ReInventing Philippines Inc.,

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.

Competition is stressful.  Can you imagine a business or an individual having to prove himself again and again?

The United States economy is the richest, and stressful economy because it fosters competition.  Many people complain about it but there is no other way.  Oh there is.  There is always the short cut way of asking government to choose sides, and choose the winner. Indeed, this is playing out in all areas of the world.  But everytime the winner wins because of government regulation rather than free competition, we all lose. We end up with products that are more costly, or less than the best.

Every week, four hundred thousand Americans lose their jobs, and another 600,000 change or leave their jobs voluntarily.  ON the other hand, about a million or so  find new jobs. How stressed is that?

This is the 21^st century malady. Competition brings out the best in us.  Unfortunately in an effort to get winners, there will be losers. Can you imagine if the Olympics, or the American idol  ( or the Philippine elections for that matter) was rigged, and not the best wins?  Would you still be interested to watch it?

We have to welcome change, and maybe what separates the winner is the willingness to change, and to accept change.

In a recent survey of executives from the United states and Europe, businessmen were asked: “ What is the opposite of change?  The Americans mostly answer: stagnation.  The European answer: stability.

What’s your take?  I guess our ability to change, and to continue to compete will determine how high we will be able to go.

Most government officials envy business people. They think that the entrepreneur earns a lot of money, and it is only right that the government gets its pound of flesh as contribution, a very small part of what the entrepreneur makes.

The reality is that business is not that easy. The failure rate of new businesses within the first five years varies from around 40 to 80 percent.  In most areas, competition is now so fierce, that a business that pays back the investment within 4 to 5 years is already considered a gem of a find.  A business may only have superior returns if it has already established a reputation, or it has a sort of monopolistic market share or brand name.

I am not kidding that it seems that every year I run the business, I seem to issue a bigger amount going to various government agencies than what I see growing in my money account. Let us take a dive.

Assume that an entrepreneur invests 50 million pesos to set up a facility in a locality.  Let us say that the business generates sales of 70 million and earns 5 million pesos every year.

Of this, let us say that the various business taxes, income tax, permits, real property assessments, doc stamps, VAT , regulatory fees, and others total to 2 million. That means the entrepreneur makes a net of 3 million and 2 million goes to the government.

However, let us say that the business also hires 100 people, the average of which gets P10,000 per month or P130,000 per year. That is 13 million pesos per year in payroll.

For a person earning P130,000 annually and is single, he can be assessed close to P10,000 in income taxes, as well as P15,000 annually in Social security, Philhealth, and Pag-ibig contributions.  That is P25,000 per person or 2.5 million for 100 workers annually.

So in short, the government benefits yearly in the tune of P2 million in company taxes, plus another P2.5 million in taxes of personnel and payroll taxes, plus a potential of over 50 million in local purchases of the firm, it can be safely said that the government is as much a beneficiary of the business than its investors.

When I was studying for my MBA in the City University of Hong Kong, my professor gave me a statement that seemed like an Eureka moment.   Many of the university professors acted as advisers to many government units in China, and he shared with me an insight.

He said, “ we used to advise China that it would be a great benefit to China to attract foreign businesses to set up shop in China to export and earn dollars.  Now we are revising our thinking.  We think that any foreign business that set up shop in China, whether to sell locally or for export will benefit China”.

After all, what country has been found to grow poorer because too many businesses, foreign and local, set up shop there?  The more businesses and competition, the more the consumer benefits, and for the government, the more taxes.

What is the distinction between a Filipino and a foreign company?  It used to be that we don’t like foreign companies because they will send back the money that they earned, thus effectively denying us the impact of their profits while the local is supposedly here to stick with the community through thick and thin.  But now any company, can send money around the world, and can effectively salt profits abroad.

What matters is businesses provide jobs, introduce technology and expertise, treat workers decently, practice green, and pay taxes.  As Deng Xiao Ping, former premier of China said famously, “ Don’t care whether the cat is black or white, as long as it catches mice.”

And look at our airlines, our telecom companies, our retail, and hotel industries today.  Are we not all better off because more are here?  Competition brings out the best in us, and the efficiency and better products, especially the lower prices benefits all.

Regulate if we must.  Deny if you need to.  But the default should be – the more the better!