caktiong, Andrew Tan,  Tony Cojuangco,  etc.  From Cebu, there was Justin Uy, Victor Chiongbian,  Antonio Moraza, Erramon and Jon Ramon Aboitiz, etc.

Hearing him makes me recall a tech icon –  Steve Jobs of Apple.  Steve Jobs is obsessed with just one thing – to create the most awesome product that is different yet simple.  Of course, if you are a business person – you know that creating great products is just part of the equation.  You also have to consider market research, price, production, the bottom line, your stock price,  and also hiring right.  But Jobs is just focused on one – creating an awesome product. It is as if you get the product right, and people are awed, the rest – profitability, market share, customer loyalty will just follow.

So far, the president has put in his stake on this – he is making a big bet to put more money to conditional cash transfers to eliminate poverty.  He has also delayed vital government projects to make sure that there is no corrupt deals.  This has been costly- by delaying government expenditures which was more than 20 percent lower than equivalent period last year, it has probably slowed GDP growth by a full point or so, and was one of the culprits in the  2011first half’s less than impressive 4.8% growth.

I am not so sure if corruption is such a big factor that it was really the single cause of our being a basket case, and thus be such an obsessive issue, but we hope for the sake of the country that he could be right – that it is so compelling that getting this one thing right could get other things in tow, and could finally propel us to where we want to be.  There seems to be no question that he will spend  his next five years on fighting corruption, and we hope that for all our sake that “Kung walang corrupt, walang mahirap” is really on the spot. Just a single magnificent obsession just might do what thousands of smart men failed to do.

If you are a single parent with small children whose kids may need to spend a few hours with the other parent, or a parent who brings children to stay with their grandparents for a couple of hours, you will understand what I mean…. The kids come back stuffed with chocolate, chips ,ice cream, and toys.

You understand that the long term cost of doing such is that the children becomes fat, unhealthy, undisciplined, and refuses to eat wholesome food.  Their teeth will rot, and their education ignored. Worse, you know you cannot push them too hard to work or study ( things that are good for them) , because they will tell ‘ lolo’ about it, the lolo who seem to have endless supplies of candies and soda, and who never says its bad for you.   In the eyes of the child, he is his knight on shining armor.

Such can be your dilemma in managing corporations and being a leader.  There are interim leaders who don’t subscribe to long term thinking, but in short term popularity.  I feel the tragedy of Philippines politics as it was developed, together with our culture, has spawned a lot of leaders that are like the well meaning grandparents –  They don’t do much when there is work to do ( but you like them, because they don’t ask much from you either, unlike your parents!) , but do come by occasionally to show that they care by donating to fiestas, giving a small stipend if somebody dies in the family, shakes your hands,  and brings in your favorite stars during elections. And predictably, they continue to get our votes.

Evidently, the grandparents know what they are doing may not be good for the children, but they are with them only for a few hours.  And doing what they do – and seeing the delighted smiles, grateful kisses, and compliant silence of the kids is more than enough rewards for them.  For politicians, it is enough to get your vote.  Unfortunately, it is also more than enough to screw up a kids thinking as well.

The Philippines situation can be partly caused by well intentioned politicians who act like so.  And you cannot blame them. We know people are suffering, and yet unlike other countries, we are conditioned not to push them too hard.  We are asked to help in little ways.  Knowing we cannot help street children have a decent education or a regular nutritious meal, we do our good deeds by visiting them once every Christmas and giving them a school bag, and a party – ice cream, fried chicken, and candies, as our way of showing we care.

We tell them to study hard, but they know it really does not matter.  The earliest they will see you again is probably next Christmas, or in the case of politicians, next elections.  But once in a while, in their mind, is better than nothing.

We businessmen are as guilty as politicians doing this. Very few actually ask their constituents to sacrifice, or work hard or do something for our country other than the slap in the wrist ‘vote wisely’ or euphemistically, ‘vote me’.   It is easy to do something for your country – just vote for me during elections! They make you believe that they can do something about your situation without you having to ‘grow’ up or ‘shape’ up, and we all play our parts most convincingly.

Other countries in Asia grow because the leaders are stern enough to ask their citizens to work hard and ‘sacrifice’ for the prosperity of tomorrow.  But we know no leader can do that and win elections in the Philippines.

Pork barrel is legislation that lavishes money on small projects, most of them of which can be considered not really an investment for the future. It is similar to candies or something the lolo gives.  Not nutrition, just dessert.

Lolo never asked the kids to ‘grow’ up.  They are happy if they will be children forever.  They know the kids will stop idolizing or visiting once they grow up. Our politicians also wished the same, because as long as they are children, you only need candies and toys to get them smiling.  And we all go to hell together happily in a road paved with good ‘intentions’ for each other.

The Philippines is currently behind in business investments, and infrastructure, as well as manufacturing, and what is giving the economy impetus is the Business Process Outsourcing industry which as of 2009, contributed over $7 billion in foreign exchange as well as employing over 450,000 employees. The other support is the Overseas foreign workers which over 10 million of them officially sent over $18 billion in foreign remittances in 2009, though unofficially, it is believed to be well over $20 billion.

The pillar of the economy is undoubtedly on the quality of the manpower the country has produced, and the ability of the economy to grow will continue to be mainly anchored on the employability and competitiveness of its people.

Every resource should therefore be focused on continuing to equip the populace to get better education. The Philippines is quite behind in this – According to the United Nations Human development Index, the Philippines spent 3.1% of GDP for education in 2009 and this percentage was the 104th highest among the countries. This is in contrast to Malaysia which spent 8.1%, Thailand 5.2%, and India 4.1%.

However, there is more than meets the eye. Not only is the percentage lower, but mere comparison misses out the fact that though most countries spends 4 to 6% of GDP on education, their demographics reveal that the percentage of population below 15 years old ( the school age) is roughly at 20%, while for the Philippines, it is nearer 35%.

Thus, by most counts, the Philippines is not only underspending by over half, it also has to contend that it has to spread this to almost twice the number of children, and therefore by simple math, we are probably spending way less than what most countries are spending on this aspect.

Statistically, while there are over 44,000 public elementary schools in the country with over 20 million children, it is also glaring that over half of these schools do not even have a single computer.

However, the other glaring omission is not only that the quality could be improved but the quantity is also wanting.

One of the things that I believed contributed to the underachievement of the Philippines is the fact that the Philippines is one of only two or three countries that have a 10 year primary education, while most countries have twelve. After the country gained independence, a law was passed which mandates only 6 years of elementary education and 4 years high school education. Apparently, at that time, the intention was laudable – having children graduate earlier meant that they could go to work earlier, and be less of a burden to their family. But in today’s age, where education and competence is the prime ticket to success and better living, the Philippines is really hard put to compete with our citizens having 2 years less education.

The recent Bologna accord which establishes the standards for European education and recognition of each others degrees, and the Washington Accords which establishes the standards for American education explicitly mandates 12 years. It is said that if the Philippines does not rectify its system, it will risk having its graduates of universities not recognized by the other countries.

It is a change we need to make, and it will be painful. We took it easy for so many years, and had a shortcut, but apparently, this party, like others, have to last. The adjustment is necessary for us to be competitive and acceptable to all countries, as well as more important in growing our economy.

One of the heritage that we received from Spain was religion.  If you are a reader of history, Spain used religion as a tool to subdue and control the Philippines and the Filipinos.  Jose Rizal noted how cleverly the friars was able to induce the natives to submission by constantly telling them that they were all sinners, and they were nobodies, and that the way to heaven was not to do good deeds or follow your own understanding, but to seek forgiveness as only the Church can grant.  Curiously, a hundred years after we gained independence of Spain, and in spite of the legions of great teachings Christianity can offer, the message above is still one of the main themes you can hear in many homilies.  And sadly, the average Filipino not only hears this message from the priest, but also hears this from his public officials.  This is in contrast to the theme that Protestant ethic helped build the prosperity of the United States by stressing that the way to look good to the Lord is to work hard, and be an honest law abiding citizen.

I would reckon a few hundred years of repetition has deliver that strongly, and unfortunately the way our society has developed, it has indeed reinforced to the average Juan that it is true.  He looks around, and indeed they see that in our society, most of the people that have progressed are those with the right compadre,  or sponsor.

If you witness the great hoopla and importance we place on elections, you will note so many people so zealously trying to look for saviors, which many of the candidates are also too willing to be the pretenders.  In more progressive countries, elections are less of an event.  People know that officials are just human, and most things will be alright irregardless of who sits in power, as long as they are vigilant, and keeps them honest, and not to do something too stupid.

The most popular show here is Wowowee, where the contestants take turn telling their tales of woe, in the hope of attracting donations or charity. Every politician will tell you that almost on a daily basis, he receives legions of requests for help and doleouts.

Unfortunately, the people making the promises are not only too human, but clearly unable to fulfill such, and moreover have really a different selfish agenda in mind.  The last 50 years of the Philippines plays like a refrain that never goes away-  leaders and institutions failing the trust.

That is not only in the Philippines. Across the world, almost every major credible person or institution have also not come up to expectations – be it General Motors, Wall Street, Goldman Sachs, the Catholic Church, Tiger Woods, Bill Clinton, the European Union, Toyota,  or even Obama.

The Filipinos should be told to trust themselves, and rely on their own efforts to better themselves. IN many Asian countries, leaders connect with followers, and tell them to work hard and sacrifice.  In here, because of such culture of dependency, the leaders who ask for sacrifice typically don’t get reelected, and therefore the most the potential candidate will be able to do is to pretend they have solutions, and get the vote.

I read a story about the Chinese farmer, and the proverbs that they spawned over the centuries, “ No food without blood and sweat.”, “ Don’t depend on heaven for food, but on your own two hands carrying the load.”, and “ If a man works hard, the land will not be lazy”.

Or specially the last one, “ No one who can rise before dawn three hundred sixty days a year fails to make his family rich.”

I am afraid of human saviors because we have not seen any the last 50 years here, and the most promising ones have invariably been the most disappointment.  Moreover, if you look at 20^th century history, the biggest damage have been by purported very popular saviors – Hitler, Stalin, Mao, Kim Il Sung, Pol Pot , etc.

Let us stop waiting for  a savior, but rely on ourselves.  The future of the Philippines is not on any one person, but in all of us.

A report by the Business Software Alliance (BSA) in a study in the Philippines reported that software companies lost US $202 million in 2008 and US 147 million in 2007 due to piracy.

In the 21st century economy where wealth and market value of companies is defined in terms of intellectual property and human capital owned, the protection of intellectual property and patents like in drugs, software, film, engineering inventions, design, and music has been touted as a very important factor in enabling companies and individuals to encourage them to invest in new research and innovations, and critical for countries to improve their standard of living and income.

“Who would want to write a book, compose a song, create film, and develop software if anybody can just copy the without paying licenses or royalties?”  and indeed, I agree.  The person who made the investments in innovation and creation need to be properly compensated.

However, we can relate this question to another perpetual question on why the Philippines is poor – and I believe it is because its intellectual property rights has not been protected, and has been stolen in the billions, and ironically, we are happy and proud about it.

Consider this. Between 1980 and 2010 (today), the Philippines increased its population by over 50 million by producing and raising over 60 million babies ( over 10 million people died during this period).  In the last 3 decades, we just had too many people, and the bulk of everybody’s income, and the government’s budget has simply been going to feed and educate and provide the basic needs of these people such that we have none leftover to invest in infrastructure and other endeavors, as well as so called finer things in life.

Now consider that over 10 million of our people have moved overseas to find work or to look for greener pastures because we could not provide them decent jobs or the standard of living that they deserved.

The typical person who moves out is age 25, above average education, with above average abilities.  Now, let us do a little bit of math.

Most of these countries are gaining these bonanza – they get certified nurses, professionals, programmers, welders, therapists,  without having to pay for the cost of raising or educating them on their first 25 years.  The moment that they land, they start contributing to the economy with ready skills – and of course, the Philippines receive nothing in compensation, and is happy with the remittances that they sent, and perpetually crows about the billions we receive each year.

Let’s say that on average, each of this person are earning USD24,000 a year in their country of choice.  He probably pays about USD4,000 in taxes benefitting his host country, and he probably spends the other USD 19,000 helping that country’s economy either by paying for rent, gas, food, and the like.  He saves about USD 2,000 which he sends back to support some of his relatives behind. ( which should be about it – if our overseas workers are sending approximately 18 billion dollars back home, and there are 10 million of them, then it stands to reason that each sends an average of close to USD2,000 per year).

However, think that they don’t pay taxes to the Philippines government, so that is our taxes lost.  And think that mostly, OFWs send the most money during their first few years of overseas work.  This is the time when their siblings or children need to finish education, and therefore needs the money.  But after a few years, they will stop when their siblings can fend on their own, their parents have passed away, or they have been able to earn enough to get them to move overseas with them.

If the Philippines move forward, and improve our standard of living, and income, and have better quality of life, some of them will come back, and that will be our gain.  But the longer we delay our own development, the more people we will lose to the foreign country forever.

How much did Philippines Inc., invest in raising the over 10 million people abroad?  For 25 years, just consider that it is USD1,000 a year.  That would be an investment of USD25,000 per person till he is 25, and if you are looking at 10 million OFWs, then that is a USD250 billion investment.  In business parlance, you make an investment to lose money on their first 25 years, so that they will pay back on their next 35 years – which should be the peak of their working and earning power.  Did we get paid for doing this by the foreign governments who are absorbing our people?  None, nada, and we even thank them for it.

In the businesss world, the fastest growing and most profitable companies gain their edge by their ability to attract and retain talent and human capital which forms part of their intellectual property.  Ditto for countries.  It is no secret that many countries like Singapore, Hong Kong, United States, Australia, Canada and others have made it their policy to continue to be competitive by being able to draw the best immigrants from developing countries.  The United States, for instance, benefits a lot because most students who go there for advanced studies gets offered to stay, and ends up working for America Inc., And yet, we are making a policy to send out our own best people out!

Let us try to do the math another way. Let us supposed that these 10 million have chosen to stay in the Philippines because we have the environment to attract investments which gives jobs.  Not as good paying as overseas, but many would choose to stay if the difference is not as yawning big as it is now.  And we can probably save millions of families from being broken up.  Again, most of these would probably be our top quartile in terms of talent and abilities.  Let us say that they end up earning USD 5,000 per year.  Multiply that by 10 million, and assuming each pays 20% of their salary in taxes.

That’s 50 billion dollars in additional national income  per year, and that’s an additional 40 billion dollars that is most likely spent here for food, education and the like.  And that’s 10 billion of income taxes to the government, SSS, and Philhealth contributions, and another 6 billion in Value added taxes because the whole amount was spent here.

It is not only more, but is more likely to grow every year, unlike the remittances which if we stop sending OFWs abroad could well be diminishing.

Let us provide investment opportunities so that the people who need jobs can get it here.  And that will enable us to benefit from our intellectual property and human capital.  The nurses will take care of our people, and the entrepreneurs will create businesses that will hire our people as well.  There is no future for this country if year in and year out, we lose our best people.